How to Handle a Price Increase
Nobody likes price increases. Renters don’t want to pay more, obviously, managers don’t want to deal with the complaints, and owners don’t want to lose customers. However, they’re a necessary part of the self storage business model. Energy costs increase. Taxes go up. Inflation makes supplies more expensive. There’s no way around it – the extra money must come from somewhere.
So what do you do once you’ve admitted that prices must go up? It can be very stressful to iron out all the details – when to increase and by how much, how to inform the tenants, how to handle the potential flood of complaints, and of course how to maintain your sanity while politely responding to any furious phone calls. Knowing the best way to handle things can make your price increase go a lot more smoothly.
When to Increase Prices
Much has been written about rent increases, but still it can be overwhelming. The one thing to remember is that every storage facility is different. What works for the one down the street might not work for you. Everyone has a different customer base, a different management style, and a different relationship with their tenants.
The easiest way to organize a price increase is to make it part of the yearly schedule. If you raise everyone’s rent by, for example, 7% each year they’re at your facility, the increase won’t catch them by surprise and you’ll be better able to integrate your projected earnings from your price increase into your budget.
Additional resources on rate and revenue management: How to Raise Your Facility Value Before Selling, Revenue Management: The Short-Term and Long-Term Solution to Your Storage Facility's Value, and How to Use Your Facility's Occupancy Rates to Maximize Profits.
The Amount of Increase
Of course, 7% might not be the right amount. Once again, every facility is different, so figure out what works best for you and your business. Keep in mind, however, that certain customers’ prices are easier to raise than others. Renters of larger units, for example, will generally tolerate greater increases in their monthly rent in terms of raw dollar amount, while renters of smaller units will generally tolerate increases of a greater percentage of their previous rent.
For example, an extra $10 is not much when the renter has been paying for a large warehouse unit at $150 per month, but the guy paying $30 a month for his 5’x5’ will be a lot less happy. On the other hand, if you were to raise everyone’s rent by exactly 10%, the one with the large unit would be paying $15 more while the one with the small unit is paying just $3 more per month. This means, of course, that not everyone’s rent needs to increase by the same amount or the same percentage.
Who to Increase
Another important thing to consider is that you don’t have to increase everyone at once. Be strategic, using resources like a thorough knowledge of your occupancy rates to make the most informed decision. If your 10’x30’ units are almost full, while your 5’x10’ units are half empty, it’s easy to determine which population’s rent you should increase first.
One also must consider the potential loss of tenants when increasing prices. If you’re raising rent for ten customers all paying $50/month and you expect one tenant to leave because of the price increase, plan to make up the loss in the new revenue from your remaining nine tenants.
As can be seen in the chart, one would need to raise the monthly rent by at least $6 in order to break even after the loss of a tenant in this scenario. Of course, more than one tenant may leave, or none might leave. There are lots of variables to consider when predicting the loss of tenants. For example, renters with units that are not drive-up accessible are less likely to leave due to the added effort of moving out.
How to Explain the Increase
The easiest way to explain an increase is to time it along with an improvement or repair to your facility. While that was likely only one small part of the various cost increases that led to your decision to increase rent prices, it is the easiest for the customer to accept. Customers all deal with bills and taxes in their everyday lives, so they will probably have less sympathy for you if you cite those reasons. They’ll understand, of course, but they won’t like it. Pointing out the ways in which the facility has improved during their tenure will give them tangible proof of the necessity of their rent hike.
Try to break the news in person. This is not always possible, of course, since a lot of customers rarely visit their units, but talk to as many as you can. Let them know beforehand, so they aren’t blindsided by the sudden increase in one of their monthly bills. There will probably still be some complaints, but if you put in the time and effort, you can increase your rapport with your customers and lower the amount of dissatisfaction later on.
How to Deal with Complaints
The hardest part is fielding the complaints the tenants may have. Remember your basic customer service skills. Always remain calm. Show them that you’re sympathetic and hate to raise rents. Explain in detail the reasons why it has become a necessity. Some tenants may leave as a result of the price increase, but if they’re willing to commit the time and money that it takes to remove all their belongings from their storage unit, they probably weren’t planning on sticking around too much longer anyway and used your necessary rent increase as the excuse.
That isn’t to say you should ignore the complaints on the assumption that most of your tenants will stay. Always greet your customers with open ears and a smile on your face, and think of ways to show the customers why you’re worth the rent increase. Plan a fun community event or hold a raffle of some kind. Do whatever you can to get their mind off of the extra money they’re now spending and back on why they love to be your customer.
Every storage facility is unique, so it might be difficult to know the best way for you to approach a price increase until you’ve actually done it. Always gauge the customer reaction, the retention rate, and the net increase in revenue. If you realize a particular method doesn’t work for you, you can try something else next time – and when it comes to rate increases, there will always be a next time. Don’t let rate increases ruin the fun you have running your storage facility. They’re a necessary evil, but with proper planning and customer service, they’re little more than a bump in the road.
Do you have any other tips for owners and managers preparing for a price increase? Share them with us in the comments below!
If you liked this article, you may also like: Can My Storage Facility Save Money with Third-Party Maintenance? and 7 Unique Discount Ideas.