Deciding how to price your storage unit rentals is a challenging endeavor.
Market and competitor research will only take you so far. It gets you in the right ballpark, but it won’t help you narrow down your exact rates. Part of this is because countless factors change how much you can charge for your storage unit.
Is your competitor’s facility a mile down the road with easier access to local neighborhoods and highways? Or is it in the opposite direction and less convenient? Do you have better amenities? Are they a ground-floor facility compared to your interior multi-level storage facility?
It’s important to find the sweet spot for your rates. Too high, and you risk losing potential customers. Too low, and you might not be able to cover your various costs and put money back for maintenance, upgrades, expansions, and other important improvements to your business.
This post will dive into the solution to setting rates in a way that can make customers happy without losing you money: value-based pricing.
Let's take a look at what value-based pricing is, what the benefits are, and how to implement it at your self storage facility!
Value-based pricing is a model that has been present in many other industries for years.
In the industries of hotel rentals, car rentals, and airplane ticketing, value-based pricing provides convenience to customers by allowing options to upgrade or personalize the degree of service with each exposure.
Do you want a window seat at the front of the plane? Well, you’ll be paying more than a middle seat at the back. This is the more fundamental example of value-based pricing: paying more (or less) for the product or service that meets your needs.
Dr. Warren Lieberman and his team at Veritec are leading the way when it comes to value pricing for self storage. Other names for it are convenience pricing or value-optimized pricing.
There are many factors about a given storage unit that impact its value to a customer. Self storage value-based pricing is all about finding out what your customers value and setting prices for units according to that knowledge.
This way, your customers can choose what matters to them while still allowing you to offer options for customers concerned with price above all else.
While value-based pricing can be extremely complex and even change the price of a unit in real time based on demand and availability, there is a much simpler way to handle it for most storage operators:
Set price tiers.
Here is a simple example of how you can set up your tiers:
Once you’ve decided on your tiers, you need to assign them to different units within the same unit type. At the base level, group units by size. For example, take all of your 5x5 units and divide them among the three tiers.
If your facility has other ways to further break up units of the same size—such as having drive-up and climate-controlled units or a building with multiple floors—you can go even further. Have three different tiers for drive-up 5x5s and three tiers for climate-controlled 5x5s.
The goal here is to create a “good, better, best” impression for your storage units. However, the best way to achieve that is for your facility and unit mix is up to you.
Value-based pricing is rooted in the concept of understanding your customers.
Value pricing isn’t just about maximizing your returns. It helps accomplish this, but it also allows you to guide customers and offer a price range for a given unit type rather than a one-size-fits-all approach. And let’s face it; one size almost never fits all.
Are you looking at your facility and thinking, “But all my units are basically the same other than the sizes”?
Don’t sell your facility short! If you only look at numbers on a screen or piece of paper, then maybe all 5x5s are the same, and each 10x10 is just like every other 10x10.
But that’s just not true. At least, not for your customers.
Some differences are obvious to most people. A climate-controlled unit will probably cost more than a drive-up unit. A storage unit with a power outlet should be another step up in price. Other factors might be less obvious, though.
Here’s a short list of some (but certainly not all) factors that alter the value of a given storage unit in a customer’s mind:
These are features that nearly every storage facility has. You may not have drive-up access or an elevator, sure. Still, in general, these are just valuable aspects of different storage units that are present just by the nature of how a storage facility is built.
Did it ever occur to you that a customer might pay more each month to have a unit that was close to the gate? Not every customer will, of course, but that’s why you give them the choice! Pay more for a 5x5 near the gate or pay less for one further into the facility.
Not only does this process of pricing your features help to price them correctly, but it also helps to sell, communicate about, and market these features in the future.
Look at these features through the eyes of your customers, determine which ones have more value, and price your storage units accordingly using value-based pricing. It helps you and also gives your customers more options.
Put the customer in control.
There are five significant ways value-based pricing creates success for self storage operators that implement it with care.
If your customers are renting online—and there’s a high chance they are—then they can’t see the value of a given storage unit in person.
Creating these value tiers for your storage units and accurately explaining them on your website helps online shoppers understand the value of each unit and why they benefit from renting from you.
That is why the hotel, car rental, and airplane industries have implemented it with success. Most modern customers exist online and want to be able to compare and act on buying decisions immediately.
Creating a value-based pricing structure at your facility and having this reflected on your website will result in more rentals and increased revenue.
How do you upsell someone in self storage? If all of your 10x10s cost $100, an upsell means upgrading to a larger unit—and what need is there in that if you know you only need a 10x10?
Value pricing makes upselling easier by creating other ways to upgrade. It also allows you to have relatively minor disparities in price that make it more convincing to go for the higher rate. You may not want to upgrade to a larger unit for $30 more, but what about a unit closer to the elevator for only $10 more?
This is tapping into a part of the shopping experience that customers are already used to.
They are accustomed to being offered seat upgrades on planes, a nicer car at the car rental agency, an ad-free experience on their streaming service of choice, or even a drink size upgrade at a fast food chain.
More pricing options mean less need for discounts.
Many customers like to feel as though they’re getting a deal. If we take the earlier example of $100 for a 10x10, this means the only way to give a deal is to discount your rates. Do this enough, and it cuts significantly into your bottom line.
Instead, imagine that you have a 10x10 on the second floor for $90 and a 10x10 for $110 on the ground floor.
Suddenly, a customer that wants a deal more than convenience can opt for the second-floor unit for less money!
Everybody has different preferences. Having a wide range of prices for a variety of features means that you can try to meet those preferences more precisely.
Even more important is the guided experience created by value-based pricing.
Because your customer base is diverse, there are different things that some might value more than others. Explicitly organizing your storage units into categories based on things some of your customers may value helps guide your customers to the right choice for them.
All of these previous points bring us to one ultimate goal: increased revenue.
When implemented properly, value-based pricing helps you increase revenue at your storage facility while simultaneously making customers happy and giving them a better experience.
The self-storage industry trains facility managers as salespeople.
Self storage managers are in charge of so much of the day-to-day operations that being an expert in sales isn’t always easy.
Value pricing explicitly avoids hard selling. This pricing concept emphasizes the expertise of managers. Instead of a salesperson, value-based pricing creates problem solvers out of managers.
These price tiers will communicate the cost of features, sizes, and locations concisely. Managers will then be asked to join the process to advise and help customers.
Instead of expecting managers to create the value of a unit based on the customer they’re speaking to, value-based pricing provides a playbook for the manager. Not only is value pricing great because it gives customers choices, but it also allows the manager to explain the reason for the price disparity and let that statement guide the customer’s decision.
This value-based structure is different than the traditional self storage model of having managers sell units at whatever price and then raise rates strategically. That model does not create convenience or value for tenants, and it puts more pressure on managers.
By comparison, value pricing does the selling for your manager and empowers customers’ decisions at the same time. The manager only needs to be a helpful guide!
Ready to get started with value-based pricing at your storage facility? Here is an outline for how to implement it!
Value-based pricing and the success it can provide to your facility and self storage operation calls for a commitment.
It’s a commitment to research, training, and having the correct tools to execute the plan. This includes appropriate software and an integrated website.
It also means understanding the perspective of your customers. It means giving them the choice to select the right unit while providing the guidance they need to do so.
Value-based pricing will remove the noise and mistrust that modern customers may experience based on current and past sales tactics. We need an appropriate pricing scheme to continue to add value to our tenants' lives.
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