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August 5, 2018
One of the most important decisions for any self storage facility owner or manager is finding how much to charge for your units.
If you charge too much, you may stand to lose customers to your competitors.
If you charge too little, you will be hurting your bottom line.
It's important to know how to set your rates, when to change them, how much to change them, and how to break the news to your tenants.
The first metric you should look at is your unit occupancy rate. If you are just starting off, or have a larger supply of empty units than you want, consider discounts - such as web discounts - or competitively setting rates.
Aggressive pricing can fill up your units quickly. There are some points to consider, though.
It is important that you use this strategy with discretion. Lower rates devalue your units, and relying on discounts can devalue your brand.
Further, the tenants paying the lowest rates will be the first of your occupied units that will have to have the prices increased.
While they might be more likely to leave due to price, the most important thing is that their unit had not sat vacant.
As your unit occupancy rate increases to levels that you are comfortable with, it's important to keep track of which self storage unit types are the most popular. The certain types of your units and parking that fill up should be the first to see rate increases.
It follows then that you should hesitate to increase the rates of the units that are slower to fill up. They are better off occupied at a lower rate than vacant with no rate at all.
The key is knowing how to track the performance of your different storage units. The way to find out is comparing your unit occupancy to your square footage occupancy.
The difference is much like the names - comparing your occupancy based on number of units versus square footage.
Once you’ve decided that you need to raise your rates, you can’t simply raise them across the board.
Some units might be more popular than others, and you’ll want to adjust your rates based on this.
According to Inside Self Storage, this is what the comparisons between unit occupancy and square footage occupancy mean:
square footage occupancy > unit occupancy = larger units are more popular
Use this simple comparison to start planning your rate increases.
For instance, let’s say your 10x10 units are in high demand. You can increase the rates on these units and bring in more revenue from your most popular size.
At the same time, you are increasing the value of your 10x15 units, as they are now a better deal while offering more space in comparison.
Now that you know which units you want to increase the rate on, you have to decide how much.
A great thing you can do is scout out your competition. How much are they offering a unit of a similar size?
To find out, you can take some time to visit the websites of all your competitors, and mark down what they are charging for their units. Or you could find rate information from vendors such as Union Realtime or STR.
Once your have done your research, it is time to consider your economic occupancy. This occupancy type is described by the percentage of your actual revenue taken from the revenue you would be making if your unit occupancy was 100% and all of the tenants were paying (on time) your current rate for each unit.
Economic occupancy typically falls behind unit and square footage occupancy. According to storEDGE, your goal should be 10% or less of a difference between economic occupancy and the lesser of your the other two types of occupancy.
The first place to look when it comes to increasing your economic occupancy is delinquency. Unlike other types of real estate where rents are in the $1000+ range, rental amounts of $80 or even twice that can be easy to miss.
Other key reasons for lower economic occupancy according to Inside Self Storage:
Finally, make sure that the amount you choose to increase is actually worth it.
While you might feel more comfortable with a moderate increase, a higher increase may actually mitigate your risk.
For example, let's say you decide to increase your 5x5 rental rates, and all of 20 are occupied at a current rate of $50/month or a combined $1000/month.
If you only increase the rate by $2, just one customer moving out will result in making less than before.
If you increase the rate by $6, you can lose two tenants before taking in less monthly income on your 5x5's.
If you increase the rate by a whopping 30% (or $15), 5 tenants would have to move out before you make less than before the increase. Even so, this would increase the potential gross income of your 5x5's by $300 and they will fill back up.
No one wants unhappy customers, but if you take the right approach everything should work out just fine.
The first step is to raise rates on empty units first. Anywhere your rates are displayed - your website, SpareFoot, or elsewhere should be updated with your newest prices before anything else.
The first tenants that see increases are the ones that have rented from you longer than a year. After that should be the ones with the largest difference between their current rate and your current asking rates.
Next, consider how your increase notification is presented.
It might be more beneficial to present the higher rate in the form of percentage increase or dollar amount instead of the new rate. In reference to the earlier example, $15 increase sounds better than saying your rate is now $65.
Also note that a 30% increase sounds just as bad. Using the percentage is more helpful in the case of larger units where the percentage will be a smaller number.
Consider the factors of your tenant actually changing storage facilities. For example, the location of different types of units inside your facility.
Indoor units that are off the ground floor are the hardest to move out of, while drive-up units are much easier to access. The easiest is moving a boat or vehicle out of parking.
Finally, consider the time of year that the increases are made. If it is freezing cold or blazing hot outside, the weather presents a barrier as it makes moving more difficult. Holidays also complicate moving.
Realize that you are likely to see way more grumbles than actual move outs. It's likely that a tenant that actually moves out due to reasonable price increases was going to leave anyways.
Do your research, plan out your rate strategy, and prepare yourself and your property management team for customer confrontation. In time you will be well on your way to mastering the art of rate management.
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