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December 20, 2022
Wise voices are warning of a recession.
Whether they’re right or wrong, you can’t ignore the risk.
In this article, we’ll go over the different ways a self storage operator can get ready for a downturn. Join us!
As a small business owner, the thought of a recession is terrifying. You’re facing a competitive commercial climate on a regular day, and a downturn could put more pressure on your business than it can handle.
But you’re not helpless, either. You’ve brought your business along through COVID and the associated difficulties. This is just a new challenge to tackle!
When news of a recession starts to circulate, operators want to act. They want to act fast, to get ahead of the crowd that hasn’t yet heard the news. After all, no one wants to be at the back of the crowd trying to escape a fire.
This can lead to operators making decisions too quickly, rather than taking the time to size up their position.
One bit of advice we see frequently is not to race to the bottom, rates-wise.
Dropping your rates is easy - customers aren’t likely to argue that you’re giving them too good of a deal.
But you can hamstring your later income when you try to raise those rates back later. Be careful not to sacrifice that revenue until you’re certain that you need to. And the situation may not be as bad as it seems - self storage is still doing very well!
Self storage had record-high 95% occupancy from 2021-2022. Net Operating Income grew 16.5% over that time frame, per MHN.
Of course, if your competition is racing to the bottom, you won’t have much choice but to join them eventually, but don’t be the first one to go.
Self storage has some advantages in customer retention - primarily because moving is a pain! Your customers may try to talk to you about competitor rates before they pack up and move out, especially if you’ve maintained a good relationship with them.
The same principle goes for other aspects of your business. Be careful before you cut your marketing budget, or stop paying for convenient services your customers are used to. If you make too many changes too fast, you’ll lose customers that otherwise would have stayed.
When the industry is thriving, you can let your business be inefficient. During a recession, not so much.
This may sound a bit contradictory after the previous section, but you’re looking for a balance.
If you’re worried about a coming recession, you need to take stock of your business.
According to the Harvard Business Review, businesses that prepare for a recession beforehand grow at a 17% annual rate. Businesses that aren’t prepared can stagnate, or worse.
By "preparation," HBR is referring to a business “pursue[ing] a variety of tactics before the recession that were designed to fortify the firm when the downturn hit.” Specifically, they reference efficiency, flexibility, and using the right tools.
Get into the weeds. What’s working for you, what’s not working, what’s worth the money you’re spending on it, and what isn’t?
Make sure your business is running efficiently. Don’t waste time on things that don’t improve your business.
Calculate the return on investment for your self storage marketing, including websites and other expenditures. Marketing will be incredibly important as competition increases!
To prepare for a recession, you’ll need to be flexible about how you run your operation. Get ready for a new type of tenant as the populace weathers the economic downturn. You may end up with more people who are downsizing their homes, or small business owners looking for an affordable place to work or store inventory.
Make any major financial moves now. If you’re planning on selling your business, making significant improvements, or refinancing your debt, get those knocked out before rates go up even further.
Lastly, be sure you’re using the right tools. This can mean upgrading your website, automating your facility, or upgrading your self storage PMS.
Having a bank of capital to draw from can help you weather even an extended downturn. Experts will recommend having between six months and a year of expenditures on hand - though this isn’t feasible for everyone.
Whether or not you can hit that number, having some cash on hand will help you outlast the recession (not to mention it can help you relax knowing you’ve got a backstop).
Look for places you can cut corners and save money.
This could be in payroll, by cutting hours and shifts, or by automating your facility entirely. You could cut your marketing budget if some pieces aren’t performing - for example, you may not need dedicated, ongoing self storage SEO services, especially if you’re low on cash.
As above, it’s vital that you keep providing value to your customers.
If you cut your budget to the point where you’re no longer able to make new and existing customers happy, you’re going to struggle.
Think through your customer experience.
Try to pinpoint what makes your business preferential. If it’s your top-notch customer service, you probably shouldn’t fire your managers to cut costs. If it’s the security of your facility, keep paying the subscription for your unit monitors.
On the other hand, if you’re offering features that don’t often get used, see if you can save some money by getting rid of them.
While you do need to cut unnecessary expenses, you should be careful before cutting your marketing budget.
With an economic downturn, it’s entirely possible that self storage sees a decrease in demand - with less demand, it’s vital that your marketing still works to get enough demand to keep you in business.
If you’re finding tenants are moving out, for whatever reasons, it might be tempting to lower your rates and try to keep them.
But, until you run out of demand, you may be weakening your position. If you still have people coming to rent at your facility, then you don’t need to try and offer the lowest possible rates.
With any economic upheaval, there will be some churn. People will be moving, cutting expenses, and new people will be downsizing and needing a place to store their things.
Until you determine that there simply isn’t enough demand out there, keep marketing. If your competition cuts their billboards and drops their online presence, that just leaves more demand for your business to capture.
If you’re looking to upgrade your marketing to get ahead of the curve, StoragePug can help!
Check out the prior entry in our recession series here!
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