[This blog was updated December 2024]
Everyone has that one tenant that’s been here since the doors first opened. They pay on time, visit rarely, and don’t cause problems - but they’re still paying the same $20/month they signed up for two decades ago.
Now, if you’ve just got one good tenant like this, you’re probably fine.
But what do you do if you’ve got ten, twenty, or fifty units filled with tenants paying far below your street rates?
Recently, Universal Storage Group shared some wisdom with us. They managed to make more money in 2024 even with fewer renters - and over a time period that saw most of the REITs decreasing in revenue!
Self storage has gotten a lot harder in the last two years, and operators don't have the same slack that they used to. If your tenants are still paying what they paid 5 years ago, you're falling behind the market.
Raising storage rates requires a careful hand. If your tenants have been paying a certain amount for a long time, they won’t appreciate being charged more.
Luckily, you set the stage for this conversation and cast this unpleasant change in the best possible light! We'll draw some advice from USG's playbook to help you make more money without needing more renters.
Demand was really strong through 2021, 2022, and even early 2023 - but it's not now. It's harder to find tenants, and operators are having to drop street rates to get new renters.
That makes folks nervous about raising rates. If renters are hard to come by, you can't afford to make anyone mad, right?
That's true to an extent, but if you never raise rates, the outcome is the same as if you were getting far fewer renters.
Empty units aren't bad. You need to have a few units open so you have a product to sell. If your facility is 100% full, you need to be raising rates! Conventional wisdom is to aim for somewhere between 85-95%, depending on who you ask.
Raising rates is a tricky balance between how much new income you’ll bring in and how many tenants you’ll lose. Some tenants will get irritated, feel cheated, or simply be unable to to pay the new price - your goal is to make that percentage of tenants as low as possible.
Pug Pro Tip: The fear of losing renters is often worse than the reality! Most renters won't care enough to say anything, but you might get a few irritated customers. If you have a plan in mind before making the increase, you can keep the move-outs to a minimum.
Check out our Rental Rate Increase Letter here!
Increase your rent when:
If you’ve decided you do need to raise rates, where do you start?
First, you need to decide whose rates you’re going to be raising. If you have a rate lock guarantee, you should never go against that, and you shouldn't increase rates on tenants who have only been with you for a few months.
Instead, find those tenants whose current rates are furthest away from your going market rates. These are your greatest potential for actually increasing your revenue. They’re also the ones you’re most likely to convince that you’re not gouging them.
This is the big trick for raising rates, which Stacie Maxwell of Universal Storage Group shared in our recent Marketing in Slow Markets GabFocus session.
**Raise your street rates before you raise your tenant rates, then point out to your tenant that you’re still giving them a discount.**
Obviously, your tenants will be annoyed if you try to charge them more than you advertise to new tenants (even though lots of businesses do this). That means if you feel like you need to increase rates across the board, start with your advertised rate.
Then, offer your current tenants a bit of a discount off that listed rate. This way, you’re showing your tenant that you value their loyalty while still showing that it was time to increase their rental rate.
When you're raising your self storage rates, there are some things you might want to keep in mind to make the process as smooth as possible.
Regardless of how tactfully you raise someone’s rates, you’re going to upset some tenants. Some will get so annoyed that they move facilities - this is baked into the rate increase.
If you have 200 tenants, and increase their rent by 10%, you can afford to lose 20 tenants before you're actually losing money.
Raising rates can be scary - you don’t know how much business you’ll lose! But self storage operators have a few big benefits in this scenario.
Number one, your tenant would have to do a whole lot of work to move out. Unless your rental rate increase strikes them as particularly unfair (or they simply can’t afford it) they have a strong incentive to stay.
Number two, your rate increase shouldn’t put you above the market rate. We recommend raising your existing tenant rates to something lower than your street rate, so they still feel like you’re treating them well. If your new rate is higher than what they can get at a competitor, you may need to reconsider.
Driving demand can be tricky - many of the REITs offer significant discounts for new customers and if you are competing with them, you can’t have a street rate doubling theirs. We know the REITs are going to raise rates quickly and customers will end up paying the same there as at your place (if not more), but how do you convince the new renter of this?
Some of our operators have had success by offering three-month discounts! Self storage renters often underestimate how long they’ll be storing, so they may think they’ll only need you for three months anyways.
If you’re open and clear about the three-month limit on the discount, you can bump them up to a fair market rate without much difficulty. We’ve got a list of self storage discount plans to try if you’re looking for ideas.
Balancing demand, revenue, and customer experience is tricky. You can’t run a business by making all your customers mad, and you can’t get any customers at all if you’re charging over the odds.
But if your rates are too low, you won't stay in business for long.
The sweet spot is out there -- you’ve just got to put in the time to find it!
Learn more about the importance of reviews, and how to handle them, with these:
