As I indicated in Episode 137 after attending the 2017 Self Storage Economic Summit, I think self storage rental increases are going to slow down dramatically.

As an industry, we have been enjoying steady rental increases over the past few years. Some of our facilities have averaged close to 6% per year since 2010.

Due to the amount of new product entering the market and some of the aggressive lease-up strategies by some of the larger players, this rent level growth is most likely going to stop.

So as you begin to position yourself for next year, and/or are analyzing projects to put into service in 2018, how can we continue to grow income, but not have to depend on rental increases as much?

The reality is that most self storage owners focus on two primary places to get income growth. They are either focused on rental rate increases and operating expense decreases.

Yes, it is very good to keep your eyes on both of these and I have many Episodes devoted to them.

But backing up a few steps, and looking more at classical business fundamentals, there are generally three primary ways business can use for growth and scaling.

• Increasing the number of customers.
• Increasing the average transaction.
• Increasing frequencies of purchases.

As we face an immediate future of less rental rate growth, how can we generate income growth without relying on raising the prices we are charging for our units?

I am going to assume that you know exactly where you are in relation to the rest of your submarket.  And that you are at the top of where you can given your facilities position in the market.

If you are not at the top of what you can charge that is your first step in the upcoming year.

There are tools and software programs out there now that can show you exactly where you are in relation to your market. The software can show you which of your units are too expensive, which are below the market, and the unit pricing you can be charging.

If you are not watching this like a hawk, that should be your first step.

But let’s assume you are.

How can we cause income growth answering the above three items?

Let’s take a look and I will share where we are focusing.

Increasing the number of customers

If you are at 95% or so, like we are in a many of our facilities, perhaps there is not a lot of room for growth here without an expansion.

Here is what I predict. Your occupancy rates over the next few years are going to go down. How much will be a factor of two things:

• How much new self storage is coming online in your submarket; and
• How aggressive the companies are that are bring on that new self storage.

We have some submarkets where the amount of self storage has doubled in the last 12 months.  REITS with the new square feet of self storage are offering the first month free and half off the next three months.

Pricing like that in a sub-market is going to affect your occupancy.

In the course of normal events, there will be so many move-outs, but most likely less than previous years move-ins,.  Unless you get aggressive too, in which case your income growth is going the other way.

So for many of us smaller investors, there needs to be a strategic focus on renting units that we haven’t needed in the last few years.

There are a lot of new recent owners that have only been in business a few years while occupancies were high.   They have never had to worry about how to compete for new customers.

Online marketing and positioning is for us a key priority in the next year. And I am not talking about just buying AdWords and posting pretty pictures on Facebook.

I am talking about strategic, online marketing to potential customers with compelling offers. Jumping in front of the larger players who are putting massive amounts of money into driving online traffic to their facilities.

We can’t compete with dollars thrown at Google positioning by many of the larger companies.  But we can design strategic marketing plans with great offers to people looking for self storage online in our submarket.

I will be writing more on this in the upcoming year as I learn and test new strategies I  have worked hard to learn.

Please leave comments below and let me know if this is a subject you have any interest in.

How we are answering the question of increasing the number of customers is to have strategic, effective, online marketing that gets prospects into our facilities and away from our competition.

What are some of the ways you can see to increase your customer base?

Increasing the average transaction

I would bet most of us don’t think about this idea much outside of price increases. But let’s take a look.

We have three specific ways we are employing in 2018 to increase the average transaction dollar amount or the average value of a customer.

The first way is to have a real focus on retail sales per move in. This is one of the main KPI’s (key performance indicators) (for more information on KPI, click here.

Each of our Managers has their own average sales per move-in numbers they hit each month.

• What would be required if they were to double it? That is an interesting question for each of them.
• What would it require on their part?
• What would it require on our part?

Very often we find the managers have a belief system like, “In this area, people can’t spend much money” or something like that.”

We will approach it like a limiting belief and apply the techniques that were discussed last week. (click here to review or see last weeks’ episode).

There may also need to be items that we are not carrying for resale in our facilities that our Manager’s think that market needs.

I would sell TV’s in our self storage facilities if our customers would buy them.

We will work one on one with each of our Managers to improve this number and create a new relationship with it.

Also, what if 75% of people moving in also purchased tenant insurance?

Is that possible when we don’t make Tenant Insurance mandatory?

What would it take?

We are working with each Manager to create a game with them and get their buy-in for that.

We can dictate all we want, but if the people on the front line are not part of creating the game, not much will really change.

We also realized that not all self storage units are created equal. Some are worth more than others of the same size.

As a company, we are committed not to use the pricing technique that many of our competitors use, the dynamic pricing model. This is where the price of a unit can change daily depending on the occupancy rate and how full that unit size is in the market.

We find customers hate it and I personally think that is not the best way to create raving fans. It seems like a hard sell on a monthly reoccurring model. I can see dynamic pricing on a one-time purchase like an airline ticket or a hotel room. But we have chosen not to use it in our self storage business, at least at this point in our company.

So we set a price and until we change it, let’s say once a year or so, that number is the price.

However, what if someone is willing to pay more for a unit closer to the office or gate?

Upgrades.

I buy upgrades if I can on long flights.  I like upgrades. However, my wife would never do that.

We find there is a certain percent of our customers that would appreciate the upgrade. That is a pricing model we are rolling out. It was an answer to the questions, “How can we increase the average transaction size?” and “How can we create more revenue without having price increases?”

Now, what are three answers you can come up with to answer this question on how to increase the average transaction size?

Steal mine if you want, but also, create some new ones. Please share them in the comment section below. I and many others would love to learn from you. No idea is out of bounds.

Increasing frequencies of purchases

This may be a less relevant question for us in the self storage business, but can we increase the frequency?

Can we offer our customer base other items to purchase outside of their monthly rent?

We have experimented with an email campaign to have current customers who are not buying Tenant Insurance to do so.

Each time we roll it out we create sales we didn’t have before.

What are some other items that would be welcomed by our customers that could also help our revenue?

Again, share your ideas.

The idea here is to expand what is possible for you and your self storage company as you create your next year and move into a future for the next few years where prices may flatten out, or even go down.

We are limited only by our own thinking.

What separates the real winners in the self storage industry from everyone else is how well they do when the market shifts.

Anyone can make money when prices are going up and occupancy is high. To be in the business long term, my coaching is to start now planning for the market shift.

If you are not experiencing it now, just assume you are going to. Begin to create strategic answers to the question “How can I create income growth without raising rents?”

See what you come up with.

Answer this question effectively and you will Create True Wealth in this fantastic business of self storage.