Are you afraid your facility will see a mass exodus of tenants if you raise your rental rates? If so, you’re not alone.
Most self-storage businesses take a “fear-based approach” when it comes to revenue management, said John Manes, chief operating officer of The Jenkins Organization, a Houston-based self-storage operator. Actually, though, you should consider rent increases and rate changes at any time, Manes said.
Here are five tips to help you gauge whether your rental rates need to be adjusted.
1. You Have Plenty of Demand.
If overall occupancy is at or above 90 percent, you need to bump up your rates, Manes said. With lower overall occupancy, you should raise rents on the space types that are at least 90 percent occupied. On the other hand, if you find that you’ve got plenty of demand but aren’t closing deals, your rates may be too high. Rent increases typically offset the amount of revenue lost from move-outs, Manes said, but you still need processes in place to monitor whether that offset is occurring.
2. You’ve Avoided Rent Increases.
Managers don’t like to raise rates, said Carol Krendl, president of Skilcheck Services, which provides training for the self-storage industry. Managers worry that customers will complain or that higher-priced units will be harder to rent. Your facility may not have all the amenities of the place down the street, but if it’s clean and well-managed, you can charge comparable rates, Krendl said. For newer facilities, if you’re above 70 percent occupancy, you should be able to raise current customer rates and street rates (for new customers) on unit sizes with occupancy above 85 percent, she said.
3. You Don’t Have a Rate Management Program in Place.
When Krendl audits facilities that are in distress, they’re almost always struggling because of rate management, she said. Krendl recommends setting a schedule for rate increases for current customers. “It may be yearly or every six months,” she said. Make sure your rental agreement states that rates will go up at some point. Then notify customers by mail or e-mail at least 30 days before a rate hike.
4. You’re Not Sure What Your Competitors Are Charging.
Call your competitors as if you were a potential customer. Inquire about rates and how many empty units remain so that you can get an idea of occupancy. “If your competitors’ rates are higher, and they only have a couple units left, your rates are clearly too low,” Krendl said. “If your price is $10 less, you could easily raise rates.”
Before you adjust prices, determine how your facility is meeting demand and converting it into sales, Manes said. For example, if your facility is converting 100 percent of demand even though your rates are higher than your competitors’, you still should consider raising your street rates, he said.
5. You Haven’t Continually Raised Rents.
If you haven’t moved street rates at your store on a continual basis, you have the opportunity to raise street rates and create a “gap” between rates for new customer and current customers. This gap then allows you to raise rental rates for current customers. For example, if current customers are paying $90 per unit and you increase your street rate to $100, there’s a gap between your actual collected rent and the potential of what your facility could earn if everyone paid the street rate.
“When you increase your street rates, you’re automatically increasing the potential of what you can charge current customers,” Manes said.
The Role of Revenue Management Software
Huge operators like Public Storage hire people who do nothing but handle rate changes for their facilities. “That’s where small operators tend to lose, because they’re not in a situation to do that,” Krendl said.
What’s the solution? Krendl recommends using revenue management software from providers like SiteLink.
SiteLink’s software automatically updates and changes rates for current customers every month using criteria such as tenant type, number of days in the unit and how many days it’s been since the last rent change. For street rates, managers can set increases to take effect when occupancy exceeds a certain level. The software automatically updates rates online when linked to your facility’s website.
“Small increases systematically raise rates over time and grow revenue faster than larger increases once a year,” said Markus Hecker, chief operating officer at SiteLink. “Few, if any, tenants vacate because these small, incremental increases seem tolerable and reasonable.”
To download a free white paper about revenue management, click here.