When do I increase my unit rates? By how much? How do I tell my tenants?
It's a fine line to walk when addressing this issue. You don't want to increase rates too often and risk angering your tenants, but you need to increase soon to maintain economic viability. You don't want to raise the rates so high that you start receiving complaints, but you should raise the rate to match the current market. You don't want to run off any of your tenants, but you have to break the news to them.
These are tough dilemmas that you may not feel comfortable facing (completely understandable!). However, there are ways to raise your rates that won't cost you your business.
Knowing when to increase your storage unit rates is a mixture of research, occupancy, economic viability, and rate history.
When you aren't sure what you competition is charging and what the current demand is, it's time for research. You can go online and find out what your competitions are charging to see if you're charging in the lower end, higher end, or somewhere in the middle. If you're charging significantly lower than your competitors, then it might be time to consider a rent increase.
After researching the competing rates, you should take a look at your occupancy level. If you're at 100% occupancy, then you should consider raising your rate.
You might worry that you could lose tenants after working so hard to fill up every unit, but you're probably missing out on good cash flow. We'll elaborate more on this later on.
One of the most basic factors that could push you to increase rates is the economic viability of your facility. At a minimum, you should be breaking even, but if operation costs have risen or something has caused your facility to fall behind financially, then an increase is necessary. Perhaps you could be relying too heavily on discounts, or you just haven't raised rates in several years.
Either way, if you business is struggling to stay afloat, a rate increase might be what saves you.
However, if you've already increased your rate twice this year, then perhaps now is not the time to increase it again. It's recommended that you don't exceed two price increases per year. Keeping a record of rate increases will ensure that you aren't overwhelming your tenants with new rates every few months - something that can easily push them to move to a different facility.
As you can see, there's no simple science to determine when it's the right time to raise rates. There are several factors to consider and research to be done, but if it's done right, you could see a major jump in revenue.
Not all storage units are made equal, which is why rates typically aren't increased across the board. You should be selective about which ones go up, and which ones stay the same.
To start, you can look at which units are more popular than others. If there's a particular size that usually sells out faster than the rest, then you'll want to target those first.
Once you increase the most popular storage units, the ones with more space will need to be increased, too. For example, if you choose to increase your 10x10 units, then you'll need to increase the rate for your 10x15 units as they provide more space. It's like the domino effect.
You can also lean on the 'perceived discounts' method - a pricing strategy USG discussed earlier this year in a presentation. This method relies on raising the rates of the units surrounding a specific type of unit, making the unaffected unit look more attractive. To your customers, it appears as if that unit has a special discount, which could encourage them to rent that one over another.
Of course, you want to be mindful of the individual tenants as well. If a tenant just moved into that storage unit a few weeks ago, it's best practice to not raise their rate right away. There's no universal rule as to when you should raise rates on a new tenant, but I would give them grace for at least three to six months.
Now that you've decided which units will be getting a rate increase, you have to figure out how much that increase will be.
This is a good time to return to the research method that we mentioned earlier. If you have no idea how to price your 10x15 units, then you can take a peek at your competitors and see how much they're pricing theirs - but we're not stopping there.
After discovering what your competitors are charging, you can analyze your own units and determine if what you have to offer has more value.
Use these answers to help you determine your own unique price rather than just copying your competition. Your storage unit values may be different from theirs.
Once you've done this research, it's time to consider your economic viability.
Economic occupancy is the percentage of the actual revenue taken from the revenue you would be making if your unit occupancy was 100% and all tenants were paying your current unit rate. If your storage facility is at full capacity, then you probably aren't charging high enough.
Clearly the demand is there, so you can risk inching those rates up. Many operators aim for 85%-95% occupancy for this very reason. If the units are booked, raising the rate carriers less risk as the market is healthy and the demand for storage units is high.
Before you make these increases, you might want to do some math to make sure that it's worth it in the end. While an increase may be completely reasonable in your case, that doesn't always mean your tenants will see it that way.
For example, if you are renting 20 of your 5x5 units for $50 a month (or $1,000 when all combined). If you raise your rate by $2, losing a singular customer could result in revenue loss.
However, if you increase the rate by $6 (to $56 a month or $1,120 combined), you can lose up to two tenants before taking a revenue loss.
If you really want to risk it and increase the rate by $15 a month (to $65 a month of $1,300 combined), then you could lose up to five tenants before taking a financial hit.
Whether you lose a tenant or not, you would have increased your revenue by $300 and if you're in a good market, there will be customers to refill those empty units.
While raising your unit rates is sometimes necessary, it's not likely to fill your customers with joy.
Before you break the news to your current tenants, you should update your street rates right away. Update the rates on your website, social media, Sparefoot, etc. After your street rates are updated, you can break the news to your tenants, and prepare for some push back.
After all, nobody wants to pay more for something that they already have. When it comes to breaking the news to your tenants, it's best to air on the side of caution.
If you've chosen to raise your unit rates without ever communicating with your tenants prior, not only could you be breaking their trust, but you could be breaking the law.
Your tenants deserve enough notice to decide if they want to continue renting their unit, or if they need to adjust their monthly budgets.
It's generally recommended that you give your tenants a minimum 30-day notice, just as you would if you were a landlord of a rental property. You may also want to consider practicing transparency by explaining why the rate is being increased so your tenants have a better understanding.
Now, what is the best way to notify them?
To ensure every tenant receives notice before the price increases, you should reach out to them in several different ways by:
Of course, you don't have to notify them in four different ways, but I would pick at least two. Some people don't check their email regularly, and others might not open the letter you sent them for one reason or another. No matter the case, it's better to be safe then sorry.
If you're confronted with an angry customer over the increase, it's best to start with an apology for the inconvenience. You can offer them a smaller unit with a rate that best fits their budget, or point out that the street rate is still higher than their total monthly cost after the rate increase.
If your street rate is higher than the rate increase for your current tenants, then you could explain to them that they are still receiving a discount, and that's the most that you can afford to give them.
No matter how upset a tenant may become, most won't move out. Moving out would require them to shop for another storage unit, pack up all of their belongings, and make the trek to another facility. That's a lot of work!
Keeping all of your tenants happy is just like determining when to increase your rates. There's no simple way to do it, but with great resources, hard work, and consideration, you can get started in the right direction.
