News & Blogs

Why Annual Rent Increases Create Work & Cause Churn

22
Sep

Virtually every business has its fair share of time-consuming tasks; be it a marina doing the daily dock-walk, or a self storage facility cleaning recently-vacated units. While some tasks are just part of life (that is, until such time as someone invents an industrial-sized robotic vacuum), other tasks can easily be automated – one such example being the annual rent increase.

From my experience in the industry, most companies seem to run an annual increase at a rate in line with market conditions and their current occupancy level. However, there are a number of problems associated with the “once a year on X date” style of rent increase.

Let’s take a look at why the traditional rent increase isn’t necessarily the best method.

They create work

Raising all of your rent on a particular day creates a lot of work – even if you use a wizard (like the one in StorMan) to help you with the process. At the end of the day, your system (be it StorMan or something else) will still need to send a letter or email for every customer that’s getting the rent raise. Smaller, more regular, rent increases allows your staff to handle these people personally; 5 vs. 50 calls or emails.

Just as an aside, my view on “billing everyone on the same day of the month” is similar (hint: I don’t think it’s a good idea); but I’ll write a blog on that another time.

They cause customer churn

Companies often have trouble predicting customer churn when they run a rent increase. If your business (particularly true for self storage facilities) is located in a lower socio-economic area, a rent increase can cause customers to look elsewhere, or to question their need for storage (although you could always refer them to my other blog; 7 reasons why Self Storage is a good idea).

One of the biggest concerns for staff who are paid bonuses on occupancy is that if they put through a big once-a-year price rise they are likely to place themselves in an “occupancy hole” which they then need to climb out of. As an example, let’s say that you put through a once-a-year 10% rent increase and that you have 50 people move out as a result. Yes, you’re making more money on those that remain, but you now have 50 spots to fill – at the higher rate.

More importantly, ask yourself why you lost those 50 people. Many people just assume that people will move out because you have increased the price – however, experience shows that this is not the case. Many people leave because they believe that their business is not important to your business, or because the rent increase was not handled well. Often the customer still needs to store their boat or goods somewhere, but choose to vote with their feet.

You’re bound to miss customers

Using the “once a year on X date” rent increase method inevitably means you’ll miss some customers. This is because most businesses set a “minimum duration of stay” before applying an increase – that way, your new customers don’t get hit with an increase straight away. But this method creates cracks which customers can fall through.

Here’s an example:

  1. New customer Bob Smith moves his boat into a $200/month berth (or self storage unit) in January.
  2. In May, you decide to run your 5% “once a year rent increase” on all customers who have been with you for 6 months or more.
  3. Bob Smith won’t be affected by that rent increase, because he’s only been with you for 5 months at that point in time.
  4. If Bob is still a customer when you run the “once a year on X date” rent increase next year, he WILL get a rent increase… but it will be 17 months after he moved in.
  5. That’s 5 months of higher-priced rent you’ve missed out on (around $50). Not a large amount, but remember: Bob is just one customer. How many others could there be?

You’ll make less money, less often

Putting through a large, annual rent increase creates big “steps” in your income – as shown in the diagram below. Smaller, more-frequent rent increases means you get additional income sooner.

So what’s the alternative?

If you rent a residential property, you’ll be familiar with rent increases around contract-renewal time. Unlike the self storage industry (and the same could be said for many marinas), which traditionally favour the “once a year on X date” increase, residential rental increases will generally be applied when the contract is renewed.

So why don’t self storage facilities & marinas do this? In most cases, it’s because they don’t have the tools to do so.

The average storing customer pays monthly & their contract just rolls on from month to month – automatically renewing as it goes. This makes managing contract-renewal rent raises very difficult, because there generally is no contract renewal in the first place.

There is, however, light at the end of the tunnel – and it’s called Rent Increase Rules.

  • Rent Increase Rules don’t cause large amounts of work because they run all the time.
  • Rent Increase Rules don’t cause mass churn & they allow you to manage your occupancy level.
  • Rent Increase Rules work with on all applicable customers (yet you’re still in control), so no-one slips through the cracks.

By using Rent Increase Rules, StorMan allows your marina or self storage facility to put through a few rent increases per year. Here’s why this is better:

  1. Smaller more regular increases allow for the staff to handle these people personally; 5 vs. 50 calls or emails.
  2. Allows for a culture of increases rather that a shock culture of once a year.
  3. Allows for extra money to be received all year around rather than once a year.
  4. Allows staff to become used to selling a rent raise as they will have numerous chances throughout the year, rather than the one big event.

Set ‘n Forget, with Rent Increase Rules

Rent Increase Rules run in the background & constantly look for customers that meet your pre-configured criteria – such as this example: “Look for active customers that have not had a rent raise in the last 6 months, and increase their rent by 2%”.

Rather than the traditional “everyone at once” rent raise method – which can sometimes result in a higher-than-expected customer churn rate – a Rent Increase Rule is a “rolling” rule that always runs, affecting a very small number of customers as they become due for a rent raise. You can also have multiple Rent Increase Rules running at the same time.

The sending of reminders – such as rent increase reminder emails (or printed letters) – happens automatically too, ensuring your applicable customers get plenty of warning before the rule triggers. It’s a true “Set ‘n Forget” system.

Of course, we also give you the flexibility to preview Rent Increase Rules before they run – plus, you can exempt certain customers from a rent raise if you wish.

As you can see, StorMan offers a fantastic level of automation, yet still lets you control what it’s doing and when… and that means happy customers (read more on why this is important).