Tip:
Highlight text to annotate it
X
Jim: I�m Jim Ross. He�s Matt Vanhorn, and this is the Three Mile Domination Podcast.
Jim: Well, here we go. Another episode of Three Mile Domination Podcast. How is it going
Matt? Matt: I�m doing well, and yourself?
Jim: Same old, same old. It�s another week, and if you blink it flies by. So, here we
go. Matt: Absolutely. It seems to keep going on
and on. Jim: Yep� That�s good though. Like I say,
we�re being consistent on knocking these things out, so that was the goal when we first
started this, was this being consistent. So far, so good�
Matt: Yeah, so I guess this week we�re going to go ahead and hit on revenue management
a bit. Jim: Yeah, I mean, again, the point of this
is really to give people listening an actual plan of what they can do and this is pretty
simple to do. It seems like a lot of places don�t do it effectively or consistently,
and that�s raising rents. Matt: Or at all�
Jim: Yeah, exactly. Matt: I think, and guys just to preface, this
week I�m working on a webinar for the Florida Self Storage Association for revenue management,
and in revenue management, there�s lots of things to talk about. People sometimes
confuse revenue management just with rate management, and it�s really not. If you
want to have a discussion about rates, that�s a five minute conversation. It�s not really
hard. You program in the computer. You tell it how often you want to raise rents, and
how much, and it does it. That�s really a five minute conversation, but revenue management
encompasses everything that we do to increase our revenue. A lot of things we do help and
some of the things we don�t do hurt. We�re going to focus a little bit on rates today,
but one of the things that we�ve been talking about with the rate management people no doing�
I think really with the economy and as many competitors as people have, they�re just
scared to do it. That�s my opinion on it. Jim, I know you talked to a lot of owners
as well, but I think that�s really what it boils down to.
Jim: Oh no� I�ve actually had them physically� They say, �I�m scared to raise rents.�
It all boils down to they�re thinking their going to get their rate increase letter and
it�s going to be mass exits, people leaving the facility and they�re going to be left
with a bunch of vacant units. And we�ve done it time and time and time again. That�s
just not how it plays out. Matt: No, not at all. And one of the reasons
is, is we can start this off just by saying that if you�re listening to this and you�re
looking at your occupancy statistics report or your management reports on your computer
and you�re 100% occupied, you�re really losing money. You should never be 100% occupied
in my opinion, now. That�s a lot of goals for a lot of owners and managers, and they
say, �Oh well I�m 100% occupied.� Well, you know what? Physical occupancy is not necessarily
the greatest guide for the performance of your facility. In the least� If you�re
100% occupied, but you�re only getting 50% of your rate, then you�re only 50% economically
occupied. And that�s really where this boils down to, because economic occupancy is what
drives the finance factor of your facility to get refinanced. To get construction loans�
To get these kinds of things, your projections and your revenue is really all that really
matters when it comes down to the bank. So, when you say I�m 100% occupied, that really
doesn�t tell me anything. All it is, is that you�re turning away potential customers
who want to pay money for storage, that really should be paying more and are going to your
competition. So it really doesn�t help you in the long run.
Jim: Yeah, exactly. It looks cool when you look on the software and you�re 100% occupied,
but I�d much rather have more money in the bank versus being 100% occupied. We tried
to touch on a specific goal, so what�s the techniques to start raising rents?
Matt: Well, first of all, I want to address that fear that we talked about to begin with.
There really shouldn�t be any fear in raising the rates. You really need to think about
it from a customer�s standpoint. Everybody is used to getting their rates increased.
I�ll give you a perfect example. Just this week I got a letter from my health insurance
company. My rates went up. They just did� It�s going to happen to everybody. It just
happens as we get older. There�s nothing we can do about it. People are used to it.
People are used to their utility bills going up, their property taxes going up. People
understand that the prices go up. And the other thing is even if you sent out a number
of rate increase letters. We�re going to focus on rates right now. If you sent out
a number of rate increase letters, how many people really know what the other person is
paying in your facility? So if you sent out a rate increase to three hundred people, nobody
really knows what each other is paying. If you get on an airline, or a flight� Say
you�re going from the east coast to the west coast, and you paid x number of dollars
for your ticket, nobody else really on that plane, every body most likely paid a different
price for their ticket, depending on when they got it, where they�re flying from,
what connections they have. So this idea that we have to be scared that they�re all going
to talk to each other and they have this tenant meeting that we don�t know about is really
crazy. Think about all of the industries that do this, and you get price differentials and
price increases depending on when you booked, where you booked, where you�re coming from�
Hotel rooms, airline tickets, sporting events, concerts, things like that� People are used
to it and everybody pays a different price but doesn�t really know, they don�t talk
to each other. So these things� This idea that all of your tenants are going to get
together and have this coo, and they�re going to flee your facility� I think it
is probably a little overblown. But, the idea of raising your rates� You have to raise
them. Our employment costs are going up. Payroll, healthcare, bonuses� If you offer those
at your facility, they�re going up every year. Your taxes, your property taxes, personal
property taxes, things like that� They�re going up every year. Your utilities, your
power bill, especially if you�re� I�m in Florida. You run a climate controlled building
down here, it�s awfully expensive with the air conditioning. Water, waste disposal, phone,
internet� All of that goes up on a regular basis. So we really don�t have a choice
but to raise rates, because again, you�re not a money tree. One of the things I like
to explain to my managers is, you take your electric bill at your house and put another
zero on it. That�s what it is for a commercial business. Or your property taxes� Add another
zero on it. That�s what it is for us. We�re not a money printing machine. We really need
to be able to manage our revenue to cover these kinds of costs.
Jim: Exactly. And kind of going back to the factor of just doing it... A lot of owners
and managers kind of get it up in their head about worst case scenario and all this. With
the technology now and the softwares, you just do the automatic rule, put it in, take
that emotion out of it, and� What�s that little� Set it and forget it. I used to
be an old infomercial addict. Set it forget it kind of a thing. This is kind of what we
do as office managers, and again, we�re not geniuses. We ripped people off from extra
space when I did these� With all their sites� Do you remember how they did that, when they
came up with the percentages? Matt: Sure� Let�s� Yeah. Yeah, let�s
go ahead and talk about how the rates do it. I actually sat in an hour long rate management
seminar with Extra Space, and they explained exactly how they did it. It�s nice when
you have a thousand plus facilities to run these nice little controlled tests on, statistically,
to find out what works and drives people away, and what actually people will handle. Extra
space found that they can increase rates on their current customers up to seven percent
and as often as every nine months. That goes pretty much away from what the standard industry
practice is of every twelve months. If you can get that down even a couple more months
our revenue will increase. Now what they did say, and this is something we might want to
consider when we�re looking at our rates, that they didn�t want to go above one hundred
twenty five percent of what their street rate was, if I remember correctly. So there is
a limit to what people will take. You can be the highest in your market, but that doesn�t
mean you can be overly, aggressively higher than everybody else, or that will backfire.
Also, I�ve listened to Dean Jergen, who is the CEO of Cube Smart. One of the things
that they do, is they increase rates six percent on current tenants at the six month mark and
then every twelve months. So that�s how the [inaudible] do it. I really believe�
Jim: I know for our sites, I have mine programmed at a seven percent increase at six months
after move in and a seven percent increase every nine months after that. And I�ve been
doing that for years and it kind of spreads it out so every month some tenants are getting
hit with that rate increase. I used to get a [inaudible] living in Utah. You used to
get the weather changes. I used to be over the baggage of, when it�s winter� I hit
them in the heat of summer. We�d do rate increases again. It seems doing this auto
program the day they moved in and then every nine months after that� It spreads it out.
You�re not getting these big hits like that, and I love it. We�ve done that for years
now and I can definitely see the increase and the rates coming in and it makes the managers
a little bit easier on them. I know when I used to do it all at one shot, hitting everybody
with a rate increase at one time, yeah if you look at all the sites, you�d get some
people that would call and complain and make the manager a nervous wreck, but now when
they�re spreading it out this way, and it�s only a handful every month to get in like
that, it�s a lot easier to take for the customers and for the managers. And again,
most people don�t complain. What is your philosophy when someone does call in and they
say, �I�m moving out? You�re raising my rents. I�m moving out.� How would you
handle that? Matt: I think we�d have to take it on a
case by case basis. Really we do� And I know that�s not the answer that everybody
would like. A straight forward black and white answer� And there really isn�t one. Let�s
say they have a ten by twenty climate control, and you have none available, and you have
a waiting list. Are you going to necessarily waive that increase for someone? I guess that�s
up to you. I think you�d have less of a problem if you say no and they do move out
and you have five people on your waiting list. I don�t think that�s a problem. Do I think
it can be a customer service thing if we waive one of them and your customer feels like they
got a win and they�ll be able to handle it better when the next one comes around?
I think that�s a possibility too. I think you really need to take it on a case by case
basis and kind of feel the situation out. In most of our markets, we�re not really
in the business of wanting to lose any tenants. Just because you do have five people on the
waiting list doesn�t mean they�re all going to run down and rent that day. Sometimes
I think we have to take that into consideration when we�re looking at this, but I� A lot
of times when someone will do that, I waive the first one if they complain. And I�m
talking about if we send out two hundred fifty of these we might have three people call.
It�s a very small percentage. Most of them are really trained now in general to be able
to take rent increases, but I think it�s a case by case basis on what you want to do
at your facility. You have to make that decision on your own. But those are the factors that
I would consider when I make it. Jim: Exactly. And that kind of leads in to
what we�ve talked about before about the importance of getting people on auto pay.
It�s a lot easier of a pill to swallow sometimes when people are on auto pay and they get the
rate increase letters. It�s under radar. They never call. So again, that kind of delves
nicely into what we talked about before, about when they�re coming in to rent and they�re
moving in that day, get them on auto pay right from the get go. Because yeah, when you implement
these rate increases they don�t call. It doesn�t seem to hurt and they say they pay
the higher rate. Matt: I think our auto pay customers are less
price sensitive than others. I think that�s one of the reasons it makes it easier on them,
but one of the things that we discussed when we gave our speech at Inside Sales Storage
this year� One of our topics was How To Make It Easier To Do Rent Increases or Rate
Increases. Revenue management is a hodge podge of a bunch of different stuff. But just for
this discussion in rate management. How do you make it easier? One of the things you
can do is train your managers. We really don�t do a great job of this sometimes. I think
we all need to sit down with our site managers and explain to them exactly why this has to
happen. One of the downfalls in our industry, I really believe, is that we�ll give control
of our three or four million dollar self storage facility to our manager, but we don�t train
them on anything on finance, on how to read a PNL, what the expenses are on a monthly
basis, comparing what our revenue that comes in versus our expenses, what NOI is, how do
we calculate what our facilities are worth� This kind of training, we don�t do. But
we�re giving control of a five million dollar investment to someone off the street that
we�ve hired, so I think if we train our managers first off why rate increases are
necessary; show them the increases in property taxes or your insurance. I mean, my property
insurance at one of my properties this year in Florida went up 22% and there was nothing
I could do about it, because trust me, I shopped that thing like crazy. But there was nothing
I could do. So now I�m dealing with a 22% increase on my monthly insurance bill every
month. So, these are the kinds of things we need to share with out managers so they understand
that we�re just not a printing press, because really all of our managers, half the time,
see these revenues coming in and they�re making the deposits, and they�re saying
oh my god he�s making fifty thousand dollars a month. Well, you�re really not when you
take into consideration all of our expenses. The next thing you can do to make it easier
is make your increases automatic. Just do it. I can tell you, and I�m sure Jim has
a similar experience, you really don�t want to rely on physically sitting there and doing
your rent increases. When you start asking your managers about rent increases, then all
of a sudden someone comes up that they don�t think should get an increase, or somebody
they�ve become friendly with on the site. Oh we don�t want to increase this person.
They�re going through this and they�re going through this. By the time we go through
the list, we don�t want to increase 75% of our tenants, because everyone�s going
through something. Your management softwares, now, are so intoned with revenue management
that you can go in there, plug in a rate percentage increase, plug in how often you want to do
it and just do it automatically. Don�t even ask anymore. Just do it, and if individual
situations come up, you can address those individually. And the last that I have on
my list to make it easier is [inaudible] and get everybody on auto bill. Our auto bill
customers tend to be less price sensitive than our other customers.
Jim: I couldn�t agree more. Exactly... It�s kind of funny how you just mentioned about
just doing it and not thinking about a case by case basis, just doing it. And if they
call in later, then you can talk to them. I just had this conversation last week. I�m
doing a consultation with somebody here locally, and it�s one of those mom and pop places
and the owner knows everybody, and when I asked him when was the last time he did a
rate increase, he had to stop and think, I don�t know, and� So we started looking
at the software. It had been four years since he last did a rate increase. I just can�t
imagine how much money he has left on the table over those four years. So I said fine,
we�re going to do it right now. Can�t look at the past� Let�s just sit down
and do it. Well he fought me on every other tenant. �Oh you can�t do that man. He�s
going to school right now. Oh, he�s been here a long time. I�m cutting him a break.�
I finally told him he had to leave, I�m like go� I�m going to do it. All of them
get the rate increase. And this was about three months ago when I actually did it. The
rate increases have all hit. He had, out of, three hundred and something odd rate increases
that went out� Two people called. That�s it. And he�s ecstatic� This is bringing
in an extra $3800 per month of revenue to him. He couldn�t be happier. But when he
started thinking about it and dwelling on each and every tenant, what their reaction
was going to be, he was shooting himself in the foot. So, again, I know we keep hitting
this point home, but do the automatic thing. Set it and leave it alone. And people may
actually call and talk to you about that on a case by case basis. Cross that bridge when
it comes. Again, all I can keep saying is set those rates, leave it alone, and you�ll
be very happy and you�ll see the bottom line and NOI and we won�t have to worry
about this conversation anymore. Everyone will be happy because they�ll be making
more money. Matt: And trust me, your property insurance
company is not sitting around having that conversation. They�re not having that conversation
whether you had a rough year last time, or maybe we should review his PNL and give him
a break. They�re not having that conversation. Neither is your utility company and neither
is your county or city property tax authority. Nobody, none of those are having the same
conversation that we�re talking about right now, when you say, �Well, maybe this person
can�t afford it. Maybe you can do it.� Now, the other thing is, is that people�
I think part of the other reason is people don�t want to be the guy that has to raise
the poor guy�s rent. And I get that. They don�t want their customer to think that
they�re evil, or greedy, or something like that. And unfortunately when you have your
managers in that situation they get the phone calls from the angry customers. That�s part
of the reasons your managers don�t want to do it. It�s not necessarily that they
don�t believe that the property should want to make more revenue, but they�re the one�s
that are going to take the brunt of these phone calls. So, I think these are the fears
that we really have to get over to be able to be successful. Think about what you can
do with your property with an extra $3800 per month. Just think about it. Think about
what kinds of marketing campaigns you can do, what kind of customer appreciation days
you can do. All of these things that will increase the value of your property maybe
you have $3800. Consider that over what it would be per year. Maybe you have a roofing
project that needs to be done. Maybe you need to blacktop your facility. All of these things
are fairly expensive projects, so we need to think about what that extra money can do
for us and make our property better and make it even better for our own tenants.
Jim: Exactly. I think we�ve hammered this point home. We�ll talk about it more in
detail in some other Podcast about how to handle some objections and maybe on certain
softwares, how to really set these. But again, if you have any kind of decent software, please,
after you�ve listened to this Podcast, work on your software, find the rate manager tool
in there, set up those percentages, and again, I�ll tell you what we do. It�s seven percent
after six months after they moved in and seven percent every nine months after that. Feel
free to use that as a guideline, but again, the main point is to be consistent about it.
We�re there for a reason. Matt: Yeah, and you know what? If you want
to do it less than that, I don�t suggest it and Jim didn�t suggest it either, but
hey, if you want to do a certain percentage every twelve months and that makes you feel
better, fine I understand that. It�s not going to change it one way or the other. I
don�t think you�re going to get any worse of a result or people leaving if you�re
doing nine months versus twelve months, but if that�s what makes you feel better, so
be it. But you should just be doing it regularly because you are under assault regularly from
your vendors on costs. Jim: Well, you got it. Well perfect� Well
we�ll talk about this more again because it�s such an important topic, but I think
we�re good on this one now. Matt: Absolutely.
Jim: Anything else to add? Matt: No, not today. I think we�re good.
There�s definitely some other things we can talk about when it comes to revenue management
that will flow into marketing and flow into some other strategies. I think to manipulate
rates a bit. I think for this Podcast that�s a good starting point for what we want to
do. Jim: Exactly. Who would think someone wants
to talk about self storage? We�re doing it. Alright, well thank you and we�ll talk
soon. Matt: Thank you. Bye.
Jim: Alright, take it easy. Bye. Jim: Thanks for listening to the Three Mile
Domination Podcast. Please check us out at our website, www.threemiledomination.com,
where you can download our free e-book, connect with us on all the social media platforms,
and to subscribe to this Podcast. Please spread the word to those you think that would benefit
from this show. Just don�t tell your competitors. Thanks again.