The Self Storage Confidence Index (SSCI) reveals a drop in rental income expectations for Q4 as the self-storage industry realizes they may not escape the recession unscathed after all.
“As awareness that recession recovery will be slow and modest sinks in, consumer confidence continues to be depressed and prospective new renters are likely to shy away from added household expenditures. We have reached the point where survey respondents are no longer predicting slowed growth in rental rates; they are predicting rental rate contraction.” – SSCI Q4 2009
Although this may be discouraging, there are a number of ways self-storage operators can make the best of the economic climate and improve their business.
Managing director of Valuation Services for Cushman & Wakefield’s Self Storage Industry Group, Chris Sonne, said in the SSCI Q4, “Most operators are focusing on management and marketing. Cash flow is king and close attention to operations is the key to success.”
Cash Flow and Marketing
As storage operators see their occupancy rates drop, they are looking for new ways to bring in customers. But, blindly increasing the marketing budget without thinking about cash flow is not the answer.
When thinking about cash flow, it is important to calculate customer acquisition cost. Simply put, customer acquisition cost is the cost associated with acquiring a new customer.
If the average value of a storage customer is $1,300, then the cost associated with acquiring this customer is hopefully a far smaller number. Although the lifetime value of a storage customer gives storage operators a lot of marketing leeway, all things being equal, reducing acquisition cost means increasing cash flow.
It’s easy to think that it only cost you a $10 referral fee to get a customer who is worth $1,300 to you. But, in reality, you are probably spending a lot more than that to acquire a customer.
Your customer acquisition cost:
To calculate your customer acquisition cost, add up your total marketing costs for a given period of time, which includes all advertising costs – Yellow page listings, magazine ads, Google AdWords, quote leads etc… Then, divide that number by the number of new customers you acquired during that given period of time, and the result is a rough estimate of your customer acquisition cost.
Total marketing dollars spent / Number of new customers = Customer Acquisition Cost
I call it, rough, because not everyone agrees on what is and what is not considered an acquisition cost. For example, some people consider promotions, such as offering the first month free, a customer acquisition cost, while other people don’t factor this in as a cost because it is not actually money leaving the bank.
Nonetheless, facilities are increasingly turning to these types of promotions, according to the SSCI.
“In 2008, the percentage of respondents offering discounts of some kind ranged from 53 to 62 percent. It went up to 72 percent in the first quarter of 2009, dipped in the second quarter to 66 percent, and shot up to a new high of 75 percent in the third quarter. One dollar move-ins and discounts of 20 percent or more remained the most frequently offered incentives.” – SSCI Q4 2009
Whether or not you consider this a cost associated with acquiring a customer, there is something great about “spending” this kind of money to acquire a customer. That is, you are guaranteed a customer.
Ads and monthly listing fees for the Yellow Pages and other directories might not be paying off. If possible, start tracking these campaigns and find out what your customer acquisition cost is for these individual mediums to evaluate what’s worth it and what’s not.
In addition to promotions, there are other smart ways to spend money with a guaranteed return. Whereas paying for a lead is not always going to translate into a paying customer, paying for a reservation is guaranteed rental income for you.
Take advantage of risk free services that charge only for a reservation, allowing you to trim your marketing budget, while increasing your occupancy rates.
Think about it on the bright side, this recession can force your business to make better operations and marketing decisions.
For a more detailed look at survey Results: http://www.selfstorageconfidenceindex.com/US_4Q-09.html
