Bottom Line Builder – exceed your budget expectations

Although we all like to help the community and our customers through the services we provide, the self-storage business is just that: a business. Whether the product is shoes, office space, sports cars, or storage units, the success of any business depends on bottom line profits.

No matter how friendly the service, how accurately the paperwork is done, or how sparkling clean the building, no company can truly afford to keep a store which isn’t a profitable one. The primary measurement of a Store Manager’s, Regional Manager’s or Operational Manager’s value to the business is to what extent they have maximised income. Scores of compliments from customers and even high scores on mystery shops won’t make up for a manager’s inability to bring in the money. Fortunately, there are sure fire ways to take care of your store’s bottom line. Follow these simple guidelines and you’ll be a hero to your investors and the bank.

Increase Net Rental by Maximising Your Marketing

The main source of income at any store obviously comes from renting space. Empty space means there is potential income that is not being collected on a monthly basis. However, before a customer can rent a unit, something must compel them to call or walk into your store. How will they know you’re there? That’s where marketing comes into play.

With increasing competition, it’s important to make sure every advertising pound is spent wisely. Your efforts should include interactive Web sites where customers can actively make reservations and settle their accounts online, Management Software like our StorMan Pro product allows both of these activities so not only are you able to sell and receive money for your space, but it is all performed without human involvement. Another service to include perhaps, are virtual tours although there has been some concern about this method of advertising since criminals have been known to use them to plot burglaries. Optimising your sites position on the Internet is very important and you don’t always need a SEO specialist to create great results. Our site for instance is an informational site so doesn’t need anything other then the ability for people to locate what they want and we consistently rank number one in almost all the search engines across a global search and surveys and calls logs to track what generates business are also vitally important.

With increasing results from the high-tech tools companies is now employing, more and more are moving away from using Yellow Pages as a primary advertising media. What is most important, however, is to track what works best for you. The bottom line on advertising spend is the cost per rental of each effort. The aim should be to bring in new customers for the lowest possible cost.

Using call centres can reduce expenses, control receivables, sell more associated products and services whilst allowing your management team to maximise their marketing efforts. Many large operators across the globe have their own call centres employing highly trained representatives. Add in centralised data management of your company’s books via, say, StorMan MultiView they openly recognise that their call centre staff are more effective sales people than the store team. Sales conversions are another critical aspect of increasing occupancy. Marketing efforts that are highly effective in bringing people to the store are futile if the team there cannot close the sale. Hence, many operators invest in extensive sales training for their employees.

Occupancy is king but a word should be said regarding occupancy rates that are too high. My rule is that you never want to be 100 percent full. That is an indication your rents are too low and it would also place you in the position of not having anything further to rent, meaning you may turn people away. Managers and especially Operations Managers should be tracking the ‘economic occupancy’. This is the storage revenue banked divided by the potential occupied rent. I have seen stores that are over 90 percent occupancy, but only depositing as if they were 80 percent full. The way to fix economic occupancy is to master Yield Management. Reducing your discounts and adjusting rents according to size code occupancy brings us to what is perhaps the most important bottom line booster—keeping rents as high as the market will bear.

Increasing Rental Revenue

It is all too frequent to hear a manager proudly announce that their store hasn’t raised rental rates in several years. While this is undoubtedly a delight to their customers—the same managers will often boast 100 percent occupancy—it is not the way to professionally manage a self storage property where bottom line profits are key.

Instead, it is better to adjust your list prices higher as your occupancy climbs. Like the hotel and airline industries, the fewer they have of something, the higher the cost. Storage rates should move around. Putting through a price increase once a year and not adjusting rental from then on based on demand and occupancy is quite frankly ridiculous.

Increasing prices more than once or twice a year is a relatively new concept for self storage, but it is very effective. An example of a success story using this technique involves a 10-year-old store, occupancy consistently in the high 90 percent, and few units to rent. The first year they began to increase prices to match the demand they had a 14 percent increase in income.

It’s important to manage both street rates/rent, (for new rentals) and lease rates/rent (for current customers). Managing these structures and processes separately allows for maximisation of profits by dealing with each size code’s rate separately for the street rates. Using ‘Rental Activity’ report to do this quite easily. This is based on a size code reaching 90 percent or higher occupancy and/or having three or less of that type available, and then increasing the rate.

Raising the street rate in this way doesn’t affect your current customers, so that process needs performing separately. For lease rates print a report that shows the number of days the rate has been unchanged, then look at the longest period and for all those that are over a certain number of days at the same rate, start the rent increase notification process.“ I have heard operators say they never raise rents because some people may move out if they do. Dah! - A well-timed and prudent rent increase to existing tenants will almost certainly result in more income, even after a few vacate. Tenants will generally stay as long as they need storage and will tolerate reasonable increases especially if it is more hassle to move than to pay the increase, just don’t get too greedy!

Discounts should be treated likewise and you should turn them off and on the same way. It is much more beneficial to offer a discount only when price is a decision factor in the rental and never, ever offer the first month free unless you have a mechanism to hold the customer in. It’s just foolish; where else can you go and get the first month of anything for free?

Stores having a poor unit mix, something our customers never have to complain about, can lead to attempts to create demand by cutting prices. If you can only rent 50 percent of a size code, you are not realistically going to rent much more just by cutting your price. You need demand to rent space. Try doing something else like converting them to units that are in higher demand.

Reduce Operating Expenses.

If your economic occupancy is high, you can still contribute to bottom-line profits by reducing your operating costs. These costs include utilities, marketing and advertising costs, store maintenance, business insurance, payroll, and several other items. In self storage, there are some fixed costs you can do little about, but it’s wise to keep a rein on consumables.

A preferred method of keeping expenses under control is to simply refuse increases. Tell vendors that increase their charges, ‘Sorry, but I refuse your increase. If you want to keep my business, you cannot charge me more’. Try it, you may be surprised at how well it works. If you can’t get the increase waived but still want to stay with a particular vendor, you may be able to negotiate having the increase deferred for a few months. The best way to proceed is to look at each expense, even those that are ”fixed,“ and ask yourself, how can it be reduced?

Reduce Bad Debtors (delinquencies). For more information on reducing bad debtors see last month’s eNewsletter.

High delinquency rates can have a great impact on a store’s bottom line. Not only is the amount of uncollected rents missing from each month’s income but delinquencies cost you in employee’s time. Moreover, a unit that is disposed of rarely brings a sale price that compensates for the lost revenue. There is no pleasant way to do collections. The key is to make calls early in the process—frequently and consistently. For repeat offenders, once you’ve cut the lock in preparation for disposal, you might consider making a deal in lieu of the lien sale. Try suggesting what I used to in they pay you in cash or Debit Card for the back rent and you will waive the late fees. In turn, they must vacate the same day. Better to collect £300 from the tenant than to sell the goods for £50 to the highest bidder.

Sell Associated Products & Services.

You can also increase income by selling more than space. This includes services such as van hire and safe deposit/mail boxes. Some services are considered ‘lost leaders’ by many operators, while others gain income by charging for extras such as 24-hour access and delivery acceptance.

Retail sales can add a tremendous boost to a store’s bottom line. Although boxes, locks, and packing supplies may first come to mind, operators have had success with many other items as well. Success in retail is very dependent of the location and market. In the USA companies will stock RV and boat supplies at their sites that specialise in RV/boat storage. Occasionally, a specialty item will come out that does well at certain of our sites—‘Forearm Forklifts’ by Chateau Products come to mind. It is not uncommon for stores to clear £3,000 a month in associated sales. That’s a sizeable addition to bottom line profits.

The key is to not just have your stock on display, but to actively sell these items to your customers. I know you can sell 50 percent more furniture and mattress covers if you simply suggest they are a good idea.

Set specific goals for net income. I still find companies that have not bothered to set the simplest budgets and then complain when their business stagnates.  With all of these strategies, the important thing is to stay focused on profitability and attack from all of these angles. The ability to boost bottom line profits to the maximum is the mark of a true self-storage professional.

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