3 strategies on setting new rent levels and telling your customers.
There is a saying – “prices only change in one direction – up.” Whether that holds true always is up for debate, but there is no denying that self-storage owners face higher bills for utilities, maintenance, and upkeep. Demand for units is steadily growing globally and whenever demand grows, so do prices. Pricing is a crucial part of your business. Price units too high, and you risk losing customers; Too low, and you leave money on the streets. In this guide, we compiled techniques for a pricing review and advice on communicating price increases to your customers.
Generally speaking, price reviews for self-storage are trickier than for residential real estate. There are fewer laws regulating the business in most places, and there are no rent caps or indexes. The underlying cost drivers are the same:
Area & Convenience
Accessibility & Location (stations, major roads)
Property size, facilities, and offers
But finding comparable information is more challenging, and as such, customers often settle for the first offer they find. As a result, pricing is less of a marketing tool than in other industries. However, this is changing as the increasing rates of digitalisation in the self-storage industry are bringing more transparency. Customers expect to see prices on the provider website, and companies comply. As a side effect, it becomes easier to review your offers and compare them with the competition to gauge what is happening in the industry. Competitor-based pricing is one of the basic strategies to find an appropriate price point for a product. It is quick to research and easy to implement the methodology. Even if you set your rent levels with a different strategy, a regular price review will help you keep tabs on the competition. Information is power. More transparency in prices also opens the doors to using pricing in your marketing through discounts and promotions.
Aside from your competition, your facility provides plenty of information about your pricing levels. If your occupation is always near 100%, it is a sure sign that your rates are too low. Your product mix and customer demographics also offer valuable insights. For example, how is the demand for different unit sizes? Moving is a hassle, and if the hassle is not worth the money, customers will stay with you. Experience shows – tenants who have mostly bulky items, have a unit far away from the parking lot, or an upstairs unit are more reluctant to move out. On the other hand, students and bargain customers will more likely terminate their lease because they are sensitive to price changes. This calculation is important because the rent increase must cover the lost income due to contract terminations until new tenants move in.
Raising prices, especially for existing tenants, is a touchy topic. Many managers are reluctant to take the step because they fear the onslaught of angry emails or cancelations. Most resort to increasing prices for new leases but leave the existing ones intact. Because costs grow every year, such tactics eat into the profit margins.
The good news is that your customers most likely understand the concept already. It is not only self-storage, which is getting more expensive, but rents, utilities, groceries, and everything else. Informing your clients about increasing their rent is a part of the business. Here are some tips on how to go about them without angering your customer base:
Whenever you increase prices, you must update the information on your website and elsewhere. Avoid unpleasant surprises by quoting your customers a price higher than advertised. You should always keep your website up-to-date, but the price list is the most crucial one. The only exception – special discounts and promotions you offer the customer to close the deal.
Price adjustments should follow a regular schedule. Your customers will know what to expect if you review and adjust them by 5% every March, for example. The actual price increase will depend on your business factors like costs, demand, facilities, and competitor situation. If you recently refurbished all units and equipped them with a better security system, most of your customers will understand that their rent will be higher next year. No matter how small, property improvement is always a good argument to explain price increases to customers. If your notification does not state it specifically, the subconscious mind will fill in the gaps and increase acceptance. This holds especially true if you have not raised your rents in a long time, or ever. You will have to handle your customers, especially long-term ones, with much care.
- Value loyal customers
Being a long-term customer gives no immunity against price increases. But long-term customers are the safety-net of any business, so keeping them happy and content requires a careful balancing act — our suggestion: a loyalty discount. If you hike up prices by 7% for all clients, make it 5% for those with ten year or older leases.
- Smart timing
If you opt for regular/ annual rent increases, time them right. Few people want to pack boxes and move out in the height of summer or deep winter. If you announce price increases around such ‘inconvenient’ times, you will reduce the number of clients who will terminate the contract due to the price increase. They are also both low seasons for self-storage, meaning that the competition likely will also be increasing prices and not trying to lure in new customers with sign-up discounts.
- Proper notification
Notify your customers at least a few weeks in advance, even for regular increases. No one likes unpleasant surprises on their credit card bill. Use every psychological trick in the book. Instead of naming the new total rent, say only the amount increased by. ‘10 USD more’ sounds very different from ‘350 USD’. Chances are, that many of your tenants don’t remember the total annual rent because they set it on auto-pay or credit card payment, there is no need to remind them needlessly.
No matter how well you prepare and how justified the increase, some customers will still complain at the end of the day. Accept this as a part of business, try to calm them down, and move on to the next point on the agenda.
Related Article: Psychology of self storage pricing