Self Storage University Podcast: Episode 35

How “Sticky” Are Your Customers?

“Sticky” is a slang term that relates to customer retention. The “sticky” customer will renew their rental agreement endlessly, while the customer that is not “sticky” will just throw their stuff in their pick-up truck and take off at any moment. So how “sticky” are your customers in reality and how bold can you be in your rent increases accordingly? That’s the subject of this Self-Storage University podcast.

Episode 35: How “Sticky” Are Your Customers? Transcript

How sticky are your customers? Before you raise that rent at your self storage facility, you better have a handle on how sticky they are. Otherwise, you may end up in a real mess. This is Frank Rolfe, the Self Storage University podcast. We're going to be talking about customer retention, which some people use by the slang term stickiness.

I've never really been a big fan of the term sticky. Sounds kind of gross. Sounds like you left some honey out on your counter. But actually, the name is pretty accurate. A sticky customer is one that doesn't run off who doesn't move out easily. Now, what would make a self storage customer sticky? Well, number one, there's difficulty in removing their items. If they've got a locker that's packed to the ceiling with things, you can imagine what a pain that would be to unpack all that and drive it somewhere else. Number two, can they find another place where they can get a unit of the same size for lesser money? Is there any reason that they would want to move elsewhere? Is there another location they feel is safer, maybe they're willing to undo all of their goods and put them somewhere different, because they feel they will be in a much more safe location. But the bottom line is, before you go raising your rent, you need to understand the stickiness metric of your customer. Because otherwise, you can raise your rent and find a lot of people move out.

Now how's the first way you can evaluate the stickiness? Well, first off, you need to do a very, very good comp of your properties. You need to find out what all the other storage facilities are charging and how do you fit in. If you say, "Well, everybody else is charging X, and therefore I feel that my read is more than fair." Okay. But what if you find out that other people are not charging as much as you currently are? Now, if you raise your rent, what's going to happen? Well, obviously something not very good. Because what happens is when you raise your rent, quiet customers then question what they're doing. Customers constant affirmation that you're doing the right thing. Now, as long as you leave your rent as it is most people just go on down the road, they don't want to take the trouble to go in and box up their stuff. But every time you raise the rent, it sends a question mark out to them and they have to ponder, is this really the best deal for me? Maybe I should shop around.

And that brings you to the next issue, which is what is the vacancy? What's the vacancy right now in your storage facility? And what is it in your market? If it turns out the storage occupancy is not good, then when you raise the red when you send them off on that journey for affirmation that they're doing the right thing, that could have some very, very bad repercussions. If they go right down the street, and they find they can get a unit and they get the first two months free, well, then you probably just lost a customer. So be very, very sure you not only know what everyone else is charging, but also know how much vacancy there is out there. Because otherwise, you may end up having your customers stolen.

Also, think about what that increase would do as far as losing tenants versus the big macro picture. If you could raise your rent up substantially enough that you can afford to lose some reasonable number of customers and still be ahead, then that might work. But if the rent raise is very, very small, and you add up the sum of that rent raise times all of your current occupied units and you compare that to what might happen if just a few people move out, and you find out you're going to go backwards, then again, that may not be a good time to be risking your stickiness.

Maybe in some cases, you're better off just charging more on your new tenants, and allowing those who renew and stay renewed all the time to be at an old rate. There's nothing wrong with having staggered rates at your facility. Now, it can't be based on discrimination or any other reason, just economic factors based on the date of tenancy. So let's just put this in motion. Let's assume that you buy an old self storage facility from mom and pop. And they are charging on that 10 by 10 unit $100. But let's say that the market has gotten up to $140. Well, rather than risk it, maybe what you should do is just charge the new people now coming in $140 and leave all your old customers at $100 so you don't trigger that moment for them to really ponder are you the really the best deal in town.

Also, as long as you're not going to raise your rent, often what you can do is you can use that as a selling tool to make your customers even stickier. If you let the residents know that everybody else is at $140 on the 10 by 10 and they're only at $100 and you will not increase them for the moment, because you want to honor them as being great customers, that's smart. Now you have a solid incentive for them not to have that moment when they need affirmation, because they already know that they have a great deal. And they just don't want to lose it. So sometimes not raising the right can actually be used almost like a customer appreciation bonus so they will stay. So don't forget, if you're not going to raise your right, you probably need to be about as vocal as if you were just let people know that they're still getting a really, really good deal from you.

Finally, the overriding issue is what was your budget to begin with. If you bought that self storage facility, and you promised the bank and promised your investors that you would hit a certain revenue goal, and to hit that revenue goal, you have to raise the rents. Well, now you may have to do the battle of the stickiness, whether you really like to or not. Now, we all have budgets in life, even the federal government, although I know it has lost track and doesn't understand that anymore. But everybody else out there has to hit certain parameters to make things work. When you bought the storage facility, you made an agreement with yourself and others potentially, that you are going to go out there and hit certain revenue levels. That was going to give you a certain level of profitability, and a certain level of coverage on your mortgage. How are you doing on that? If you have to increase your revenue substantially to meet your obligations well, then you'll have to take that risk. At the end of the day, the reason a lot of mom and pop rents are very, very low is simply for what I've been telling you. They didn't want to risk the stickiness of their customers. Because the problem is at the end of the day, none of us really, really know how sticky those customers are until we try. Sometimes you can raise the rent and you'll get very little pushback and no one will leave. Other times you can raise the rent and you might lose 20% or 30% of your customer base. None of us really know the answer to that.

Which brings me to the final point, which is a lot of this is going to be based on you making your best educated guess. All of us in life have to make hard decisions. Storage Unit owners are no different. So if you take all the information at hand, if you look at the comps, you look at the market vacancy, you look at what you promised the bank and your investors you would do, think through every angle, then make your best educated guess and take put it into action. Because really none of us really know what's going to happen. Everything that we do, there's always adverse reactions to every action. But the point of it is use some common sense. Use some thinking, some strategic thinking before you just go out there and start raising your rent. It will be a terrible disaster if you raise your rent without thinking through all the reasons that you might or might not lose customers. It would be bad if you didn't raise your rents when you could. We see that all the time with the moms and pops with rents too low. They weren't aggressive enough. But then we all know stories of people who raise rents too fast, too high and lost a mountain of customers and lived to regret it evermore.

So the bottom line at the very end of the day is make a smart decision, stick with that decision, and move forward. Remember that all customer stickiness really can't be known with complete clarity. None of us really know the stickiness of our customers. We don't know about their personal lives or what they're thinking at any moment of the day. We don't even know what they have stored in those units. But we do know that whatever we do will have repercussions. So we never want to take any action unless we fully, fully thought it through. This is Frank Rolfe the Self Storage University Podcast. Hope you enjoyed this. Talk to you again soon.