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Developing a pricing strategy to increase revenue at your self storage facility is critical.
In this article, we’ll look at three different self storage pricing strategies and examine methods to increase revenue, such as adjusting street rates and increasing rates for existing tenants.
The first self storage pricing methodology we’ll consider is cost-based pricing, which sets prices for storage units based on the costs of operating your facility, which includes wages, utilities, software, hardware, and so forth. Once costs are determined, a mark-up is added and then that amount is divided across your units according to expected occupancy.
Cost-based pricing is often used in manufacturing as a way to set prices that will ensure a profit. However, this pricing strategy doesn’t consider demand or competition. As a result, cost-based pricing can lead to prices that are either higher or lower than the market rate.
Competition pricing is a popular self storage pricing strategy. As the name implies, prices for your storage units are set based on the prices of storage units in the surrounding areas. In other words, the rates of your competitors are used as a benchmark for setting your own rates, which may be higher, lower, or the same.
To successfully implement competition pricing, research is critical. You need to know who your competitors are and how they are pricing their storage units. Once you’ve collected this information, you average out all the rates and then determine if your prices will be higher, lower, or the same as the average.
Although this may sound like strategic pricing for self storage, there are two reasons why competition pricing may lead to lower revenues.
Because competition pricing won’t necessarily guarantee more rentals or increased revenue, many experts agree that value pricing is a better pricing strategy to increase revenue.
Value-based pricing is a self storage pricing methodology that sets prices based on the consumer’s perceived value.
The airline industry uses value-based pricing by charging different prices for different seats based on their desirability. For example, they may charge more for aisle and window seats versus a middle seat. Seats in the front of the plane or that have more legroom may also cost more.
In self storage, value pricing means putting higher prices on your more desirable storage units. So what makes one storage unit more desirable than another? Accessibility and convenience are two key factors. After all, a storage unit that is centrally located, near the gate, on the first floor, near an elevator, or that offers trailer access will be viewed as more desirable than other units of the same size. As a result, you can charge higher prices for these desirable units.
Other amenities that you can charge higher prices for include higher ceilings, larger doors, power outlets, or air conditioning.
By highlighting these amenities on your website and in your pricing, you’ll be giving your customers a choice of choosing to pay more for a more desirable storage unit. One way to do this is to organize your storage units into tiers, such as “Standard, Best Value, or Premium” and setting rates appropriately.
StoragePug has found that 35% to 40% of customers upgrade units when given the choice. It may surprise you that many customers will pay $10 more per month for a unit located near the front of your facility!
Street rates are the monthly rental rates for potential new tenants (i.e., the price you’d quote if someone came in off the street.) The key to successful street rate pricing is to base the prices on a variety of factors—unit size and type, occupancy, and timing. Here are a few examples to illustrate how and when to adjust your street rates.
Although we’ve primarily discussed self storage pricing strategies for attracting new tenants, it is also important to consider periodic rate increases for existing tenants.
Some self storage owners resist raising rates for fear that it will cause customers to move out. Unless you’re raising rates by an extreme amount, most customers expect periodic rate increases. After all, it happens in almost every industry. The key is to make small periodic increases over longer time frames—such as after 6 months of occupancy or once a year.
Another unfounded fear is that tenants will compare rates and get upset if they are paying more than someone else. However, unless you have tenants that are connected socially, most of your tenants will not be interacting with each other.
Finally, another fear is that raising rates on existing tenants might cause occupancy rates to drop. However, if a long-term tenant in a premium storage unit is paying a lower rate than you’re able to charge for the same unit, you may be better off losing the long-term tenant and renting the same unit at a higher rate.
We’ve looked at several self storage pricing strategies and examined the pros and cons of each. In the end, the best self storage pricing methodology is one that lets you adjust rates depending on a variety of factors, including unit desirability, occupancy, and market conditions.
The key to successfully developing a pricing strategy to increase revenue is to make pricing adjustments based on what is happening at your facility. By using value pricing to charge more for desirable units and less for undesirable units, your occupancy rate will increase while also maximizing revenue.
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