We have been exploring the current challenges our self storage company is focused on to keep our self storage companies going strong over the next year or so.
Let’s complete this series.
If you want to, you can review Episodes 263,264, 265 , 266 ,267 here.
As a review, I laid out five things we are focused on:
1. Effective & cost efficient on-lime marketing.
2. Effective & cost-efficient automation.
3. Effective & cost-efficient revenue management strategies.
4. Enhanced customer experience.
5. Effective & cost-efficient operating expense management.
Let’s discuss the last area of focus.
Operating expenses are going up. That is just a fact.
The main culprits are property taxes and marketing expenses.
I think when the property tax guys have their convention, self storage is a topic of conversation. It does not seem to matter what part of the country we are in; we are continually getting increases.
Our industry is definitely on the radar screen of the county tax collectors.
There is not a lot one can do about it except try to get them reduced.
Our standard procedure is to turn over our tax bills to a consultant to see if they think any reduction is possible.
Typically, they will ask for income statements, balance sheets, occupancy levels, and cost of construction if that has been recently done.
Then they will tell us if and approximately how much they think the tax bill can be reduced.
IN most cases we pay them a portion of the first year’s savings as their fee.
I like that because it is directly a function of performance.
We have had mixed results depending on where, who is doing it, and what is going on politically in the county.
In one case, we had an assessment of $5 million reduced to $2 million. It was such a drastic reduction that the property value administrator appealed their own decision. It was negotiated to $3 million.
I don’t have a magic vendor who is always successful. We just search and try to find someone with results in that particular county.
Explore this.
MARKETING COST
As more space hit the market, and Google became the go-to search engine replacing Yellow Pages, marketing costs rose.
We would spend between $20,000 and $50,000 for yellow pages in the old days, depending on where and how big of an ad we took out.
My blood pressure went up every time I wrote these checks.
It seems like that changed very fast, and we had several years where we spent very little on marketing.
But around 2018 or so, that began to change. More and more space hit the market, and bigger and bigger marketing budgets were starting to be used to pull our customers away. So we had to up our spending.
Today for a stabilized project, we need to budget between $8,000 and $10,000. For a lease-up situation, $20,000 would not be too much in most cases.
My blood pressure is going up again.
Marketing is not a line item to back off from. As the economy worsens, marketing should go up. That is a good strategic move.
And property tax is not a line item that can be avoided wither.
So, to keep operating expenses as a percentage in line with income, in today’s reality, it is critical that everything else is on the chopping block.
I suggest we do the following:
- Look at every expenditure, and ask if we stopped this, how would it affect occupancy, income, and renting units.
- For example, in some of our facilities, we no longer have a dumpster.
- Renpgiate every service contract.
- Dumpster.
- Alarm, etc.
- Payroll cost.
- In the past, we have equated growth with the number of employees. Today we are focused on increasing productivity and cutting the number of hours. For example, in some facilities, the second and third Thursdays afternoons tend to be slower. We let employees of at 2 PM and use the kiosk and website for leasing and payments.
- Over the past five years, we went from $300,000 of gross income per full-time employee to $350,000. That was a direct result of using technology.
Nothing is sacred this year and next in the line items on our profit and loss statements under the expense column.
We are setting operating expense reduction target numbers for each property and are in the process of going through every expenditure line by line.
This is what it looks like today in the self storage business.
I believe that if we keep our eyes focused on the five areas we have been discussing in this series, our company will be in a good position for the upcoming years or two.
Yesterday, I heard an economist say our economy will get back to where we were in Jan. 2020 in….drumroll please… three years.
The time is now to alter our relationship to being in self storage.
Yes, self storage will do much better than any other asset class. But, there will be a lot of people in self storage who are not in a position to weather the downturn.
Let’s make sure we are not among that group.
Nothing is guaranteed, but if we can produce results in the areas we have been discussing, I think we can be left standing when the next recovery starts.
IN fact, I think we can actually thrive during this time and grow. But not by doing the same thing as we did last year or in 2017.
It’s a new world out there. Let’s adjust accordingly.
