In the self storage industry, pricing strategy can make or break your business. So, which strategy is right for you? Well, if you are one of the business owners currently seeing the value-based pricing trend take off and wondering if it could be your next step, Storagely has done the research for you, and this article can hopefully help you make the best decision to increase self storage revenue.
The Ins and Outs of Self Storage Pricing
Determining the pricing strategy for a self storage business is a critical aspect of revenue generation. For self storage facility owners/operators, your pricing model impacts profitability, customer satisfaction, and market competitiveness.
Over the past few years, “value-based pricing” has emerged as a set of buzzwords, growing in popularity and application.
So, what is value-based pricing, and should you use it for your facility?
Keep reading as we dive into these questions and uncover if value-based pricing could take your self storage revenue up a notch.
Traditional Pricing Models
Traditional pricing models in the self storage industry are typically centered around cost-based and competition-based pricing.
In cost-based pricing, a unit’s price is determined by adding a profit margin to the cost of providing the rental. This approach ensures that all costs are covered, but it may not fully capitalize on the value perceived by the customer.
On the other hand, competition-based pricing assigns unit prices based on what competitors charge for similar units. While this ensures competitive pricing, it can lead to a race to the bottom where businesses undercut each other, potentially eroding profits.
Introduction to the Value-Based Pricing Strategy
When you adopt value-based pricing, the strategy that sets prices primarily on the value perceived by the customer rather than on acquisition and operating costs or local competition. This model allows businesses to capture more value and better meet customers’ expectations.
Self storage owners/operators must look at value-based pricing NOT as the amount of value they are offering potential tenants, but instead how much potential tenants will value (and be willing to pay for) certain conveniences, products, or services surrounding their rental.
“Customers will only buy your product if they believe that the value they’re receiving is greater than the price they’re paying; otherwise, why would they pay?”
The goal of this pricing model is to align prices with perceived unit value, allowing businesses to charge higher prices for units with higher perceived value.
Implementing a value-based pricing strategy can be a complex process that involves understanding your customers’ needs and perceptions, aligning prices with perceived value, and balancing self storage revenue with customer satisfaction.
In the upcoming sections, we dive into the details of value-based pricing, discuss its advantages, provide value-based pricing examples, and offer tips for successful implementation.
How a Value-Based Pricing Model Works
Implementing a value-based pricing strategy involves understanding your customers’ needs, preferences, and willingness to pay. It requires in-depth market research to identify what aspects of your service customers value most.
Once these value factors are identified, prices can be set that reflect this value. For example, a customer might be willing to pay more for a storage unit that’s located on the ground floor due to the convenience of loading and unloading items. Similarly, enhanced security features or climate-controlled units may also command higher prices.
Here’s a simplified example of how value-based pricing might look in a self storage facility:
This pricing model prioritizes customer perceptions and preferences, potentially leading to higher customer satisfaction AND increased self storage revenue for the business. Sounds like a win-win scenario to us.
Storagely’s Approach to Value-Based Pricing
With most current website and rental system platforms (if they even offer this feature), the value stops at locational convenience. For example, potential tenants are only offered different pricing options based on a unit’s distance from a loading dock, elevator, ground floor, etc.
What sets Storagely’s value-based pricing feature apart is that we not only offer the standard location and convenience-based value pricing for your units, but self storage facilities can also upsell by offering different bundled products with your units as well.
For example, when you pair the Storagely platform with your current Facility Management Software, same-sized units can be priced differently based on facility location. Potential tenants can also choose if they want A standard, deluxe, or premium version of that unit (each version offering different features, products, or amenities).
Simply choose which services or products you would like to include in each tier (such as climate control, upgraded locks, concierge service, etc.), build your bundles, and unlock a new level of value-based pricing and self storage revenue for your business.
Advantages of Value-Based Pricing for Self Storage Facilities
Adopting a value-based pricing strategy can yield numerous benefits for self storage company owners. Here, we will explore three key advantages: increasing revenue, boosting customer satisfaction, and gaining a competitive advantage.
Increasing Self Storage Revenue
One of the primary benefits of value-based pricing is the potential for increased revenue. By pricing your storage units based on the perceived value they offer to customers rather than simply covering costs, you can command higher prices and increase profitability. For instance, units with climate control or enhanced security features may be valued more by customers and, therefore, can be priced higher. This pricing model allows businesses to capture the maximum value from each transaction, thereby enhancing revenue streams.
Customer Satisfaction
Another advantage of value-based pricing is its potential to boost customer satisfaction. When prices are aligned with the perceived value of a product or service, customers are more likely to feel satisfied with their purchase.
Potential self storage tenants might feel more satisfied paying a higher price for a storage unit with additional features that the customer values, such as 24/7 access, climate control, or high-level security. This satisfaction can lead to increased customer loyalty and positive word of mouth, which can significantly impact your business’s success.
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Competitive Advantage in the Self Storage Industry
Finally, implementing value-based pricing can provide your self storage business with a competitive edge. By focusing on the value your units offer and pricing them accordingly, you differentiate your offering from competitors who may still use cost-based or competition-based pricing models.
This differentiation can make your business more attractive to potential customers, particularly those who value your units’ specific features or amenities. Understanding and capitalizing on what your tenants value most can set your business apart from the competition.
Implementing Value-Based Pricing for a Self Storage Facility
To effectively implement a value-based pricing strategy in your self storage unit business, there are several key factors to bear in mind. This approach requires understanding potential tenants, aligning prices with perceived value, and balancing profitability and customer satisfaction.
Understanding Your Customers
The first step in implementing value-based pricing is thoroughly understanding potential tenants and their perception of value. This involves conducting market research and customer surveys to gather insights into what customers value in a self-storage service.
Key areas to focus on include:
- Importance of location
- Value placed on security features
- Amenities such as climate control or 24-hour access
- Useful or convenient products/services
By analyzing customer data and comprehending your tenants value, you can better tailor your pricing strategy to reflect these factors.
Aligning Prices With Perceived Value
Once you clearly understand what your tenants value, the next step is to align your prices with this perceived value. This does not necessarily mean increasing prices across the board. Instead, it means adjusting prices based on the specific features and benefits that your customers value.
For example, if your tenants place a high value on location, units in a prime location (such as ground level or near elevators) could be priced higher than those in less desirable areas. Conversely, if additional amenities such as climate control are not highly valued, these could be priced lower.
This alignment of price and value can significantly enhance the perceived fairness of your pricing strategy and increase customer satisfaction.
Balancing Profitability and Customer Satisfaction
While value-based pricing aims to increase self storage revenue, it’s important not to lose sight of customer satisfaction. A pricing strategy that is solely focused on maximizing profits at the expense of customer satisfaction is unlikely to be sustainable in the long term.
To strike the right balance, it’s essential to consider the impact of price changes on your customers. Regularly reviewing and adjusting prices based on customer feedback and market trends can help you maintain this balance.
Value-Based Pricing Examples
To better understand the concept of value-based pricing in the context of self storage businesses, let’s dive into some specific value-based pricing examples. These examples will illustrate how differentiating by unit size, pricing based on location, and pricing according to amenities can significantly impact revenue generation.
Example 1: Differentiating by Unit Size
This may seem like a no-brainer, but the size of a storage unit plays a significant role in determining its perceived value. Customers requiring a larger storage space are often willing to pay more for the extra space. Therefore, aligning the price with the size of the self storage unit can be a successful approach to value-based pricing.
This is where market research plays a huge role because if you only price different self storage units based on a parallel sizing/pricing chart, you may lose revenue. Some facilities may price a 5×5 unit at $50 per month and price a 10×10 at $100 per month, simply because double the size means double the price. However, market research may tell you that the larger unit is actually valued at a higher or lower price point.
For instance, a small 5×5 storage unit might be priced at $50 per month, while a larger 10×10 unit could be priced at $200 per month. The larger unit provides more value to the customer and, therefore, justifies the higher price.
Example 2: Price Based on Location
The location of a storage facility or even a specific unit within the facility can greatly influence its perceived value. Units closer to the city center or main roads might be more desirable due to their accessibility and convenience. These units can be priced higher than those in less convenient locations.
For example, a storage facility located downtown might charge $200 per month for a 10×10 unit, while the same size unit in a suburb could be priced at $150 per month. Likewise, a ground-floor unit located closer to an elevator or loading dock could be priced higher than a same-size unit on the third floor, opposite the elevators.
Example 3: Price According to Amenities
Amenities such as climate control, 24/7 access, or heightened security measures can significantly increase a unit’s perceived value. Customers who value these amenities will likely be willing to pay a premium for them. Therefore, offering a tiered pricing structure based on included amenities can be an effective value-based pricing strategy.
For example, a basic 10×10 unit might be priced at $150 per month, while the same size unit with climate control and 24/7 access could be priced at $250 per month.
These examples illustrate how different factors can be leveraged to implement a successful value-based pricing strategy by understanding what your customers value and aligning your prices accordingly, you can maximize self storage revenue and ensure customer satisfaction.
Example 4: Price Including Products and/or Services
Some facilities using a value-based pricing model also include bundles for products and services such as moving boxes, packaging supplies, concierge services, etc. Generally, each unit will have add-on packages that follow a good, better, best type of tier, with increased pricing as value increases.
Tips for Successful Value-Based Pricing
Adopting value-based pricing methods can be a game-changer for self storage businesses. However, certain aspects must be considered to ensure its successful implementation and maximize revenue. Here are some tips on how to navigate the process effectively.
Regularly Reviewing and Adjusting Prices
First, prices should not remain static. The perceived value of a storage unit can change over time due to several factors, such as market demand, competitor prices, and customer preferences. Therefore, regularly reviewing and adjusting your value-based prices is crucial.
A thorough review should be conducted at least annually, if not quarterly. Consider factors like occupancy rates, the popularity of specific unit sizes or locations, and overall market conditions. Adjustments should reflect these changes to ensure prices remain competitive and aligned with perceived value.
Communicating Value to Customers
A vital aspect of value-based pricing is effectively communicating the unique value proposition of your storage units to customers. It is not enough to set a price based on perceived value; customers must understand and appreciate this value.
This involves highlighting your storage units’ features, benefits, and unique selling points. For example, if a unit is priced higher due to its premium location within the facility, ensure customers are aware of the convenience and accessibility it offers. Clear and effective communication can increase customer satisfaction and willingness to pay the set prices.
Monitoring Competitor Pricing and Market Trends
Lastly, keeping a close eye on competitor pricing and market trends is essential. While the value-based pricing method focuses on customer perception, understanding the market landscape is equally important.
Regular competitor analysis can inform you about other pricing strategies employed by other businesses. If your prices are significantly higher or lower than competitors, it could indicate a misalignment of perceived value.
Similarly, staying updated with market trends can help you anticipate changes in demand and adjust your prices accordingly.
Remember, successful value-based pricing is not about undercutting competition or matching their prices but about offering superior value for which customers are willing to pay a premium.
Trust Storagely to Boost Your Self Storage Revenue
Value-based pricing can be an effective strategy for increasing self storage revenue. Still, its success hinges on regular price reviews, effective value communication, a thorough understanding of the market landscape, and a platform that can support value-based pricing for your website and rental system.
We hope this article has been a helpful tool in adding to your rental and revenue numbers! To learn more about Storagely’s value-based pricing or to schedule your free demo today, CLICK HERE.