Transcription
All right, for those of you that listen to the podcast, for those of you that are, you know, watching these YouTube videos and you're trying to learn more about self-storage, you'll understand that at Self Storage Income, we focus a lot on revenue management. So, we have a value-add system for our four Bitterroot Holdings, our management company that manages the assets that we own across four different states. We're looking for undervalued facilities to buy them, turn them around, and improve them. We're very, very focused on operations and improving the customer's experience.
Now, all this is great, and this is all kind of the underpinning of revenue management. Now, I, we got our map here, one of our facilities that we built, and I want to talk about it, just kind of use it to understand revenue management, how we focus on revenue management, and how there's upside in that.
Now, in most facilities, right, the owners of facilities, they hover. You walk in and you say, "What's a ten by ten?" "We sell our ten by ten for $100." Yeah, that's great. We look at it very differently. What's a ten by ten? Well, that price changes because you have to remember, let's say that you have a whole section, you know, down here of ten by tens. You start selling ten by tens at a hundred dollars, and they start to go, right? Well, all of a sudden, they're going fast. You sell 30%, you need to up it. Now it's a hundred and ten dollars, right? Then it's 120, and all of a sudden, you have five more left. Now it needs to be 150. Your rates need to adjust with the internal supply and demand that you have or that you're offering. Okay?
So, revenue management encompasses a few things. First of all, it's this playing with rates. It's about finding the right people, the right tenants, the highest-paying, getting rid of the bad ones, the lowest-paying ones, the ones that are delinquent, the ones that give you all your headache, increase your expenses and cost, and don't want to pay anything. Get rid of them. Okay? So that's the first step. And then bring in those high-paying, quality-focused people that are okay with paying for a good product, that are gonna stay for a long time. They're so much more profitable, right? Late fees. I wish I have none. We're trying to get rid of all our late fees because we found very quickly that getting rid of late fees, late fees isn't a revenue stream, right? It means you have delinquencies, you're going to auction, and you're not collecting that money. I want to collect the money and be able to raise rates. My gross revenue will rise.
So, when you're doing revenue management, it's about auditing and understanding the economics of the individual units, how customers are buying, what they're buying. Okay? So you have a certain percentage of your revenue that is based, and it's the vast majority, right? We know that is based on the ability to change the rates within the facility on your units. Now, there's a whole science and there's a whole art. There's a lot of people that are going out and they're offering revenue management software, right? Because we're getting into things called dynamic pricing. If you don't know what dynamic pricing is, follow our feed. We're gonna make another, another video on dynamic pricing, but trying to get the highest-paying person at that, into that unit at the right time. Okay?
This also goes in reverse, right? You give the right kind of discounts and incentives to get people in, and the lowest value one. That way, the spread is working, right? And so there's not just street rates, there's not just internal rates. Think of it as an airplane, right? When you're on an airplane, everyone's sitting on that plane as you're flying through the air, they all paid different prices because the value to those individuals are all different. That's how all the customers are in your facility. The value of the, that, of this space that they're in is different from everyone. You are trying to maximize the revenue by maximizing the value. Okay?
Now, that means some hard things, right? I mean, that may mean getting rid of a lot of customers. But if you get rid of a lot of the bad, low-paying customers, you're gonna bring in the right ones, which is gonna make your facility safer, better, more enjoyable, more high-quality asset, and it's just, it's circular, right? And your revenue will reflect that.
Now, another percentage of your revenue is these ancillary revenue lines. Okay? So when you're dealing with revenue management, it's understanding how many of the units you're selling insurance to, how many product lines can I add to? Okay? So you're increasing the lifetime value, the total revenue plus the time that they're there, minus the expenses. Okay?
Revenue management, this is what it's all about. When my, when a tenant comes into the facility and they want to get a unit, am I putting them in the right one? What's the value? What kind of, what am I selling to them? What kind of products am I selling to them? And how can I keep them for the longest time? All right, there's a lot going on there. I, I know, but this is kind of an intro, and I want the wheels to start spinning on revenue management. I want you to start thinking about it. It'll be an intro, an introduction to dynamic pricing. I want to talk about that, especially software's that people are offering out there. So look at our other video on dynamic pricing, and that will give you a better idea on how that works.