Optimizing your self-storage rates can feel like a delicate dance.
How do you increase your revenue per tenant while also maintaining positive customer relationships and minimizing churn? Raise rates too aggressively and you might lose valued tenant relationships. But if you are too sheepish with your rate increases and watch your business stagnate and lose value if you ever decide to sell.
Like any good dancer, navigating this particular dilemma comes down to knowing the right moves and having excellent timing. But before we dive into the choreography, let’s go over why customer retention is so important in self-storage in the first place.
Why customer relationships are vital to self-storage
Maintaining strong relationships with your tenant base is important for any storage operation. Customers that feel valued are more likely to stay longer, refer leads, leave you positive reviews, and yes, even tolerate reasonable rate increases from time to time.
Here are some things to keep in mind when it comes to the importance of tenant retention in the self-storage industry:
- Acquiring a new customer is more expensive than retaining an existing one. By retaining customers, self-storage operators can increase their NOI and profitability by reducing marketing and advertising expenses—and lost revenue from vacant units.
- Satisfied customers are likely to refer friends and family to the self-storage facility, which can help the operator to grow its customer base through word-of-mouth advertising.
- By providing excellent customer service and retaining customers, operators can differentiate themselves from competitors. Strong tenant relationships can bolster your reputation, especially when satisfied customers leave you positive reviews online.
- The lifetime value (LTV) of a customer is higher than the value of a single transaction. By retaining customers, self-storage operators can increase the LTV of each customer, which can have a significant impact on the long-term success of the business.
Optimizing rates and minimizing churn
Ultimately, your goal as a storage operator is to increase revenue per tenant. Since self-storage leases are month to month, one of the most effective ways to do this is by way of periodic rent increases. Since self-storage rates typically increase over time, increasing the rate paid by legacy tenants to a figure closer to the prevailing market rate is a crucial aspect of running the business. If you were to allow your average rent per unit to fall behind the market, it would hurt the valuation of your facility in a sale scenario.
With any price increase, you risk upsetting or losing customers. But any customers that you do lose, you have the opportunity to rent their empty unit to a higher paying customer. This is what is known in the industry as churn.
There is no universally agreed-upon “good” amount of churn in self-storage as this can vary depending on factors such as the size of the facility, the local market, and the specific business goals of the operator. However, in general, lower churn rates are generally considered preferable as they indicate higher tenant satisfaction and a more stable customer base.
Measure churn by calculating the monthly churn rate: divide the number of move-outs in a given month by the total number of units occupied at the beginning of the month. A monthly churn rate of 5% or less is generally considered good in the self-storage industry.
Tips for cultivating customer relationships
The decision to rent a particular storage unit is more about just the price, but many other factors including proximity, operating hours, ambiance, and so on.
The decision to stay when a price increase letter lands in a customer’s hands involves all of those factors, plus the sum of all the good or bad experiences they’ve had at your facility. This is why ensuring a positive customer experience from the first point of contact helps support your ongoing rate optimization efforts.
Here are some potential areas to focus on when it comes to retaining tenants and building strong relationships:
- Value-added services: Operators can offer value-added services such as online account management, security, moving supplies, or delivery services to increase the value of the rental and the perceived convenience for tenants.
- Communications: Many problems arise from simple misunderstandings. Sending automated rent reminders, receipts and other alerts via text or email can help ensure your tenants have a smooth rental experience.
- Personalization: It can be hard to remember all of your customers’ names, but thanks to modern management software you can automatically send your customers personalized emails and texts. A tenant’s friends might forget to message them on their birthday, but you never will.
- Referral programs: Offering a one-time discount for successful referrals is an effective tactic to build a positive relationship with your most loyal customers.
- Going green: Some customers care more about doing business with a company that shares their values than they do price increases. Taking action to make your facility more sustainable by adding features like solar panels and LED lighting will resonate with eco-conscious consumers.
- Community involvement: Getting involved with the local community through sponsorships, donations or volunteering can help build a positive reputation for your business. Not only does community work generate leads and brand awareness, but community involvement also gives your customers a feel-good reason for sticking with you.
- Convenience: Being able to access a facility outside of regular business hours is a key differentiator for some tenants. Having gates and keypads that work all the time also helps. You may not associate having a functional, reliable and robust access control system with customer service, but try dealing with customers interfacing with a broken and outdated access control system and you will quickly understand.
- Maintenance: Raising rates while your facility is covered in peeling paint and riddled with burnt out bulbs is not a good look. Make your tenants feel valued by keeping up with maintenance and providing a safe and comfortable environment for them to visit.
- Rate increases: When raising rates, provide a justification. If a customer understands the reasons for a rent increase they are less likely to have an issue with it. Make sure the value of increases are properly reflected in the appearance of your facility, provided amenities, and the capabilities of your technology.
Keep it sticky
Self-storage tenants are often described as being “sticky”, as in they tend to stick around for a long time once they move in. How sticky your tenants are is ultimately up to you and how you treat them. When you continuously make improvements to your facility, provide a seamless rental experience, and find ways to show tenants that you value their business, you are laying the foundations for a loyal customer base.
When it comes time to present a rate increase, you hopefully have created a positive impression on your tenant and treated them in a manner that doesn’t give them a reason to move out over a few extra bucks a month.
