Information Influx: Making Dollars And Sense Of Data
The dictionary defines data as “facts and statistics collected together for reference or analysis.” In this digital world, in which facts and statistics are literally only as far away as a finger tap, the question is how self-storage operators can use data to increase profits at their facilities.
“There is so much data at our fingertips,” says M. Anne Ballard, president of marketing, training, and developmental services for Universal Storage Group (USG) in Atlanta, Ga. “The problem is that many operators don’t sit down with data and analyze it. It might be a lack of confidence, knowledge, or maybe just laziness, but it can cost operators a lot of money.”
Travis Morrow, president of National Self Storage in Tucson, Ariz., believes the industry has come a long way in gathering data, but it still has a long way to go in knowing what to do with it. “As an industry, we’re still learning to use data,” he says. “We’re just now getting better at collecting it, but we still need to learn how to interpret it.”
Knowing what data is available and how to use it can not only greatly increase revenue but possibly inform you of additional services you could be offering on your property, all of which can increase your property’s net worth.
Data Collection In Self-Storage
In Ballard’s early days in the industry, there simply wasn’t anyone tracking data on anything. “Everyone just based their business model on ‘build it and they will come,’” says Ballard. “The only operational data available to managers basically were data cards.”
Ballard explained that smart managers marked the ledger cards as “paid” and put them back in the file toward the back. “The only cards left in the front at the end of the month were the people who still owed money,” Ballard recalls.
Owners tracked their success by income only. “Along came DOS software and it was terrible, but it allowed us to track income and occupancy,” says Ballard. “Then came software, such as Space Manager and SiteLink, which had more tracking and was easier for managers to use.”
Chris Sonne, executive vice president of Newmark in Newport Beach, Calif., notes that there wasn’t much real-time data 20 years ago. “There was the Almanac, which had survey data,” says Sonne. “Data scraping really got going about 10 years ago, after the recession. The management software just kept getting better.”
When one thinks of modern data in the industry, you must consider the idea of algorithms—the process by which computers perform calculations to solve problems. “You apply the same idea to management revenue software,” says Sonne. “Extra Space really perfected the algorithms to manage revenue on management software. It was a game changer for self-storage. It used to be self-storage operators managed to occupancy, and this really allowed us to manage to cash flow.”
That software prompted operators to raise rents seven to nine percent. “Everyone followed suit, and the REITS started having a 10 percent revenue increase,” says Sonne. “And now we can manage to occupancy and to cash flow. Pricing went up and stocks are now all up.”
Finally, while a few smaller operators still manage the “old-fashioned way,” Sonne adds that more than 50 percent of smaller operators are now using revenue management software in order to compete. The trick is knowing how to use the software to the ultimate advantage to continue to increase those revenues.
Data In Operations
Jeff Adler, vice president of self-storage operations for Yardi Systems in Denver, Colo., says when considering how data can be used to increase profits in self-storage, one must look at two areas: data in revenue/operational management and data used for increasing investment opportunity.
“I get 35 different data charts regularly,” says Ballard. “We know everything from what our websites are doing, operating costs, customer demographics, and so much more.”
Data is so important to Universal Storage Group that they have a motto: “We’re only as good as our last report.”
“We live and die by our reports,” Ballard says. “We measure and track everything.”
For property revenue management, Ballard breaks down the process by which they are seeking to increase revenue into four critical areas:
Look to see what sizes are fully (90 percent) occupied and raise street rates. Ballard says they do it size by size, not as a whole group. “We can’t just raise all at the same time; we do a little along the way.”
Look at customers and determine how many people are over 270 days without a raise. “We then increase those rents at least six percent,” says Ballard. “Not one wanted to move last year; all of our months had a net positive move in. We knew people weren’t moving out.” Ballard points out this is one of the biggest areas many operators miss when looking to increase revenues.
Sonne agrees. “Because the computers are reminding us to raise rents, we can increase the rents in the fourth month, for example, rather than in month seven, which gives us three more months of increased revenue,” he says. “If operators are following their management software and raising rents, the top line goes straight to the bottom line.”
Get rid of big discounts. If someone is in a 10-by-30, for example, and has a 50 percent discount and the property has a waiting list for that size, they will send out a “discount reduction letter.” Ballard explains that the discount reduction letter is more positively focused and worded than a “rental increase letter” and has been very effective for retaining customers while eliminating or reducing discounts.
Weigh promotions and the price vs. the competition. “Our website gives us a daily price scrape of the competition,” says Ballard. “We look at how many we have of a certain size and make decisions on our promotions.” She adds that they know if they give the first month free, as their data shows, they’re unlikely to keep the customer long term. “We know we need to give them a promotion over time.”
Ballard knows by not only the experience of her company but also the experiences she’s had in reviews with self-storage operators. She cites an example of an operator who was missing out on over $30,000 in basic improvements she found in his data. “Owners must be educated in what data to mine for money.”
Some of the biggest increases in revenue can be found in this data:
Waiving too many late fees. “Managers were waiving too many late fees because they weren’t properly trained in sticking to the rules,” says Ballard. “This is a great way to increase profits; managers don’t need to be giving money away.” Additionally, the software rounds to the nearest dollar, so managers aren’t spending their time chasing down eight cents, for example, says Ballard.
The difference between online and walk-in shoppers. “Data shows us that online shoppers are our price sensitive shoppers,” says Ballard. “Drive-ups are not as price sensitive. We have to train our managers not to offer promotions unless they need to do it to close the deal.”
In addition to data showing online shoppers are most price sensitive, data also tells USG that only 16 percent of all customers rent based primarily on price; the other 84 percent are motivated by price and by amenities. “We don’t want managers playing the discount game with people they don’t have to, which means more training in selling the product and amenities.”
Selling extras. Ballard says their data can also show if their managers are up-selling ancillary items such as boxes, tape, and other packing supplies, as well as additional items the property may offer such as satellite office space, propane, mailboxes, and insurance. “We can also see if they are offering and successfully signing tenants up for auto pay,” she adds.
Another important piece of data that National Self Storage is currently using that adds to their revenue management software is Noke Smart Entry Software. “It gives us visibility into customer behaviors in a way that hasn’t existed before,” says Morrow, who explains that the customer downloads an app that allows them access to the gate and to their unit. “It allows us to see who is accessing what and at what time right down to the individual unit. If they are accessing their unit all the time or if they’re accessing it at off hours, we might be able to charge them more.”
Morrow uses the example of a contractor who comes in daily and accesses the gate and the unit each morning at 3 a.m. so they can get to jobsites by daylight. Before, the property had to have the gate access open for 24/7 access for everyone. “With this system, we can set access hours for different customers and charge them accordingly,” says Morrow.
Sonne cannot underestimate the value of using operational data from the software. “Management software that provides data is always a value-added purchase,” he says. “Even if an operator buys an existing facility and upgrades, they can increase revenue by as much as 20 percent per year, which automatically increases the value of the property.”
Data In Marketing
The final piece of increasing operational revenue through data is by using information collected through marketing. “This is our second most important piece of data collection,” says Ballard. “We gather a lot of demographic and marketing information from people at move-in.”
USG gathers information such as where the customer came from, the age group, what features they like, and what kind of business they own if they are a commercial customer. Through this information, for example, USG knows that 51 percent of their commercial customers are service based customers and 15 percent are retailers. This information helps them properly allocate marketing dollars.
As for where those marketing dollars go, USG knows by the data it’s collected that no one looks at Yellow Pages ads anymore. “We know that 44.5 percent of our business last year came from the internet, either through the websites, PPC (pay-per-click) ads or from social media,” Ballard says. “Last year, we spent more money on internet advertising, but our reservations also went up by 33 percent. We put all that data together to show us what we need to do to increase revenue.”
While some may argue that the PPC ad system on the internet favors bigger operators, Sonne sees it differently. “PPC ads really have become sophisticated,” he says. “Any small operator can go to SpareFoot and get pay-per-click like the big operators.”
The other piece of data collection is what is gathered for investors in the industry. Sonne explains that prior to the Great Recession and the emergence of data collection, the industry didn’t have as many institutional investors as other real estate because the data just wasn’t being collected. “Institutional investors can’t complain there is no data now,” he adds.
Cory Sylvester, principal for Radius+ and DXD Capital in Darien, Conn., says data like what his company provides is important to the industry, not only to help operators and managers understand their competition and pricing but also to help the industry avoid mistakes made in many regions during the 2014 to 2016 era. “In those years, many areas were overbuilt due to the lack of data available,” says Sylvester. “We can avoid that now. We try to have a good price point so all operators and developers can get a lot of questions answered through our data.”
Yardi Systems, which is one of the leaders of data analysis, and Union Realtime, another leader in the industry, serve a different constituency. “We do more of the institutional investor,” says Adler, “while Union Realtime appeals to the smaller, independent investors.”
However, both offer the answers to basic questions, such as what rents are in the demographic, and paint a picture of the new supply in the market. “That was of real concern four to five years ago,” says Adler. “Now there’s more clarity in different markets, leading to a more rational approach to development.”
Ballard adds that some of the data they gather at move-in can also help in their future development plans. “If we know the top age groups in a certain demographic is over 50 or 60, we know the features and benefits they want and are willing to pay for are different. For example, they typically want automatic lights, automatic doors with access control apps instead of key pads, no curbs, and dollies for easy moving,” she says.
Or, if they are developing a property in an area with a high concentration of commercial clients, USG’s data research has shown they need to provide a diverse product offering, including incubator offices, offices with attached storage units and contractor bays. “In order to have the fastest lease-up, we must offer diverse product types in those areas,” says Ballard.
No matter the demographic, all the experts agree that data collection, as well as properly understanding data, cannot be discounted if you want to increase revenue in today’s self-storage market.
Artificial Intelligence, or AI, is just starting to gain steam in the self-storage industry and will likely be the future of data collection. “Some are using AI to anticipate trends,” says Ballard. “Imagine opening your computer and having a report tell you things you need to be aware of.”
Morrow says they have been using AI to help increase revenue. “We’ve been working with a company that uses AI to comb through data and tell us things we may not have even been aware of,” he says.
As an example, Morrow notes that it may be possible to use the data to find a day and time when customers are likely to pay more. “If we know that customers are likely to pay more between 4 and 5 p.m. on a Wednesday afternoon, we can set prices higher at that time to help increase revenue.”