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ISSUE: Nov/Dec 2008
ARE YOU PREPARED FOR 2009?
The Difference Between Success And Failure Next Year May Be In Your Preparation
By Jennifer LeClaire
 The new year is just around the corner—and it could be one of the stormiest years in the self storage industry in the past decade. There’s more competition than ever. The economy is uncertain. Budgets are being cut, but managers are still expected to fill up units, sell ancillary products and services, and otherwise man the ship on the unsettled seas toward profitable shorelines.
What’s a self storage manager to do? You need to prepare for 2009. Specifically, you need to get your hands dirty helping the team prepare to set revenue goals, create an annual budget, review the marketing plans, and establish new maintenance plans. You need to play an active role helping your operator succeed in a turbulent market.
“Plan, plan, plan. Without a plan, you aren’t sure where you’ve been, probably have only a clue where you might be going or even how to get there,” says Alan Guinn, managing director and CEO of The Guinn Consultancy Group, Inc., in Bristol, Va. “A plan injects discipline, forces creativity into action, and helps you better visualize what to do and how to get it done.”
Setting Revenue Goals
The first part of your plans should focus on occupancy and revenue because much of the rest of your preparations will revolve around this area. The fourth quarter of the year is a good time to set goals for revenue and occupancy for the coming year. The mantra going into 2009 is clear: Be realistic.
Ann Parham, principal of Bulverde, Texas-based Joshua Management Group, begins by reviewing the past year’s performance and depending on the current occupancy to establish the goals for the coming year. “Properties in lease up status will have more aggressive goals than properties in a stabilized occupancy status,” she says. “Sometimes, if the property is already at a higher occupancy level, the goal is to maintain with a review of rate changes to be made on a periodic basis.”
To determine reasonable but challenging revenue goals, you have to consider the property’s history and if there has been any drastic change in the market. Did someone build a Class A facility down the street from you? Is the market more competitive because of price wars? What are the average rental rates that are being charged in the market? And, is there any competitor that is utilizing deep discounts to improve their occupancy position? “Goals have to be reasonable and able to be reached or you will become discouraged and nonproductive,” Parham says. “Loading yourself up with too many goals distracts them from the primary goal of leasing units.”
Charles Fritts, chief operating officer at Storage Investment Management, Inc., in East Amherst, N.Y., also considers the impact of competition when setting goals. If another facility has recently finished a large expansion or a new competitor has come into the market, he adjusts his goals based on the projected impact of those external factors. “Use your historic trends and your current understanding of the market and the economy in that market in a planned rent increase,” Fritts says.
David Dixon, vice president of development at Universal Management, Inc., in Marietta, Ga., is a strong believer in looking at past history when setting revenue goals. Start with last year’s leasing cycle. If you gained two units in January 2008, you should expect to gain two units in January 2009. But, as others have said, he adds that occupancy goals are dependent on market factors. “You can wish all you want, but you need to have some realism,” he says. “If market conditions drastically change, you are not going to get those four new leases you had in one month last year.”
Brenda Scarborough, principal of Accountable Management & Realty, Inc., in Lutz, Fla., is pushing the concept that managers should take what she calls “bite-sized goals.” For the first time in 18 years, she’s seeing her properties go down in occupancy rather than up, and she knows the trend is not going to reverse itself all at once. “You can shoot for one percent at a time,” she says. “As long as the occupancy is moving in an upward direction, it’s a positive step. Unrealistic goals of 10 percent in a month will only discourage you.”
A Second Look At The Budget
One of the first considerations for the annual budget of an existing facility is the marketing and advertising costs, followed closely by maintenance, and the need for new staff or even building expansions. Expenses, Dixon says, should be contained on a daily basis. That includes simple things like turning off lights and keeping thermostats set properly.
“Power is the main issue managers have to deal with,” Dixon says. “But, also help your owner track leads. If you are spending $60,000 on the Yellow Pages ad and you are getting four leads a year from it, then that’s a huge money waster.”
Standard operating costs are simple to predict once you have a history, but some aspects of running self storage facilities can increase from year to year. Case in point: The cost of doing business. What your utilities cost this past year may be different than what it will cost the following year.
The way to examine this is to compare your actual costs to your budgeted cost from the year before, Parham notes. For example, the cost of travel automatically increases with the cost of gas. You instinctively know that you need to raise that category as costs at the pump go up. Knowing what to spend in advertising and marketing may be the hardest decision to make, but identifying potential money-wasters is a bit easier. “Office supplies seem to be our biggest money waster.
Hold yourself to a budget and get purchases approved at the corporate level,” Parham says. “Counseling your personnel on how well they are doing helps motivate them to stay within budget.”
Expenses have a natural tendency to creep up over time. A good budgeting goal for a tough year like 2009 would be to get everyone in the company involved in the cost cutting effort, according to Norm Brodsky, founder of CitiStorage and co-author of the book The Knack: How Street- Smart Entrepreneurs Learn to Handle Whatever Comes Up. “
You should review your marketing
plan each year, but with the economic
changes occurring, it could be more
important for 2009 than ever.
Figure out your future cash needs, while you still have time to address them, so you won’t be unprepared for changes in cash flow,” he says. “Strive to anticipate and recognize the changes in your business by developing a good feel for the numbers.”
As Fritts sees it, there are two categories accounting for increased expenses: sloppy managers and vendor fee hikes. If you aren’t careful about how you make purchases or how much you are paying for needed items, he says, the cost starts to creep up. This can be corrected. On the other hand, supplier fee increases from the likes of trash company services and other vendor price hikes can only be avoided by finding a new vendor. Sometimes, he says, that’s not possible.
Revisiting Marketing Plans
As Dixon noted, the marketing expenses are a vital part of the annual budget. You should review your marketing plan each year, but with the economic changes occurring, it could be more important for 2009 than ever. As you review your marketing, consider how the markets might have changed over the past year and how they might change in the coming year. Then, consider how new marketing ideas might help your cause of driving up profits.
“There may be a new type of marketing vehicle available or local newspaper or periodical that you can use for advertising. The idea is to keep things new and fresh,” Parham says. “People tend to overlook things that they see on a consistent basis. That’s why you should rotate your wording on your reader board or change displays in windows. What works one year may need to be refreshed the next.”
Fritts agrees that reviewing the marketing plan each year is vital. Good managers keep statistics on how past marketing initiatives performed in order to gauge what initiatives should be launched in the year ahead. Take a close look at these numbers.
“One program may cost you $50 a rental, while another may be costing you $400 a rental. You have to decide if it’s worth paying $400 a rental to operate that program,” Fritts says. “It comes down to cost-per-lease, and the only way to make decisions going forward is to analyze the past.”
Scarborough suggests breaking your annual budget down into four quarters so you know how much you’ve spent and how much is left. Examine what worked for that quarter rather than looking back and making adjustments only once a year. It could be that you determine up front that you need to spend more marketing dollars in the third quarter than in the first, based on the historical data Fritts discussed. Some marketing initiatives, like the Yellow Pages, have annual fees associated with them that would eek into your quarterly budget. But, there are many other things you could do seasonally to drive counter traffic.
“We’ve been able to cut our expenses on Yellow Pages by being more specific about how customers found us,” Scarborough says. “We don’t allow customers to tick off ‘phone book,’ because most of the time their sister told them about the facility and they only used the phone book to find our number. We don’t need an expensive display ad so people can look up our name.”
Parham judges the success of her marketing efforts by how many rentals it brings in. If she spends $5,000 to send out hundreds of flyers and receives only three rentals, for example, then the price of that type of marketing is clearly not cost-effective. The cost of marketing must be offset by how many rentals you receive from that specific part of your marketing plan. “If you are not receiving any benefit from current marketing,” she adds, “you might have to increase your spending to reach more of your potential clients.”
Scarborough insists that self storage managers need to work the Internet as much as their local neighborhoods as part of the marketing plan. Internet initiatives, she says, are cost-effective and measurable. “I’d rather spend money to keep an Internet presence updated than to spend it on the traditional Yellow Pages,” she says. “Most people under the age of 40 just go online to Superpages.com anyway.”
Walking In The Customers’ Shoes
The marketing plan should be a living, breathing document, according to Dixon. Like Fritts, Dixon is tracking results and making adjustments along the way. If the traditional Yellow Pages ads and direct mailers don’t work, he’ll budget for something new.
“Managers should share innovative ideas with the management company because they are the ones in the trenches,” Dixon says. “While the tried and true marketing vehicles will always be budgeted, there should be room for new ideas that have strong potential. Sometimes you have to add money to the marketing budget. If you aren’t getting enough leads, it may be time to spend more. If you are getting more than you need, you can scale back.”
To Dixon’s point of sharing innovative ideas with operators, you need to walk a mile in your customers’ shoes. That means doing an honest assessment of your facility and what’s available, as well as an assessment of what the competition is currently offering. Then, decide how your facility rates in terms of curb appeal, easy accessibility, security, features, advantages, benefits, and so on, says Stuart Wade, director of sales and marketing at AAAA Self Storage Management Group in Norfolk, Va.
“If you have a Class B facility and Class A facilities have sprung up around you and you are in an oversupplied scenario, you have to be honest about that. You can’t tear down and rebuild, but you have to work harder to identify your advantages and plan to market them,” Wade says. “Maybe your competitor doesn’t have driveup units. Maybe their facility is 100 percent climate controlled. There are people out there who still want non climate- controlled, drive-up units. So you market that.”
Managing The Maintenance Plan
Maintenance is an ongoing activity that keeps the facility in top operating shape, no matter how old or new it is. It is more cost-effective to maintain a property than replace items that fail and alienate current and potential customers in the process. Therefore, managing an annual maintenance plan is vital. The plan should include air conditioners, buildings, elevators, roofs, gutters, doors, gates, office equipment, and landscaping or sprinkler system-related items, Parham says. “Not following through and not taking into consideration the time and cost relating to it,” she says, “is the biggest mistake you can make.”
As Dixon sees it, a maintenance plan is one of the most vital aspects of running a self storage facility. That’s because it has a direct impact on profits. What’s the biggest mistake in a maintenance plan? Not taking into account the human factor as it relates to damages, such as drivers riding into curbs and running into gutters or even crashing into buildings, and the angry tenants who vandalize keypads or gates. Dixon says, “You need to put a fixed amount away in an escrow account to take care of large ticket items when they happen because they are going to happen.”
When it comes to maintenance plans, the first step is to determine where the maintenance dollars need to be spent. The second step is to determine how much money you must feasibly spend. Underestimating the cost of maintenance is another big mistake in a maintenance plan. So it’s important to call for estimates on general maintenance, as well as do some market research on bigger ticket items when creating the plan. “If you maintain your property well as a manner of course, you will stretch your maintenance dollars further,” Fritts says. “But every so often, you’ll have to make a big expenditure, like new landscaping or a new roof.”
The bottom line with going into 2009 is preparation. That means operators are expecting their managers to kick it up a notch, or two, or three. Managers who set realistic goals and work aggressively to meet them, while also keeping an eye toward costcutting, will be on target for success in the coming year.
Jennifer LeClaire is a freelance writer based in Hallandale Beach, Florida, and a regular contributor to the Mini Storage Messenger and Self Storage Now! Her clients include The Associated Press, The New York Times, and CBS Television/Winstar Communications.
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