I am amazed at the number of self storage owners, and business owners, that have little or no financial knowledge.
I am no expert in reading financial statements. And I have struggled in the past with knowing the numbers for all of our facilities. But I have learned the hard way that financial knowledge is critical to running any business, even self storage.
There is a lot more to being successful in self storage than “buy low and sell high.”
Your numbers, and ability to tell a story from the numbers, are the dials you turn and the levers you pull to grow your business.
I thought I would create a series of episodes that deal with some of the basics I think are important in running a self storage business. I have no background in accounting and/or business management. There are many who know way more than me. I will be the first to tell you, listen to them over me.
But I have learned a few things the hard way that I want to share so you don’t have to make the same mistakes. Like spending money on Yellow Pages then realizing the cost of the ads is more than what I earned from the customers they brought in.
Let’s start simple.
Do you know the value of a customer in your facility?
Do you know the value of the new customer of your facility that you are contemplating buying with marketing dollars?
If you are going to institute a marketing campaign, do you know how much you can spend? Well, if you know the value of a customer, you do.
Let’s explore.
I was contemplating a Facebook add campaign for one of our facilities. I needed to know what I could spend so I had to determine the value of a customer.
The first thing I needed to know was the average length of stay for our customers.
Depending on the software you use, or the current owner uses in a facility you are contemplating, this can be easy or hard. It can be impossible to find for facilities you are considering buying if they don’t use operational software or it’s old and antiquated. It actually took a while for me to find it is SiteLink, but this report tells the story.
This report gives a lot of great information, like which months have the most move-ins, etc, but let’s look at the average stay of all tenants.
I could look at one month or a quarter, but since we have the data, let’s take the last 12 months. I averaged the last 12 months (May to May) and got the number 738. In other words, that number is telling me that in the last 12 months, the average customer (a better than tenant in my opinion) stayed at this facility for an average of 738 days.
I recommend calculating this monthly or at least quarterly. That is our policy now at every facility.
This is a fully developed facility. In a lease up-situation, obviously, the number is lower but still important.
An interesting trend here is that the average stay is going down over time rather than up. I have got to figure out what is causing this trend and if it is a problem. In every other facility it is going up. That will be another episode as I get to the bottom of that story. I am not worried, at least yet, because this is a great project with our highest occupancy. If you have seen a trend like, please this let me know.
So now you have the number 738.
Next, I went to the close on the last day of May 2017 and looked at this report.
I wanted to see how many current customers I have.
On the last day of May this facility had 909 customers. Yes, I know I could have averaged the last 12 months number of customers to get an exact number, but I don’t think I need to. This number should tell me everything I need to know.
Then, the last number I need is the rent those 909 customers are paying. Not the Gross Potential Income, but the real amount of money we are scheduled to get from those 909 customers.
Again, every software system is different, but on SiteLink I look at the “Effective Rent After Concessions.” On last day of May, it was $106,885 monthly (this is a large facility).
So, what is the story these numbers are telling me?
Well let’s see.
Next I took the total amount of income the 909 customers will give me and divided it by 909.
That gave me an average monthly income per tenant (some reports already have this but I wanted to show you how to get it yourself).
Next, I multiplied that monthly number by 12 to get a yearly income. Then I divided it by 365 days per year (more accurate than dividing a monthly amount by 30 or 31 for a daily proration).
Now I have the daily amount each of the 909 customers is worth. Interesting. Only $3.87 per day. Then multiply that times the average number of days a customer stays (738).
For this facility it is $2,852.97.
That is a good number. We have some that are higher, but this is a very good number.
So what do these numbers tell you?
What is the story behind these numbers?
Every customer signed is worth $2,852.97. Not bad.
As a business owners, what dial can you turn with this number? Let’s create a dial called marketing.
We did a test recently on a project where we ran a Facebook advertising campaign for a facility that was in lease-up.
In that facility, after one year the average customer had stayed 211 days and was worth $1,157.
In a sister property in the almost the same submarket that was put into service in 2010, the average value was over $3,000.
We ran a trial Facebook ad for three weeks. The add cost us $265 and we were offering a $25 discount.
We tracked the ads effectiveness by having a coupon for the discount. At the end of the 3 weeks we had five of them from new move-ins. (There are actually more effective metrecis, but I want to show how simple it can be)
That tells me that we generated $5,785 dollars from that ad campaign (1157 x 5 = 5,785).
The cost was the $265 plus 5 x $25 for the coupons, or $390
I would do that 365 days a year.
We will have more episodes on advertising soon. Now that same ad doesn’t generate anywhere near the same return as it did then (new space in the market), but this is the process we go through all the time to make decisions.
In this series I want to begin to alter how you may relate to numbers.
Numbers are your friend. They tell a story. When you can look at numbers and see the story, then you can create a new story to generate new and better numbers. At some point, those numbers turn into cash, operating cash (not all “revenue” or “income” is equal).
In the self storage business, there are not a lot of numbers one has to be on top of, but for any business the value of a customer is an important one.
I find it interesting that 9 out of 10 self storage owners don’t know this number. I may even say 99 out of 100.
If you own a facility, do you?
Each facility is different. I don’t see how you can make informed decisions abut where marketing dollars go without this knowledge.
Create some powerful levers and dials for your business by learning some of the basic numbers.
Then you can create “True Wealth” with your self storage facilities.
