When do you give which discount?
Offering discounts is a popular way for operators of self storage companies to bring in new tenants. The danger is that if you do that often, it can have a negative effect on profits in the long term. What kind of discounts can you offer, what are the strengths and pitfalls of each? Do you have to apply them and if so, when?
Three commonly used methods are: offering a free rental period, using reduced rates and not passing on certain costs.
Free rental
An effective method, because everyone loves it for free and for nothing. We’ve all driven past a storage company with a banner ‘First month free’. But what does that actually mean? Are there really no fees? Of course it is.
Smart landlords never let it happen that a new tenant comes in without paying anything. Instead, “first month free” usually means that the tenant receives a credit for the second or third month. Or that a prepayment of the rent is required. Tenants then pay five months’ rent instead of six. One of the reasons why storage companies think this can be done is because self-storage customers are pretty stable. They often ‘linger’ for years.
However, you should always ask something. This keeps unwanted customers out. Some “free” customers will otherwise use your storage facility to store undesired items. Free rent without obligations equals lost income.
When to use:
If you’re going to offer “free rent,” it’s best to do so when you’re offering new storage spaces or when expanding. This allows you to bring in new customers. We all know that they will not leave any time soon.
Discount on rent
Another strategy that self-storage operators apply is to offer a reduced rental rate. Not as hip or attractive as ‘free’, but still enticing. There are various possibilities. For example, you can make a limited-time offer, so the discount only applies for a certain number of months. You can also link discounts to a referral program.
Temporary discount
A lower price for a few months, then the normal price is calculated again. The good news is that cash flow is less affected than with a free rental offer. However, once the discount expires, you run the risk of provoking a negative reaction from the customer. A smart way is to apply a one-time discount of, for example, 25% for a few months. This is a good middle ground between free rentals and longer discounts.
Reference
When an existing tenant or strategic business partner recommends your company to a new customer and they do indeed sign a lease, you can grant the referring party some kind of bonus or credit. This is a great instrument. After all, you get a new tenant who arrives with a warmer sense of trust than customers who have not been referred.
When to use:
A lower rent can be an effective tool to bring back ex-clients. Or to retain existing customers who have had a less good experience or have filed a complaint.
Do not pass on costs
Really only use this method under the right conditions. There are typically three types of cost that you can waive with self-storage:
Handling
These are usually charged in advance. When you refrain from doing so, the financial consequences are not so shocking. But, you don’t charge them for nothing, so be cautious with them.
Deposit
The tenant gets it back at the end of the lease. But only if he or she cancels neatly according to the lease and leaves the unit clean. If you do not ask for a deposit, the customer’s incentive to follow the rules disappears.
Penalty for late payment
Landlords often waive this fine to calm down angry customers. Don’t do it! Tenants get the feeling that paying late has no consequences, which is not the case. Do not be alarmed if a tenant threatens to cancel as a result. This is usually an empty threat. And otherwise, this is probably not a tenant that you want to keep inside at all costs. So, let them go and make room for a customer who does pay!
Otherwise: It can happen that a customer has paid the rent on time for a year. Then he misses a payment because he was on vacation. If you then waive a fine, that is a nice gesture to show your appreciation for his loyalty.
Be wise
While discount promotions can help increase occupancy and retain tenants, you should apply them in moderation. Attracting customers through discounts is the easiest way. When a company says they can only get new tenants if they offer discounts, they’re not doing something right…
So keep discount promotions simple and temporary; don’t race to the bottom with your prizes. Discounts can literally be wasted money. So weigh the pros and cons in advance before applying them within your self storage business.