When you own or manage a storage facility, you’re likely quite concerned with your occupancy rate. This term is thrown around a bit, and my co-workers and I hear it frequently when we deliver web solutions to boost storage unit rentals.
You could probably tell me your current occupancy rate right now. But, if you don’t mind my asking, which occupancy rate are you using?
As you may know, there are a few different ways to measure the success of your storage facility. When industry experts evaluate recent occupancy rate trends, they tend to speak of the ratio of occupied units versus total units (commonly expressed in percentage form). So, if I told you that my facility’s occupancy rate is 86%, I’m probably expressing that 14% of my units are currently vacant.
I sat down with Tom Cox, Director of Marketing and Technology with Strat Property Management, Inc, to gain some valuable insight about different occupancy types and what he does with them to maximize profitability in the self storage industry.
Square foot occupancy
Here’s a brief breakdown of each type, illustrated with basic examples:
With three separate ways of measuring your facility’s occupancy, you can develop a thorough understanding of how you’re doing, as well as discover any changes you could make to your marketing strategies.
Of course, the best way to conduct a comprehensive analysis on your occupancy is to examine the relationships between your rates.
While your unit and square foot occupancy rates likely hover within a few percentage points of one another, your economic rate tends to trail behind. Think about it: all those specials and discounts you’ve been offering have brought more people into your facility and, ultimately, increased both your unit and square foot occupancy rates. While your units are filling up, you’re charging a rate that’s below full price, which has a direct impact on your economic occupancy.
As mentioned, these two rates should be pretty similar. But you can still fine-tune your marketing by comparing them to one another:
But why is this? Allow me to demonstrate with a simple example. (Naturally, your number of units, as well as unit sizes, will vary.)
In this illustration, 10’x10’ units are most popular, followed by 5’x10’ and finally 5’x5’.
If these numbers were pulled from my facility and I were only going off of the total occupancy rates in that right-hand column, I would be able to tell instantly that my larger units – for whatever reason – are more popular than my smaller ones.
When you look at your unit occupancy compared to your square foot occupancy rates, this relationship can indicate which units you can hone in on as you advertise or develop promotions.
This relationship is helpful in keeping your economic rates up. For instance, if I based my strategy on the unit occupancy rate alone, 71%, I would probably lower my rates or offer specials that applied to my entire facility. I could, for instance, put out a 50% off first month’s rent coupon in hopes that my unit occupancy would increase.
But by comparing these rates to one another, I know that my larger units are probably doing pretty well. In order to preserve my economic rate as much as possible, I can hone in on the smaller units when I develop my specials. Again, this approach will help me maximize my profits; there’s no sense in lowering the rates for my popular unit sizes when I can get close to top dollar for them.
Tom Cox had a great point to make as he explained these different rates to me: there’s a natural order to follow that will help owners make the highest profit. This proposed order also makes the overwhelming idea of managing three rates much less intimidating.
Particularly if your unit occupancy rate is low, you may want to focus on putting out specials and self storage discounts. You may also want to look into listing your brand on an affordable self storage search engine. No matter what approach you take, this step is important. If you simply wait for your units to fill up at their current price, you won’t make money on them each month they go vacant. While you won’t make as much money as you’d like when you lower the rates, you’ll much more when these units are vacant.
Are your 5’x5’s always hovering around 85% occupancy, while your 10’x20’x struggle to make it past the 60% mark? Take a close look at which units are selling themselves and work to fill up the units that are suffering.
But don’t feel limited to lowering your rates. Look at your market and examine trends in your square foot occupancy rate. If you’re seeing patterns of smaller units filling up more easily than larger ones, you could consider converting larger units into several smaller ones. For example, you could turn a 10’x10’ into four 5’x5’ units – which will make you more money as you fill them up.
Once your unit and square foot occupancy rates have improved, it’s time to consider how you can earn more money on your units. It’s important that you wait to do this because you don’t want to command full price on your units if your units aren’t in high demand.
As discussed previously, you’ll typically find that your economic occupancy rate is much lower than your unit and square foot rates. As you work hard to move people into your units, you’re likely doing so at the expense of the unit’s full price. So how do you know that your economic occupancy is where it should be? If it hovers less than 10% below, your rates are probably right where they should be to start considering revenue management.
So is 100% occupancy the ultimate goal? Well… no. Of course, it’s the number that you’re striving for with each of your occupancy rates. But if your facility is enjoying near 100% occupancy, your rates are too low and you’re missing out on potential profits.
My next post will delve into revenue management further so that you can consider points like studying your market’s trends and adopting push rate algorithms. I’ll break down some examples and use visuals to show you how you can dramatically improve the profits that you bring in. If you have any particular points that you would like me to cover, feel free to leave them in a comment below!