We are in the third episode of a series, discussing the second current challenges our self storage company is focused on to keep our self storage companies going strong over the next year or so.
If you want to, you can review Episodes 263,264, & 265 here.
As a review, I laid out five things we are focused on:
- Effective & cost-efficient online marketing.
- Effective & cost-efficient automation.
- Effective & cost-efficient revenue management strategies.
- Enhanced customer experience.
- Effective & cost-efficient operating expense management.
Let’s discuss number three.
Revenue Management Strategies
I see today four basic Revenue Management Categories:
- Dynamic Pricing
- Value Pricing
- Customer-Centric Pricing
- Ancillary Income Streams
Dynamic Pricing
I have touched on this many times before.
What I am talking about here is having your street rates adjust “dynamically” to the marke3t based on unit size occupancy in the overall submarket, seasonality, current rates and specials in the submarket, and other variables.
It is like flying or staying in a hotel. Shat you are paying is often very different from what your neighbor is paying.
Even in Disney World, the person standing in line in front of you most likely paid a different entry fee. They use dynamic pricing.
The operational software in many facilities can handle this and other add-on programs if you want to use this.
I have said in the past we don’t use this model yet, and we still don’t. But never say never.
I philosophically believe in a subscription revenue model or on a reoccurring monthly charge revenue model; this revenue model has some downsides.
However, many are using it, and perhaps they are smarter than I am.
We attempt to take advantage of the fact we don’t use it and market it as a differencing advantage we offer in our markets.
But perhaps our overall revenue would be higher if we did.
Concessions fall here, in my opinion as well. We use what is going on in our submarkets to a large degree to determine our move-in specials.
The difference is for unit street rental rates, it is usually a computer program determining the unit rates. For concessions and move-in specials, it is usually a human being determining it. Not always, but in most cases, it works this way.
Value Pricing
This is based on the idea all 10 x 10’s are not created equal.
I will admit, our company is not the best at doing this yet, but we are getting better.
In this revenue management model, the idea is that units closer to the gate, the office, or in a larger building, closer to the entry doors, or lifts are worth more than units in the back.
Convenience is the key here.
Some people will pay more for convenience, like an upgrade to first class on an airplane in the gate area. I would pay an extra $50 to upgrade in many cases if available.
My wife never would. In fact, if there were a $50 discount for riding in the cargo ben, she would try to put me there (just kidding, Rebecca). But it would be painful for her to cough up an additional $50 to upgrade.
Not me.
Value pricing is geared towards people like myself. When the manager is showing me the street rate 10 x 10, on the way, they will point out the upgrade options. We usually have 10% to 30% upgrade options.
We have a computer program that tells us the units and their upgraded prices. Our software generating this is integrated with our operating system so that everything is in sync, and there has to be no manager entry of different pricing.
This revenue model can add 5% to 25% more additional income depending on how effectively the manager or owner uses it.
Customer-Centric Pricing
This revenue model is based on the idea that not all customers are created equal.
For example, customers who have been at your facility over one year are 50% more likely to absorb a price increase than someone who has been there less time (according to one speaker at the 2018 SSA convention).
Many of these seem counter-intuitive to me. It would seem the longer someone stays, the better deal they should get.
But data shows otherwise.
They will pay more.
People on auto-pay absorb price increase at a higher rate than those who are not on auto-pay.
With an awareness of some of these items, you can structure your operations, training, and practices around what you want.
If you want to increase new customers using auto-pay, incentivize them to use it or penalize them for not.
You could say the quoted rate assumes you are on auto-pay. If you are not, the price is $10 more per month. Or you could incentivize your managers by having a bonus tied to autopay.
We try to track everything in our facilities, and as a company, we are just beginning to get our minds around this and experiment.
For us, there is a lot of potential growth here we are going to take advantage of.
Ancillary Income Streams
I have half-jokingly said I would sell TV’s at our facilities if people would buy them.
But I really would.
For many smaller operators, perhaps the best new profit center to focus on is tenant insurance.
If you are not taking advantage of this income stream, my coaching is to do so now.
We have adopted the concept that everyone must be insured to stay at our facilities. You either need to prove to us your homeowner’s insurance covers your stored goods, in which case we will remove the tenant insurance from your monthly bill, or you are getting it from us.
By the way, it is a bad idea to have your home’s insurance policy tied to your storage unit. You don’t want it increasing over something that happens here.
Truck rental is another type of revenue model.
Our philosophy has been to make sure that whatever additional product or service we offer to our customers is in some way tied into storage.
What can you add to your facility that would offer convenience and support to your customer base?
Our main focus at this moment is tenant insurance, retail items, and truck rentals.
Our belief is if someone is going to buy a lock for their unit, we should be the ones to sell it to them.
If someone uses a truck to move their goods, we should rent it to them.
And you know that we are selling them their insurance unless they prove it is covered another way.
Conclusion
As we complete this crazy year and move into the unknown future of 2021, explore and try different revenue management approaches.
What if you could add 15% additional income with the same level of occupancy you have now? Would it have been worth the time to figure out what works for your market, your customers, and your company?
Just know we are, and many of the larger players in the self storage space are.
This will allow us as small investors to compete 3ith the larger players in the space. And we can outperform them because we can move fast, make decisions, and adjust to the changing conditions faster and more effectively than a large company.
There is a lot of revenue on the table to pick up by putting some of your attention and energy in this arena.
Share with everyone what you are doing in efficient and cost-effective revenue management.
