The Perks And Pitfalls Of Discounts
When occupancy starts to drop at your facility, you have a few options for attracting new rentals. Many owners are happy to provide discounts in order to ignite business, but is that the best decision for your bottom line?
The right move for your facility depends on several factors, including the demographics of your renters, your philosophy as a business owner/manager, and the long-term plans you have for your property. Discounts and revenue management can be tricky topics, with many different successful outcomes, but with a little bit of research and strategizing you can find the most successful path for your business.
The Advantages
When your storage facility’s occupancy rates are lower than you’d like them to be, providing discounts and specials can be a great method for convincing a hesitant lead that they should become a customer. Here are a few other benefits to providing discounts at your property:
- Discounts for college students, members of the military, and senior citizens can boost rapport with those demographics.
- Refer-a-friend specials and similar referral programs can excite your current customers, prompting them to market your facility by word of mouth.
- Discounts with an expiration date promote a sense of urgency, encouraging a lead to make a quicker decision so that they don’t miss out on the great rate.
The Disadvantages
There are always pros and cons to every business decision you make. While discounts can improve your facility’s reputation and provide that boost your occupancy rates need, they aren’t always the best option for raising your facility’s value. Consider a few disadvantages to providing discounts:
- While offering discounts can increase your unit occupancy rate, they can harm your facility’s economic occupancy rate.
- Sometimes occupancy is low for reasons other than your prices. Offering discounts could be a short-term fix to a long-term problem.
- A customer may be so happy with their discounted rate that they rent with you for a long time, forcing you to turn down full-rate customers down the line.
The Right Path For Your Business
These lists aren’t exhaustive and, depending on your market, there could be many more advantages and disadvantages worth considering. With so many pros and cons to take into account, what’s the best method for weighing them against each other?
Whether or not you provide discounts at your facility is unique to your specific facility, and a one-size-fits-all solution could do more harm than good. As you figure out what’s best for your business, consider following these steps:
- Compare different kinds of occupancy rates. It’s common to think of your facility’s occupancy with one simple percentage: occupied units divided by total units. If you have 200 units at your property and 176 of them are being rented, your facility’s occupancy rate is 88 percent. But it doesn’t stop there. If those 24 unoccupied units are small, five-by-five spaces, maybe your square foot occupancy rate is 98 percent. However, if those 24 unoccupied units are your 20-by-20 spaces, your square feet occupancy could be closer to 69 percent. That’s a substantial difference! And when you combine it with your 88 percent occupancy rate from before, it could make a big difference in how you handle discounts moving forward.
You can take it a step further by looking at your economic occupancy. If those 24 unoccupied units are only $50 per month, your economic occupancy could be a solid 98 percent. Conversely, if those spaces are your $200 per month rentals, your economic occupancy could be 79 percent.
Aside from being interesting to compare against each other, these three percentages can help you make decisions about offering discounts at your property. For example, it may not make sense to offer 15 percent off on your largest, most expensive units, but offering such a discount could be the perfect solution to filling your smaller spaces. Spending some time with the data could reveal more than you expect.
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Tip: Does the thought of crunching numbers sound daunting? Use this handy template to make the process simple.
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Types of Occupancy Template here.
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- Find any problems that need addressing. I mentioned before that offering discounts could be harmful for your business if they’re being used as a short-term fix to a long-term problem. Even if a lead doesn’t end up renting with you, you could find out what these problems may be.
When someone looks into your services but doesn’t end up choosing your facility, try following up by email or phone. You can say something like, “We’re so glad to hear you found the storage solution you were looking for. As a business, we’re constantly trying to improve. Would you mind letting us know what we could have done differently to earn your business?”
Maybe this whole time you thought your prices were off-putting, when in reality leads may feel like your property isn’t as clean as the competition’s. That information can make a big difference in the next steps you take.
Does the thought of pestering an old lead make you uncomfortable? Perhaps you reached out and no one wants to take the time to answer you? It could be helpful to learn more about your current customers’ values. Instead of spending weeks trying to figure out your next great marketing strategy or debating between providing discounts and not, your tenants could reveal insight on what your facility’s best selling points are and what could use some improvement.
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Tip: Learn your customers’ values by simply asking. This set of questions could be a good start for gauging why it is your tenants rent with you.
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- Think about the long-term plans for your business. Once you follow the previous two steps, there’s a good chance you’ll know what strategy you want to adopt for your discount program. As a final thought moving forward, take some time to consider what goals you have for your business in the long-term.
One factor that could greatly influence the process is whether or not you plan to sell your storage facility someday. It may not be anytime in the near future, but, if you’re open to the thought, it’s best to plan long-term so that you don’t have to scramble when the time is right.
While due diligence is always important, it becomes vitally important when you have (or think you may someday have) the intention to sell. Whether or not you provide recurring discounts and short-term specials, you’ll have to be prepared to demonstrate why your decision is the best for your storage facility.
Mara Rodriguez, pricing analyst at The William Warren Group provides some useful food for thought to operators considering a buy-out: “A lot of operators don’t understand that having high occupancy levels actually hurts your revenue growth. If you have no one moving in and out, your revenue is stagnant. Rate increases generate some churn and allow you to replace old customers with new customers at higher rates.” It may sound harsh, but it’s the mindset that potential buyers are likely to have and one worth considering now rather than being blindsided by when it’s time to sell.
A Strategy You’re Proud To Claim
Of course, even the best advice isn’t right for your business if you fundamentally disagree with it. And when it comes to raising rates or banishing discounts, many operators do fundamentally disagree with it.
I recommend giving these steps a try even if you’re sure that your stance isn’t going to change. Doing a bit of number crunching, market research, and pros/cons comparison could reveal something about your business that you have the power to improve. It could also reveal that your current strategy is the perfect fit for your storage facility.
Amy Daniels is the content manager at storEDGE. She combines storage industry research, powerful web marketing strategies, and small business experience to cultivate the growth of facilities nationwide.
