Finding Customers and Pricing Your Self-Storage Units CorrectlyFeb 27, 2023
How we price units and make sure that our customers are the right customers for us can have a dramatic impact on overall revenue. We do not want all customers. We want the RIGHT customers. In this post, I walk you through how we identify customers and how we price units.
Self-storage is a lucrative business. To make the most out of it, you need to understand your customer segments. There are 3 main customer segments: price sensitivity, location sensitivity, and quality sensitivity. Unit pricing is a different story and much more complex which we will get into a minute.
Price sensitive customers are those who prioritize the price over everything else. However, they tend to be problematic for self-storage facilities as they tend to leave when there's a rate increase. These customers have a high turnover rate and affect your lifetime value (LTV). LTV = Your rate X length of stay X add on services and products.
If I charge $100 for a 10x10 and they stay for 2 years, then that’s $100 x 24 months. A $100 and they stay 5 months = $500. You can see how different this is in overall revenue. That’s not even including the expense of acquiring that customer. This is the challenge when dealing with price-sensitive customers; it’s a race to the bottom.
Location sensitive customers consider the location of the facility to be the most important factor. Proximity to the facility & comparison to competitors are also key considerations. This is especially important when doing your acquisitions. We don’t look at 3-mile radius, but instead drive times. Meaning customers within a 15-minute drive time will be the vast majority of our renters. The quality of the renters within the 15-minute drive will determine the quality of revenue.
Quality sensitive customers value quality but only to a certain extent. If the facility is too far away, the quality doesn't matter. In self-storage 65% of the decision makers are women. Quality & security is a large determining factor for these decision makers. When you have lots of options in a marketplace, quality stands out. The customers focused on quality are willing to pay more. They also buy more products, stay longer, and have less delinquents.
As you saw from our lifetime value equation, this creates a big difference when focusing on quality customers over price sensitive customers.
Understanding your customer segments is crucial for self-storage facilities and rate pricing. Catering to the different needs and preferences of your customers can increase satisfaction, retention, and ultimately, your income.
You want to make sure you have the right customer for your facility and the offering. If you have a price sensitive customer that is renting high value climate-controlled space, they are not going to be happy. And neither are you. You want to make sure that your renter is the right renter for your product.
Don't let low occupancy hinder your self-storage success. Learn how to be strategic with your rates and maximize your yield. I often say occupancy doesn’t matter; the reason is I would rather have $1/sq ft per monthly rate at 80% occupancy than 100% occupancy at .50/sq ft rates. Occupancy may be less, but revenue is much higher.
Now, that comes with a stipulation. One of the main things we do is something called dynamic pricing & revenue management. Our rates are changing constantly, predicated on many outside factors as well as internal factors.
Some examples include individual unit occupancy at our facility or our value-based pricing system which takes into account all of the individual unit features like location, climate control, access, size, electricity, etc. Market changes, individual’s income, location & spending habits also play a part in our pricing of an individual unit.
Now, this system only works if we have occupancy and people coming in. So, it’s not that occupancy doesn't matter, it’s just not the key metric you should focus on. Instead, we focus on revenue.
Oftentimes, people see market rents and think that’s what the current customers are paying. Meaning, they may see an ad to rent a 10x10 for $100/month. They then assume that all the renters at that facility are paying $100 for a 10x10. For sophisticated operators, this is not true. You may have over 50% of the 10x10’s in your facility at $200, (2x the amount) paying monthly. In-place Rents do not = Street Rates because sophisticated operators know that once a renter goes into their storage facility 60% of them will stay even when rents are raised.
Okay, we covered a lot here. Tell me where you agree or disagree and let’s discuss. Follow me @ajosborne1 to see more posts like this.