In the June issue of Mini-Storage Messenger, the article “APIs In The Storage Industry: Understanding The Controversy” covered the basics of Application Programming Interfaces (APIs) in self-storage. It discussed several ways storage companies currently benefit from APIs. This article delves deeper, talking about the ways storage companies could benefit from APIs. And the REITs serve as a great example of how you can optimize APIs for your company’s benefit.
Since a REIT owns and operates their property management software (PMS) internally, they paint an idyllic picture of open and robust API access. Put differently, a REIT is the sole decision maker in how their data is used and how their APIs function. If you recall one thing, remember this universal truth: Data is king!
Prepare for your mind to be blown. The ways storage REITs use data to their advantage will rock your world. If you think that sounds like storelocal is getting a little too geeky with algorithms, then think again. This is about your bottom line. Data is how you can make more money faster with more ease than how you currently operate your business.
REITs more fully utilize their data. Why? Largely because they have unfettered access to their data. That’s perhaps the single greatest advantage the REITs have over the rest of the industry. The largest player in self-storage owns roughly five percent of the market. The five largest players collectively own about 15 percent. That means that you, your buddies, and your competitors own 85 percent of the industry. Independent owners dominate the industry. So the REIT advantage is not market share. The REIT advantage is their understanding of the value of data and their access to it. They work smarter while the 85 percent works harder.
Let’s look at a mind-blowing example to make these concepts concrete. You own one storage facility. You’ve worked your derrière off and reached 90 percent occupancy. Not only are you bringing in more money, but your costs are now distributed against a broader customer base. Your margin per customer has significantly risen. So now you can increase what you’re spending to get new tenants moved in. I can feel you cringing. You’re doing great, why would you pay more for new tenants now? You reached 90 percent with your current practices, why would you mess with a good thing?
Let’s understand why you would increase your cost per acquisition (CPA). At 90 percent occupancy, your total costs are spread out over 90 percent of the units in your facility. From here on out, each new tenant makes you significantly more money than the tenants that brought you to 90 percent. Unless people are banging down the door to rent a unit with you, you should buck up and pay a little more to fill up your remaining 10 percent. Those tenants are the ones making you the most money, so you can afford to spend a little more on them. Fill those units up to greatly increase your yield. Give yourself time for this idea to percolate, but don’t sweep this concept under the rug if you’re in business to make money.
By collecting and analyzing their data, the REITs learned they made more money by spending more money on their final 10 percent of tenants. Data enables storage companies (REITs and independents) to make better decisions for their businesses. Better decisions are often counter-intuitive, so you won’t get there without the data to prove your intuition wrong. Data often goes against the prevailing wisdom of the industry.
Let’s look at length of stay as another example. More tenants move in during the spring than the fall, so one would think it’s wiser to focus resources on grabbing tenants in the spring when they’re riper for the picking if marketing costs were equal. Yet if you combine this marketing data with occupancy data a different picture emerges.
True, volume picks up in the spring, but the tenants that move in during the fall typically stay longer. The rule of thumb is this: If a tenant moves in on Memorial Day they’ll stay until Labor Day, while if a tenant moves in on Labor Day they’ll stay until Memorial Day. For the calendrically challenged, that means a spring move-in stays a little more than three months, while a fall move-in stays roughly eight months. By combining marketing and occupancy data, we learn that your marketing dollars are best spent in the fall.
Since this is so fun, let’s look at more complex uses of data. At storelocal we call this getting “ninja” with data. You’ve surely heard about “big data”, the idea that everything we do online is exposed to data miners that watch everything we do and then sell this data to advertisers who show us what we want before we realize we even wanted it. If you’re honest, you’ll admit you know little more than that this occurs and that you think it’s creepy. You might not have a firm grasp on the mechanics, and you likely aren’t sure how to implement such an approach for your storage company.
Data reveals the spending habits of Mac versus PC users. If a potential tenant is using an iPhone, it’s informative to know which model. Do they always buy the latest and greatest? Search results may vary accordingly. Location convenience is the tenant’s primary factor in choosing a storage facility. Data shows that the closer a customer is to a self-storage facility, the more likely they are to rent from that particular location. Therefore, the REITs conduct advertising campaigns based on proximity. A user’s location is determined by their computer’s IP address or a cellphone’s GPS or triangulation. The REITs then target potential customers with pay-per-click ads with bid variations based on proximity to the facility. The closer the user is to the facility, the more the REITs are willing to pay for the advertisement. Why? The REITs will pay more because data shows that the closer a customer is the more likely they are to convert.
Data on top of data. The data told the REITs that proximity is the most important factor in deciding where to store, so the REITs gather location data to vary the prices they pay for ads based on proximity. The data is still talking; it also tells the REITs they can charge more rent for the convenience of proximity and that discounts are necessary to attract customers from farther away. It’s all about the data. REITs identify which tenants will likely stay longer as well. If a tenant has a greater long-term value, the REITs offer a greater discount to capture that tenant. Just like paying more to get your final 10 percent of tenants, paying more for long-term tenants is worth it because they have a higher yield. Moreover, long-term tenants will get rent raises, which allow you to recoup the upfront discount.
By buying targeted third-party data, the REITs can match consumer data to their current customer data and then predict the average length of stay for potential customers and current customers. When a potential customer searches online, within milliseconds an algorithm figures out the price, promotion, and discount to offer—all based on data. Again, it’s all about the yield. If you can charge a tenant more, then charge him more. If you’ll lose a tenant unless you discount, then discount if it makes sense to do so, taking into consideration facility factors such as occupancy and tenant factors such as how long they’re likely to stay, whether they’ll absorb rent increases, or whether they are likely to leave positive or negative reviews on Google+ and Yelp.
Are you sensing a pattern? Not all customers are created equal! Ask yourself these questions: Why are they storing? Who referred them? How many times have they come to your site?
Where do they live? How old are they? What’s their highest level of education? Are they married? Do they have children? What’s their social media life like? The data can help you determine the value of your existing and potential tenants.
Have you heard of Bryan Eisenberg’s four categories for consumers? This is storelocal’s favorite ninja data example. “Competitive” consumers make logical decisions quickly. “Spontaneous” consumers make emotional decisions quickly. “Humanistic” consumers make emotional decisions slowly. “Methodical” consumers make logical decisions slowly. Knowing this, a REIT website makes accommodations for each type, understanding the proportion of each in their audience. Not only that, but they craft ways to determine which category each user falls into and then serve them up a different version of the website specially crafted for their personality category. For example, provide two options for calculating the unit size needed: a video and an option to enter the dimensions of each item. Believe it or not, 12 to 16 percent will actually enter the dimensions of their items. These “methodical” consumers get the methodical version of the website. The emotional decision makers are drawn to the video and are served up an emotional version of the website. A competitive consumer needs the call to action at the top of the page; don’t waste their time. The humanistic consumers will likely scroll to the end, so your eco-friendly message at the bottom of the site just might seal the deal. These are just a few examples.
The REITs utilize data to increase their margins. They are willing to increase their CPA once they reach 90 percent. They target fall rather than spring move-ins (unless geography dictates a different approach). They vary their ad spends based on unique consumer data. They buy data to learn more about existing and potential customers. They target certain customers for various social reviews, and they may even serve up different versions of their websites based on a consumer’s personality.
The REITs really do have a tremendous advantage when it comes to data utility, yet the picture doesn’t start with utility. First you need access! You aren’t going to get as ninja as the REITs, but you absolutely can utilize your data to increase your margins.
What can you do to start accessing and utilizing your data to your advantage? First, see what data you are already collecting. Where is it gathered, and how can you access it? Second, start tracking everything you aren’t currently collecting. For example, you can collect a crazy amount of data from your website, but only if you’re tracking it. What do people click on? How long do they stay on each page? How long do they stay on your site? How many times have they returned? This is valuable intel (especially when aggregated), so don’t let it slip through your hands.
Third, start looking at your data, even if you’re just looking at it manually. Come to the table with an open mind. What are the numbers telling you about your business? Where can you improve? How can you look at things differently? Look at your data.
If your data follows this hotel example, you would know that expensive leads are worth it—if you can charge a higher price. This holds true even if higher prices result in lower occupancy. Your data just might prove your gut wrong. What great news that would be; you can make more money with a few easy changes.
If you have more than one facility, look at one facility in depth then compare it to the figures for your portfolio as a whole. Now take it a step further; get someone to help you automate this process. Depending on the size of your portfolio, this might mean working with a third-party revenue management company. Veritec is a leading industry example; their website outlines the benefits well:
“By more accurately anticipating fluctuations in supply and demand, and using that information to dynamically adjust prices and/or inventory availability, many companies have found that they can increase their revenues by several percentage points and sometimes even more. Most importantly, much of this incremental revenue typically drops straight to bottom line improvements. Consequently, a four percent increase in gross revenue can mean a 25 percent increase in net revenue. Such is the potential power of revenue management.”
According to their website, two of Veritec’s four modules integrate with SiteLink and Centershift. Integration for the third module is in the works and the fourth module is only for companies with their own PMS.
The storage industry needs more, and better, API integration. Quality vendors should be able to integrate with all PMSs and for the full spectrum of a vendor’s products. If they can’t, then you lose out.
If you’re a smaller company, consider a consultant if revenue management software won’t cover its own cost. A consultant can walk you through your data and lay out a roadmap. Since CPAs fluctuate throughout the year, what are your conversion rates at different price points? How many rentals do you get per inquiry? What is your move-out rate, over and above your average attrition, if you raise rents? A consultant can show you how you can use your marketing data in conjunction with your accounting data and your CRM data. They can advise you regarding outside data; how you can get free data from Google and whether you want to bring in a third-party firm like Domo.
The most important step is the first step. It doesn’t even matter what it is, just get started. Start moving in the right direction. Your data is important; start using it to your benefit.
Remember how we said the REIT advantage is not market share? None of us need a crystal ball to see that this could quickly change. The storage industry is consolidating rapidly. The Big Five are buying up large portfolios at an unprecedented rate. Nevertheless, as the 85 percent, you can prevent the REITs from adding market share to their laundry list of advantages over independent owners. The 85 percent needs to collect, analyze, and utilize their data. Otherwise we might become the 80 percent, then the 70 percent. Imagine competing in that market.
Data is king. So what are you going to do with it?
Leslie Watkins is an attorney turned entrepreneur. She co-founded and operated StorageTreasures.com with her husband, Lance. Her passions are food, yoga, animals, and all things self-storage.