Are You Leaving Money On The Table?

     In the past several weeks, I have been asked by many in the storage industry, have you started doing rate increases again? My standard reply is "I never stopped over the last 5 years." This normally brings the reply, "But the recession?" What I end up explaining to them and will now tell you; we are running a business that must stay profitable to remain in business. The business is similar to a clock with several gears that make it operate. Rate management is one of those key gears that must be maintained properly and continually.
     Let's start with our street rates. In large metropolitan areas, the average market rate changes daily depending upon various aspects and conditions. These rate changes are influenced by the REIT's as their algorithms and unit counts change. Did you notice a drop in rates among certain attribute sizes as college students vacated their units, returning to dorm life recently? Other factors such as storms can affect rates both up and down. One competitor that lost their roofs during a storm helped raise rates in a market as their tenants scrambled for new space. Now that the roofs are fixed and they are starving for occupancy, they are running units at 60% off street rate. Since this affected only one attribute size for them, we found the most undesirable units in the same attribute size and reduced rates on those units. These undesirables are the odd shaped rooms, support pole in middle of unit, end of an aisle or even an odd size door. Not only did we remain competitive, but we rented units that had remained vacant forever and weren't making zip for us. If you are in a large market, you need to be doing competitive analysis at least every 2 weeks (daily for some stores) or you will be missing trends that are stealing prospective tenants from you. With today's consumer trends, this info is easily available on the Internet. (Another reason your web site needs to be functional and trending towards customer shopping trends; including smartPhone friendly sites.)
     In smaller markets, I still recommend doing competition shops at least twice a month. Talk to your competitor. You may be competitors, but you are both in business to make money. When you communicate, not only are rates more consistent, but basic operation and ancillary income ideas can be learned and shared. Also with open communications, when there are those problem customers or scammers working in an area dumping waste in your units... these things can be stopped sooner or even prevented.
     Now that you have your competitors rates...what do you do with them? First I compare them to mine to see where I stand in the market. I then look at the occupancy rate of that particular attribute. Is my occupancy low and my rate the highest in the market or vice verse; high occupancy and lowest rate... then it is time to adjust. Are there certain areas in a building that aren't renting... down a long hall, etc... time to discount. Have a unit attribute that as soon as you vacate one it rents... raise the rate.
     Once you have adjusted rates... time to monitor. If you had a high vacancy rate on a particular attribute and reduced the rate to a Hot Rate, be sure to watch that attribute and as those units start to fill, adjust the rate up according to occupancy standards that you predetermine. If you have an attribute that you continue to raise rates on, due to high demand... make sure that once the unit rental starts to stall... you adjust the rate.
     On to the Guts... current tenant rate increases. First lets talk about timing and frequency. We have used various cycles and formulas over the years. Once a year is about as frequent as you want to issue increases. Then depending on where you are in the market, an average increase should be between 4-12%. I do not raise people above my current street rate... I even try to leave them a dollar or two below street rate.
     You have to use logic and weigh your options. Lets start with the long term tenant. He moved in six years ago on a $50 rate. The current Market rate on the unit is $75. You have a steady occupancy of 82-87% on that particular attribute, a 10% or $5 rate increase is more than reasonable. If the tenant leaves due to increase, your probability for release at a higher rate is in your favor. Second Scenario; tenant moved in a year ago and the street rate is $2 above his current rate. You have a 60% occupancy on that particular attribute size, the advice is to let sleeping dogs lie. Scenario number three; The tenant moved in a year ago on a "Hot Rate" due to low occupancy. You now have reached peak occupancy levels for that attribute. The tenant rate is $60 and the current street rate is $100; then my recommendation is around a 30% increase to $78.
     As you can see... the competitors info is important for both exercises. Plus it gives you an opportunity to "KNOW" your competition.
     Managers ask why we have to raise rates on good paying long term tenants. Because every tenant expects roofs to be fixed, A/C's to be replaced when needed, trash removed from the property and the lawn cut and kept. In the last eight months, 96% of my vendors have raised rates on the services they provide my facilities. You're not getting rich raising rates, you are simply covering ever expanding costs.
     I am a Business not a Charity, although there is nothing wrong with being charitable to a degree. We all have a unit or two that we donate to some worthy organization or charity. While you are reviewing the rent rate variance list... these units will most likely stand out. It is a good time to evaluate if you are getting any return for your donation. Several of these spaces are donated with the promise of; mention in programs, website links, publications, newsletters etc. This is a good opportunity to follow up on those agreements, and even possibly suggest other marketing ideas to help spread your name in their organization.
     Now just a little math for you. Back during the Twenties and Thirties, you could buy a 12oz. Coke for .05 cents. Yesterday, I bought a 12 oz. bottle of coke at the convenient store and it was $2.19. That is about a 5% price increase for each year over almost eighty years.

SMILE...... It is Contagious!