The Best Pricing Strategy for Self Storage Operators

Every 1% increase in price, you get a 10% increase in net profits.

Hello and welcome to our latest edition of Self Storage Explained, the podcast about everything self storage. We're joined today by Mark Peacock. Mark is the author of the Pricing for Success book, which is fantastic book about how to price correctly and we'll dig into that a bit more. Mark is also a pricing consultant, helping customers to improve their pricing. Mark, where are you joining us from?

Hi Gavin, Great to be here today. I live near Epsom in Surrey.

Very good. Yeah, thank you so much for joining. I think this episode is going to be really good. Like we were saying before we recorded, getting a pricing expert on to talk specifically about self storage pricing is. I just think it's a really good opportunity. So thank you so much for joining us. I hope that listeners get lots out of this. I'm sure they will. So let's dig in. So what's the most common pricing mistake you see self storage operators making, see companies making?

So I think this is prevalent in the self storage industry, but you do see it a lot in many industries, which is that generally speaking, business owners, business leaders, don't tend to put enough thought and effort into their pricing and they treat it as a tactic rather than a core strategy. Which means that businesses generally have fairly basic, fairly limited pricing models and as a result they allow themselves to be drawn into a commoditization battle or a race to the bottom. Because if you're not fully aware and understanding of how you can use pricing to your advantage, the obvious thing to do is to copy the competitors and try and find a price point that's either slightly cheaper all the same, but you then allow yourself to be, to allow your business to be commoditized and you just, everybody just ends up copying everybody else and nobody is trying to work out how can I differentiate my pricing in a way that works for me, for my business and for my customers?

Okay, that is really interesting. One of the things that we see a lot in self storage is, you know, first month, half price, first three months, half price, first month for a pound. And of course these things like you intimated there, tend to inflate and tend to get worse. And you know, it's driving, it could drive value out of your business, out of the industry as a whole. So how should operators think about it then? You talk about rather it's easier to think this way rather than how to differentiate on the pricing. What does it mean to differentiate on pricing in a different way?

Yeah, so a good way to think about this is if you're charging, say, £100 a unit, whatever the number is, and your nearest competitor just down the road is cheaper than you by a certain amount, so say they're charging £90. So it's enough of a difference to make a customer think, well, why. Why would I buy your company's unit when I can get it for £10amonth cheaper down the road? So you've got to work out the answer to that question. What are the additional benefits and the differential value that your company offers that makes it worthwhile so that the customer thinks, well, actually, if I'm paying an extra £10amonth, I get all of these additional benefits, so that's more than worth the extra £10amonth. So that's what we mean by. And differentiating your proposition and your pricing and being very, very clear that that's the price position you want to adopt, rather than just saying, well, we'll just, we'll match competitors or we'll undercut people, because any fool can play that game, right? Any fool can lower prices and anybody can sell cheaper prices. It's not that hard. If that's the game you want to play, that's fine. You can still have a successful business. But you have to understand that in any market, whether it's a locality, a region or a channel, there's only room for one or two players who are at the cheapest end of the price range. So think like supermarkets. Yeah, Lidl and Aldi, they're the two, typically the two cheapest supermarkets, they make it work. But if another large supermarket tried to enter that space and also be the cheapest, they're going to struggle. So it's important to be very clear about your price position in the market. IU budget, are you standard? Are you premium, Are you luxury? And then work out your business plan so that the product that you're selling supports that price differentiation. And how you sell and market your products emphasize the difference in benefits. So I throw that question back to you, Gavin. What kind of differential benefits services features do you see self storage operators offering that could help to differentiate their pricing?

There's lots of different ways to differentiate in price. One of the main ones is like, what's the quality? What's the type of storage you have? You know, are you having people store in an old barn with a leaky roof? Or is it, you know, is it an indoor facility that is, you know, has lifts and everything else? So there's the quality of the facility, which I think is probably the main One really, that you can, you can lean on.

Okay.

Beyond that there are lots of other things. So, you know, it could be, it can be things like access hours. So, you know, do you let people come in at the weekends? Do you let them come in at night? Can they come in until late? Can they come in 24 hours a day? It could be different contract flexibility as well. So we sometimes have people where, you know, you know, well, okay, normally it's two months notice. If you want to pay a bit extra, there's lots of ways to do it. Those are, those are a few that come.

So that's the point, right? There are loads of different ways to be clear about how you're differentiating in your market. Most operators that I see are differentiating on price, but that's a, that's a vicious circle, right, that you just go down and down and what, what do.

You say to a customer who, or to an operator who says, okay, that's all good, but let's say I'm, I let customers come to my website and look at my price and they're going to another website and looking at somebody else's price and they're saying £80 and they're saying £100. How do they think about getting the value across? Because sometimes that can be a challenge with, especially I think in self storage where there isn't a massive awareness in the UK of what self storage is. You know, there's a survey because that every year and it's, it's never as high as you think. Obviously working in self storage you think everyone knows all about self storage, but lots of people don't really understand how it works and have questions. So sometimes if you're looking at £80 versus 100, oh, it's a box, what's the difference? Have you any thoughts or trying to think about there and how to really drive that value across?

So clearly on a website page you only have a certain amount of space and containers to be able to present differential benefit messages. And I mean that's a ux, that's a design question. But I think that the danger is over complicating that sales message. So people tend to list, well, here's, here's 10 features that we offer, right? And eight out of 10 of them are the same as what everybody else offers. You know, it's 24,7 security, it's remote access, blah, blah, blah, whatever it is, you've got to really call out and identify the key differential benefits, whatever they are, whether that's, I don't know you include free collection and delivery or there's a certain minimum level of insurance, for example, that you offer that doesn't and so on and just really be clear about that because that it is hard to get that value message across on the website and you'll have more ability to do that if you can get somebody on a call or if you can send them. If they make an email, an inquiry and they leave their email. If you can send them some material, whatever that is, a PDF or a short video that promotes the differentiated benefits, then those would be my suggestions. I think, I think it's a good question and there's no easy answer. I think it's, it's more of a marketing challenge, I think, than a pricing challenge.

But yeah, okay, if there's an operator listening to this and they're sort of, it's made them think, I wonder, is my pricing right? Is my pricing strategy correct? Is it working? How can they work out if it is or is not? Is there some way of them easily finding out, oh, I'm doing this wrong, or actually, I'm doing this right?

Well, there's three things to look at, I would say. Firstly, how profitable are you? Are you making good money? Are your net and gross margins reasonable? So what is your current level of profitability? If you're struggling to break even, if you're loss making, something's going wrong. The second two metrics are conversion rate and retention rate. So what is your conversion rate from inquiry through to sale, whether that's online or via any other channel, via a salesperson. And this is a rule of thumb. It's not hard and fast, but it's a rule of thumb. If your conversion rate is very, very low, something's going wrong. Now, it could be that your sales conversion process isn't optimized, but it could also be that maybe your pricing is too high for your market and the value that people think they're going to get. So that's an indicator of a potential problem. Equally, the flip side is true. If your conversion rate is really, really high, it could mean that you're simply underpricing what you do and then the final one is retention. So how long are people staying? What is the retention rate, what's the churn rates and so on. So if it's really, really high, then that's great, you've got a good business model. Bear in mind that in the tech world, in SaaS businesses, it's understood that having churn a small amount of churn due to price increases is a good thing. So what I mean by that is it's understood that if you lose 3 to 5% of your clients every year because you're pushing up the price, the upper price limit, that's a good thing. Because every time you do that, you'll be lifting your whole business up a whole level in terms of profitability and pricing power and you'll be bringing in your new clients at that new price level. And it's, it's okay to shake out a few of the cheap guys at the bottom every year. So I think, and again, many, any, any industry, many business owners are terrified of losing customers. But it's okay to lose the small customers who are very price sensitive and they're often the most problematic. Right? The people that pay you the least amount of money cause the most amount of problems. So in reality, your cost to serve is far higher than you're probably allowing for. So I think profitability levels, conversion rates and retention or churn rate, if any of those seem too high or too low, that's the strongest indication that maybe your pricing isn't aligned to the value that your customers think it should offer.

I was actually just thinking to myself, now, how could, if you're actually a store customer, how can I get some of that data? How can I see what my churn rate is? And actually if you're able to access your store account, you can see kind of move in, move out, but you can log into your stripe account, okay, get some of the billing data in there, you can see your churn rate, you can see your customer retention rate. You can really dig into some of these numbers. So if you're a store a customer, you should be able to get into stripe, have a dig around and find some of this stuff, especially around insurance. You should be able to see that we've customers who show prices and let customers come and book and pay online and just go all the way through sort of self serve. Then we have customers who hide the prices behind a quote form so they have the details and they can call them and talk to them. And you touched on that earlier in the call about how it can sometimes be better to be able to speak to somebody on the phone. If you're trying to value, I presume if you're trying to value, sell, trying to sell on the value of the product, it can probably be more, can be helpful to be selling on the phone.

But I suspect in this industry consumers are highly price sensitive. Right? I suspect on the whole people see a self storage unit as a Commodity service. They want to know that it's got the basics so it's secure and access it at any time, you know, whatever. Other benefits are included and so on. But other than that, they're going to shop around on price, aren't they? I imagine that's how customers will buy. So it's a highly price sensitive market. So the point is, any small change in price can have a big impact on all of the things we've just talked about. Profitability, conversion rates and retention rates. There's a good rule of thumb in terms of price changes. So McKinsey often quote this, which is that for every 1% increase in price, you get a 10% increase in net profits. Now that's massive if you think about it. 1% increase in price usually depends on your P and L and your financial structure, but usually increases your net profits by at least 10%. So it's a very powerful lever. But people are scared to do that because they just think, well, customers won't pay, won't buy and I'll lose business and I'll choke off future sales. So they end up going the other way and reducing prices. But of course the reverse happens as well. If you reduce prices, you reduce net profits by an equivalent amount. Reduce prices by 1%, net profits will usually go down by 8 to 10%. And that's terrifying. You know, if you've got some fixed, you've got fixed overheads, you've got staff and salaries, you've got national insurance contribution costs, increasing overheads, energy costs and so on, all of these things are going up. So the last thing you want to be doing is cutting your prices in a desperate attempt to boost sales without fully understanding the impact on net profits.

Interesting. Okay, when you talked there about the McKinsey figures, I, I wonder if those figures work in the self storage because the margins were so high. They're probably a little bit different. But yeah, the concept is exactly the same. There's a rule of thumb. I'm sure there'll be some people who'd argue actually price isn't the main factor, it actually is about quality. And because this is a local business, you know, so you know, if you're, if you live in, you live in like live in my town, you're going to store your, your things locally somewhere. So you're going to find, you might call a couple of places locally. If a couple of places exist, it might only be one, but you're going to call them. You're not, you're not going to, I'm not going to call Belfast, it's too, too far away. I don't want my stuff there. So. And I wonder as well, you know, wonder I'm storing my life possessions in this unit. Actually the value, the quality of this place is really important to me versus you know, maybe if you're, maybe if you're a plumber maybe and you're sort of storing like fixings, it's not as important, you know, it doesn't matter if there's a bit of damp and everything else, it's not as important. I would, I bet some people in the industry say actually it's not price first. So I just wonder where that lies. And that probably just backs up what you're saying, which is sell on value. Because if you can sell on value well and do it properly you can really differentiate in price and really ultimately grow your net profit.

Yeah, so I think that's right. It's not always about price and ultimately people will have buying criteria that are more important than price. So yeah, if you're storing your family heirlooms you want to know that the storage site is extremely secure and is going to protect them. If you've just got some old stuff that you don't really care about but you need space, that's not going to be a key buying criteria for you. A good way to think about this is that in any given market, whether it's in a locality, a region or however you define your market, there are always three levels of willingness to pay. Price sensitivity, low, medium, high. Right. So in the low willingness to pay customer segments you've got people who are highly price sensitive because they're not interested or they don't value the differential benefits or services that you can offer. All they want is the cheapest unit that they can find because they're just going to put a bunch of stuff in it and they don't really care. So that's the low price segment. Then at the other end of the scale you've got the high price segment. So people who, it's really important that their rather buying criteria needs are met, whatever those are. So extremely secure storage protects their items. Round the clock security 24, seven, call out whatever it is and then in the middle you'll have the silent majority of your market if you like, who don't need the full blown, you know, the full monty solution, but equally don't want the cheap. Cheap and cheerful solution. The mistake that any business tends to make, but operators will make is that we tend to offer the same pricing offer to all three audiences, whether it's low, medium or high. And the only differentiator is the size of the unit and therefore the price and maybe a few bolt ons. If instead you could think more carefully about your customers needs in each of those segments and design a package that meets those needs. So for the low price sensitive customers, it's just a basic storage unit with no bells and whistles. Right. And they're different prices according to size and length of contract and so on. At the other end of the scale you've got your deluxe package, whatever, whatever that means. So it's your best units and you throw in a load of additional services or features that the client will value. So Maybe there's a 24, 7 hotline that they can call, there's a, I don't know, there's a, there's a camera inside the unit that they can look at their items at any time of day. There's premium levels of insurance included in the price, there's free collection and delivery or whatever. So you've got to decide what goes into that bundle and then design three price offers so that the customer then can select the version that's best for them.

Absolutely, yeah. That's really interesting. I think that sort of kind of presentation of the different options is a way that I do see some operators doing that. Whenever you talk like that I think oh, whenever I, whenever I book my EasyJet flights like I'm always flying back and forth to England and you know, they, I think they do a great job of, of doing that in different ways. You know, the seat choice. Sometimes when I'm in a rush I really do want to see it at the front because I want to get off the plane and get into, you know, because I have to get to something quite quickly sometimes I don't care. So I just think, oh, whatever, I'll just, wherever they put me. But it's all about kind of what I'm prepared to pay at the time based on what I need and what I value.

Exactly.

They do a good job.

And the whole, the whole airline industry now uses that model, if you remember. I don't know if you remember but like 20 years ago if you bought an airline ticket, you'd paid £500 and you get everything in it, you get a seat, you get a meal, you get cabin bag, you can put your suitcase in the hold and so on. Whereas now all of that's been what I would describe, it's all been unbundled. So the headline price for A ticket with EasyJet Orionair is £50, whatever, whatever. But that just gets you through the door on the plane. You still got to pay extra to select a seat. You might get a cabin bag, you won't get a suitcase in the hold, you won't get a meal and so on. So all of these things are now optional extras to make the headline price look attractive. And I think that's something that you know, that could work for the storage industry because as we said, it's highly price sensitive. So if your headline price is the lowest component, the smallest component of what you offer, and then you're adding on all of these additional bolt ons so that the basket size as you referred to earlier, eventually reflects the, the true value of or what people want, that's a great approach as well. Airlines use dynamic pricing as well, where the price you pay changes by the hour, by the day of the week, by the number of seats they sold, how close you are to booking the flight and so on. And the idea with dynamic pricing is it works where an operator has a fixed capacity of things to sell. So an airplane only has 100 seats, a hotel only has 100 rooms, a taxi only has 24 hours a day to apply its trade, so it has a fixed capacity of things to sell. And that's the same with storage units, right? You only have X number of units on your site. So taking on board, some of these ideas of dynamic pricing is worth thinking about. So the hotel example there would be am I better off charging a weekday price of £100 a night and getting five bookings, five night sold £500 or having a weekend price of £300 a night and selling two nights, so generating £600. So of course the answer is it depends. You know, maybe it's more important to have staff utilization rates high during the week because then it causes business problems if you, if you're not occupied during the week and so on. But varying, varying your pricing based on an understanding of those supply and demand factors and taking some learnings from the travel industry is something I think operators should think about.

One of the big strategies, one of the strategies that the big operators all around the world use is whenever a customer moves in and it's been stayed for a certain amount of time, they will change the price over time. So bit like your BT bill, your sky bill goes up over time, the big operators will employ a pricing strategy that applies price increases to customers over time. Smaller operators tend to be less keen on using this. Sometimes it's because they haven't had the tools traditionally. Sometimes it's because they're actually on site and they know the people and so they're a little bit wary about doing this.

Okay.

We recently released, we released a feature about a month ago that makes it really easy for customers to manage all of this and to carry out this if they want to do it. Would you have a message? And I've spoken to, I've spoken to some of our customers who aren't, aren't using it and just to understand why.

Yeah.

Do you have a message for those people who are nervous about doing this?

Sure. And if you're not in the habit of doing it, implementing a price increase is a very scary thing to do. So lots of things to say about that. I think the first one is just to beware of your own emotions first and foremost. I mean, people often think pricing is purely a rational sport. It is, but it's also heavily influenced by people's emotions, both as a buyer and as a seller. So as an operator and you have personal relationships with your customers, you'd be very nervous about having that conversation with them to say, oh, look, I'm really sorry, prices are going up because you're scared of their reaction. Right. You don't want to upset them and you don't want to lose business. So it is understandable. But if you're not regularly increasing your prices, at least annually, then you're going backwards. You might be selling more volume, selling more units, expanding the number of sites you have, but your net margin rates are coming down because of cost rises because of inflation. So it's your duty to maintain prices at least in line with inflation, if not higher. And there's nothing wrong with that. It's quite acceptable for, for a business to say, in the past year our costs have risen. So therefore from this date, from the 1st of January, prices will be going up by X. I think one thing that many businesses do, which I'm not wild on, which is an across the board price increase. So they'll say for all of our products and services and for all of our customers, we're going to increase prices by 5%. Whatever the number is. I think it's far smarter to apply a different price increase by the type of by product group, for example. But the second step then is to have a clear plan. So if you're going to increase prices from the 1st of January, you need to give at least 30 days notice. Right. So by the end of November, you need to have issued a communication to say, we are increasing our prices. By this date. So that means in October you need to be planning and working out and doing the analysis to work out what is that price increase going to be. So it's a three month process. October, November, December. So you need to be working on this at least three months before the planned implementation date. And in so doing that will then give you the confidence that to take that price increase to market rather than leaving it to the last moment panicking because all your costs have just gone up or your national insurance contributions have gone up. Having a quick management meeting and saying to your finance guy, what do we do here? And then rushing something out, that is bad practice. But an awful lot of businesses do that. So you've got to get into the habit of fixing a price increase date in your business calendar and sticking to that day every year. 1st of January, 1st of April, 1st of September, doesn't matter when it is, but stick to it. And in that way you start to train your customers in your market to expect it. So yeah, we will be, we will be put, we'll be reviewing prices annually on the 1st of January, but we'll let you know at least 30 days before that date. Giving people options as to what they can do if they don't like the change and then training people to expect it. Yeah, and the same thing will happen the year after that and the year after that. Because it's normal. Right. This is what happens in business. Costs go up and given how turbulent everything is at the moment, you've got to be fleet of foot on that. Just a quick point on that. So you're allowed one negative comment which is to blame cost increases. But then everything else about the communication of that price increase has to be a positive statement. So we continue to offer the best self storage facilities in your area. You can rely on us for 27 access. We're looking to invest in more facilities, more services, so on and so forth. So you're communicating all of the benefits, why people should continue to buy from you.

Really interesting. Mark, thank you so much for this so far. I have a couple more questions. So one of the things that I hear quite a bit when an operator opens up a new site, there's a kind of a stage called the fill stage which is they're at 0% full and you want to try and get yourself to about 60 to 70, 80% full as quickly as you possibly can, ideally over a year or two because you're kind of penalty mortgages and rent of everything. You've got your expenses, you get some money yeah, often during that phase, and I've said this myself before, often during that phase there's a temptation to bring your prices down to try and drive occupancy as quickly as you can. And then so during the fill phase, lowest prices, once you're kind of at that 70, 80%, you're more about managing the revenue. So maybe then you're pushing through some more price increases and grew revenue that way. Do you think it's a mistake to think of that fill fees as the right response to be lower prices?

Okay, so in principle it does make sense that you're offering some kind of offer to get that take up rate as high as possible as quickly as possible. The question then is how do you do it? I mean I haven't looked at this closely but off the top of my head rather than just saying well, well it's you get 50% discount or whatever the offer is until we hit that 70% take up rate, you might be, it might be worth trying different offers. So for example, well, for the first 50 customers or however many you know is appropriate, or first 50 units that we sell, we're offering a time limited special offer of X, a discount which is either for your, the first six months of your storage requirement or for the first year, for example. But in that messaging you've got to be very clear that at the end of that time period the price is going to go up to the normal rate. So you're signaling early that this is a special offer and with, you know, we're being open about it and we want new customers as quickly as we can. But you're not locking yourself in to an unlimited price position because that's the danger. And I think what I suspect is that many operators will think, well we've got a new unit, we've got to sell it as quickly as possible. Here's our promotional pricing, let's go out and sell. But that then becomes the norm, that promotional pricing level becomes the norm both in the business internally and in the market. People start saying oh yeah, there's a great new self storage operator down the road. They're only charging 50p a square foot or whatever the number is. And that, that becomes accepted wisdom and then becomes very hard for you as the business owner to move back to prices and rates where you should be. So you've got, you've got to be disciplined about controlling your own planning and messaging about those special offers. I think being. And it, you know, that does mean you might not get as many of the early sales that you're looking for, but in the long run you'll be more profitable. Yeah.

Interesting. Okay, well thank you so much, Mark. Just as was final question. Obviously people can read your book. Your book is called Pricing for Success, A seven step Plan for Winning More Customers at Better Prices. That's available on Amazon everywhere else. If anybody wanted to ask any questions or reach out, what's the best way to do that?

The best way to find me is on LinkedIn. So you'll find me at Mark Peacock, Pricemaker. You should be find me under that domain name or just go to my website which is pricemaker.co.uk and you can reach out to me there. But very happy to have a conversation with anybody who's struggling with their pricing questions and we'd just like some informal advice to point them in the right direction.

Great. Mark, thank you so much. Thanks for joining us. Have a lovely day and thanks for all your all your tips and advice. It's been great.

Yeah, pleasure. Good to have this conversation with you. Garen, thanks very much.

Thanks. At Stora, our mission is to help our customers build the best self storage businesses. Self Storage Explained is here to try and bring you the best from inside and outside dentistry to help you grow your business. If you want to find out about more resources, go to Stora Co to sign up for a demo or find out more. Or you can go to Stora Co Academy for lots more resources including our financial model and other in depth guides to setting up and growing your business.