Self Storage Revenue Management
THE COMPLEXITIES OF PRICING FOR SELF STORAGE
Self-storage operators face complex pricing decisions every day:
- Which units – by size, location, or other attribute – should you decrease or increase prices for and how much
- When and what specific promotion to offer
- How and if to respond to competitive price changes
- How much and how often to increase existing tenant rents
Compounding these decisions are changing market conditions, progressively sophisticated competitors, and various customers with distinct demographics.
The only way to directly address these pricing challenges head-on is with Revenue Management. Revenue management removes the complexity and the guesswork out of pricing by using advanced algorithms to find the right price for each product every time. Done well, revenue management delivers customer satisfaction, loyalty, and retention, critical drivers of long-term value.
A True Self Storage Revenue Management System vs. an Imposter – Know the Difference
A proper self storage revenue management system generates prices based on fundamental, scientific principles that do not waiver.
For starters, revenue management is about understanding customer preferences, not your product lineup or personal preferences. Your prices need to be appropriately aligned and seem sensible to your end customers.
Secondly, self storage revenue management does not provide dynamic pricing just for the sake of being dynamic; you must justify why prices should change. Every decision, every algorithm, should be backed up by science and make business sense.
Thirdly, revenue management is not about blindly following your competitors’ prices; you need to measure the impact of competitive price changes on your demand. The best decision is to lead not follow most of the time.
Finally, moving forward with self storage revenue management requires leaving the past behind. What just happened at your self storage facility is less relevant than what is about to happen. You need to forecast demand and proactively price your units accordingly.
Forecasting Demand vs. Reacting to the Past
Forecasting is a vital profit driver and a central component of a self storage revenue management system. There are many forecast types (e.g., move-ins, move-outs, upgrades/downgrades to higher/lower-valued unit types, conversions, and cancellations). Each forecast type is based on many parameters (e.g., price, promotion, unit type, unit size, customer segment, competition, season, and other market conditions). The model parameters must be continuously validated against actual data for the forecast to be accurate.
Accurate forecasts provide critical input and confidence into pricing decisions and prepare you for low demand periods while capitalizing on high demand periods. Revenue management makes this possible using data patterns that eliminate guesswork and kneejerk reactions.
Let’s look at an example. It is June 1. And on this day, one of your self storage facilities has experienced 12 move-outs and 2 move-ins. What do you do?
Without the visibility that demand forecasting provides, the reactive human tendency would be to drop rates based on the occupancy loss.
However, your self storage revenue management system would tell a different story. Upon analyzing thousands of data points, the revenue management system forecasts that occupancy will increase in the coming month (the difference between the dashed blue and orange line) – expecting 19 more move-ins by the end of June.
Decreasing rates is the last thing you want to do, but without revenue management/demand forecasting, you cannot “see” this. In the end, this gut reaction would lead to unnecessary and preventable revenue losses.
The Benefits of Using Self Storage Revenue Management Technology
For self storage companies, the benefits of adopting revenue management technology are both tangible and intangible:
Maximize revenue per unit
Revenue management maximizes revenue from your operations, resulting in increased valuation of your assets year over year. On average, revenue management contributes an incremental revenue of at least 10%.
Reduces human intervention & pricing errors
It’s only natural that humans react to sudden market movements – a drop in occupancy or a new competitor. Revenue management removes the risk of human emotion by relying on the data to predict and make intelligent price or promotion decisions, saving operators significant revenue.
Predict customer behavior
It’s impossible to price optimally looking in a rearview mirror. However, with revenue management, the accumulation of accurate data over time allows you to uncover patterns in customer behavior, effectively segment customers and make intelligent pricing decisions. This takes over for gut instinct, where too much emotion and human bias can hurt your business and revenues.
Fewer resources dedicated to better results
Revenue management reduces the amount of time self storage operators spend on administrative tasks – pulling data and organizing reports – and increases efficiencies allowing you to focus on analyzing data and make strategic decisions.
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of your pricing process and opportunities to generate incremental revenue.