A lot of research and calculations must go into developing and opening a successful new self-storage facility. Selecting and purchasing a piece of property for a price that will bring a good return, determining the right unit mix, and finally determining pricing on your units are three of the most important steps.
Determining the right price and knowing when to adjust those prices will not only bring you closer to your ROI sooner rather than later, it will continue to determine the success of your facility for years to come.
There is no set formula for determining unit pricing or when/how to raise or adjust those prices once you’re up and running, but there are some guidelines that will give you a great start.
“When I go into a new market, I look at the competition,” says Carol Mixon-Krendl, president of SkilCheck Services, Inc., in Tucson, Ariz.
Determining the right pricing starts with all the other data you collect on your feasibility study and proforma.
Feasibility studies are done at the outset of your project before you even purchase your property, but they should include all the data to tell you if your project will be feasible in your selected market.
If your feasibility study gives you good news about the viability of your project, a more detailed financial analysis called a proforma is done, which gives you a good idea of your competition, what unit sizes they have available, as well as their pricing. “When we do these, we tend to predict some shifts in the market,” says Frank Certo, director of property management for Guardian Storage in Pittsburgh, Pa. “Generally speaking, we’re conservative on the proforma because things typically go up; it’s rare to have to bring our prices down.”
Still, while these studies will lay the ground work for helping determine unit pricing when you open (among other things), you should go back and review and update your information when you actually open the doors. “It takes at minimum about a year and half from the outset to opening,” says Jim Ross, owner, 3 Mile Domination in Salt Lake City, Utah. “You really have to go back and start your market study over and get competitor pricing.”
Shopping Your Competition
Hopefully your feasibility study and proforma have given you the right unit mix that you’ve already built into your facility. You’re now looking for how you’re going to determining what your opening day pricing will be.
One of the best and most accurate ways to find out what your competition is doing is do some mystery shopping and ask them. This will also tell you other things about the facility, such as age and the condition of the facility. “You can see how clean they are, how well they keep up their maintenance, and make a note of their security features and other amenities,” says Ken Carrell, principle, ARE & Associates in Lake Forest, Calif.
Industry experts advise not to be shy about mystery shopping. “I’ve walked right into facilities and asked for all of the information I need and have gotten it,” says Mixon-Krendl. “I write all of the information I’ve gathered down and use it in my pricing. Owners really do themselves a disservice by not doing their homework upfront.”
Mystery shopping also helps you determine the facility’s occupancy, which is important in helping you determine your prices. “If they are below 85 percent, they are likely too high on their pricing,” says Carrell. “If they are at 100 percent, they likely aren’t charging enough.” Carrell adds that if their occupancy is somewhere between 92 to 96 percent, their pricing is likely just right for that market.
You should also check their pricing online, which may or may not give you additional information, such as discounts and incentives the store may be offering on certain sizes. “It maybe takes 15 minutes to do additional research online,” says Ross.
Competition And Guesswork
Once you have a new market study in place, you’re in the best position to determine what your pricing will be, which will help you hit your break-even point. If your market only has like competition, you’re in luck, but this is rarely the case. “It might be that you are a class-A facility in a market with a bunch of metal buildings with gravel driveways,” says Todd Amsdell, president/CEO of the Amsdell Group of Companies in Cleveland, Ohio.
Of course, your feasibility study and proforma should have already told you there is a market for your type of facility, but the existence of other facilities with not as many amenities may also tell you there is a certain price point at which you can reach.
Generally, if you can, you should be comparing your facility with those most like yours in presentation, sizes of units offered, and amenities. Some industry experts have a set price they will typically price. “We typically will take their price base and add .05 to .10 per square foot more,” says Carrell. “If we have only facilities that are not in our class, we will typically add more.”
Steve Mirabito, president of Storage Pro Management Company in Walnut Creek, Calif., says, “Generally, when we open a new facility, we’re within five percent of market with concessions.”
Todd Buese, director of revenue management for the William Warren Group in Santa Monica, Calif., states that his company will typically start with the comparable rates at the competition that is like in quality and set rates closer to those. “If a facility is at 90 percent leased, they will have higher rates, so we will discount to 10 to 15 percent of that competition,” says Buese. “That typically puts us somewhere in the average rents of that three-mile radius. When we gain actual experience in the market, we will move to our actual consumer demand.”
Certo mentions that Guardian Storage looks at the competition within the market as well as what their properties are doing company-wide. “We will look at our properties that are similar in demographics and compare the market to our own as our competition in that particular market may be less sophisticated in the business,” says Certo. “The bottom line is that it has to pencil out and make sense.”
Ross’ company takes a pretty aggressive approach to pricing when it comes to new properties. “Once all of your research is in place, then it’s decision time,” says Ross. “Will you price lower or at or above market?”
In Ross’ case, he’s recently opened up four new properties and all of the competition in the market is at 90 percent occupancy or higher. Ross says his property has these things working in its favor:
1). It’s a brand-new property.
2). There’s a clean slate with no history.
3). It’s the best option in the market.
“With these things going for us, we can get a premium in the market,” Ross says. “Now is the time to charge a premium; everyone else is full and we charge 10 percent about the competitors. It works wonderfully. It really comes down to a mental thing.”
It begins with having a new property, but just as important is having a good sales staff. “With a great property and a great sales staff in place, there’s no reason not to charge a premium,” says Ross.
Mixon-Krendl agrees. “You really have to have someone with personality who is highly motivated to sell a new property,” says Mixon-Krendl. “I have managers who ask to go to new stores because they are more motivated in that environment rather than in a maintenance position at an older facility. You have to have the people who like that challenge.”
You also need to know which sizes will bring a premium price. “Before we open the doors, we identify our premium units. The units by the elevators, the gates, and corner are marked up an additional 10 percent,” says Ross. “It’s those little things that add up and, for a big facility, those units can add up to 20 to 25 units.”
Amsdell doesn’t dismiss the idea that a premium can be charged on new facilities, but he advises not making the mistake of thinking that you will be cashing it in just because it’s a new facility. “The biggest mistake developers make is believing they will get a premium for just being new,” says Amsdell. “The developers who believe they can get 30 percent premiums on rent are the ones who don’t make it.”
Concessions And Discounts
“I like move-in specials,” says Ross. “I don’t go crazy; we might give half off the first month’s rent or offer unique selling features such as free use of the moving truck. It helps to lease up if we give a little something up front.”
Mixon-Krendl likes to give some discounts, but reminds operators not to create a situation where you’re leasing up but not meeting your financial goals. She describes a property that was in financial distress when she took over. “They had filled their spaces with so many discounts they were renting spaces for $30 that were worth $100,” says Mixon-Krendl. “You have to be careful, because there is a real fine line between physical occupancy and economic occupancy.”
Instead of rental discounts, Mixon-Krendl also likes to give incentives that aren’t tied to rent such as free use of the moving truck and even extra services like having a maintenance person from the property drive the truck.
Raising Your Rates
Every site and company calculates its break-even point at a different level. Ross’ company uses 70 to 75 percent leased up, while others use 80 percent or more. Many companies report it takes between six to 18 months to hit this goal.
However, if you wait on hitting your break-even point before raising rates, you’re likely going to be losing money. Instead of taking the whole facility into consideration, Ross uses a software algorithm that begins raising rates by a certain percentage as soon as each size begins leasing up, with caps on rates. Rates are generally raised within six months and again at nine months.
“We know the boundaries before we hit pushback,” says Ross. “When I mention this, most owners fear doing this will cause move-outs, but this formula works very well with very little push back from the customer.”
The William Warren Group uses a pricing algorithm as well, but theirs looks at the existing customer rates, the customer’s length of stay, and what they’re paying relative to a new customer. “We don’t want to penalize them for being an existing customer,” says Buese. The general rule, based on those factors, as well as the market, is a five to 10 percent increase after five months.
As with a new opening, the key to raising your rates and making a profit while remaining competitive in your market goes back to staying up on what the competition is also doing. If you don’t have software that does this for you or you don’t want to hire a company to do it, good old-fashioned footwork is key. “I just talked to one property for a study and asked him when was the last time he took a look at rates, and he got a glassy look in his eyes,” says Ross. “Some don’t look at their comps for months. It really only takes a little time to go online and check.”
Remember: Square Foot Pricing Isn’t the Only Way
Selling self-storage by square foot has been the traditional way for years, but Mixon-Krendl says many new facilities, especially in dense markets such as Hawaii or dense urban markets such as Hong Kong and New York City, are finding they can make a better profit selling by cubic foot.
“When you’re looking at such markets and doing your comps, you might be better off selling small, medium, and large units by cubic foot,” says Mixon-Krendl. In these scenarios, you’re selling height, width, and length, much like movers charge for packing moving trucks.”
Kerri Fivecoat-Campbell is a freelance journalist based in the Ozark Mountains. She is a regular contributor to MiniCo’s publications. Her business articles have also appeared in Entrepreneur, Aol.com, MSN.com, and The Kansas City Star.