Given today’s highly competitive self-storage market, is there any concept more important to operators than having the right rent for the right unit type at the right time? Prorize’s Self Storage Rent Optimizer® (SSRO®) is an award-winning revenue management solution developed over two decades and field-tested by industry leaders. The solution enables operators of all sizes to generate optimal price points to make use of every square foot of facility space to maximize revenues.
"We’ve been doing revenue management for over 25 years in different industries from airlines to gaming resorts to apartments," says Ahmet Kuyumcu, Ph.D., co-founder, and CEO of Atlanta-based Prorize.
In 2009, a large storage REIT partnered with Prorize for a six-month proof of concept study. During this period, Prorize designed the initial procedures for effective revenue management for the self-storage industry. Prorize then collaborated with another storage REIT by an extensive forecast evaluation and a live A-B testing of its solution involving over 110 pilot stores. These projects proved that self-storage operators could significantly increase revenue with the SSRO solution.
Self-storage operators have many pricing challenges. First, the self-storage business is highly seasonal with close to 40 percent more rentals in the peak month of May than the slowest month of December. Move-outs are equally seasonal, peaking in August and slowing to the lowest point in February. Second, demand can shift quickly throughout the year based on competition and external micro-economic variables. Often, operators do not know how to best cope with a new competitor opening across the street, or when too many or fewer rentals are observed in their stores. Third, the right amount of promotions needs to be offered at the right time, and promotions need to be effective and balanced with expected length of stay (which itself is highly volatile and hard to predict). Fourth, each self-storage product delivers a different value to customers based on unit size, location, and attribute, and rents must be aligned accordingly. Finally, existing customer rates must be optimally adjusted at the right frequency considering customer churn rates and other market conditions.
Most storage companies rely on “old-school” pricing techniques (e.g., using current or past occupancy levels as triggers to set prices) rather than predicting demand and setting prices accordingly. In addition, many operators often apply the same rate changes across the board even though the demand mix varies over time. These “traditional” pricing approaches are reactive and do not account for predicted customer demand, thereby leaving many opportunities for revenue enhancement on the table.
For example, April, relatively, has a lower occupancy, and pricing based on occupancy alone will tend to underprice units. Managers may even be tempted to give concessions to raise occupancy levels. Yet May is a strong month for many locations when prices can be increased. SSRO starts to raise rates earlier because its forecast considers the approaching busy summer season. Conversely, in August when occupancy is high, many companies overprice their units. SSRO may consider dropping unit prices earlier due to higher move-out forecasts.
SSRO recommended rates are modified during each run so that pricing opportunities are proactively and quickly captured. The system uses advanced analytics and considers unit availability, forecasted move-ins and move-outs based on different price points, and market-related variables such as housing prices in a market, the competitiveness of the market, and the number of competitors within a certain-mile radius. In addition, the system considers what customers value in a storage unit (e.g., type/size, indoor/outdoor access, climate-controlled) and how much they are willing to pay. The SSRO can be configured to recommend optimized prices for each unit type on a daily, weekly, or bi-weekly basis. Incorporating these recommended rents into the pricing process will achieve sustainable revenue growth.
According to Kuyumcu, "Many revenue management applications are judgmental and rule-based, which are biased and backward-looking. In business, if you want to maximize revenue, you've got to forecast demand at different price points. You've got to look forward, understand overall market signals, predict move-ins and move-outs, and measure customer price sensitivities so that when the prices change, you know what the customer will do. If you don’t have these in your core algorithms, you're not maximizing revenue."
The results from real-world use and pilot studies prove the SSRO delivers between 5- and 15-percent incremental revenue growth.
The SSRO is built on the same platform as the Prorize Senior Living Rent Optimizer® (SLRO®) solution, for which Prorize was awarded the prestigious Franz Edelman Award in Las Vegas in April 2017. This competition is considered the “Super Bowl” of Analytics practice. The few finalists, selected from entries submitted by most innovative firms throughout the world, endure a nearly year-long process that includes vetting and site visits followed by judged presentations at the conference. The Edelman judges recognized Prorize, among other areas, for innovative forecasting and pricing science for low-volume businesses (such as self-storage and senior living industries).
The self-storage and senior-living industries have shared characteristics that are addressed by both Prorize solutions, including month-to-month leases, extensive promotions and incentives, aligning prices for unit types based on features, and estimating shifts in move-ins and move-outs based on seasonal, market, and demographic conditions.
Prorize implemented its SLRO solution for Holiday Retirement, the largest private owner and operator of independent senior-living communities in the U.S., with approximately $1 billion in annual revenue. By applying Prorize’s ground-breaking revenue management system, Holiday Retirement has consistently experienced a 10 percent revenue increase in new leases since the system was fully deployed in 2014.
To date, Prorize has successfully deployed its self-storage solution across two major clients, and two additional operators—including an international company—have signed up to take advantage of the SSRO.
Prorize was founded in 2006 by pricing pioneers who developed and applied their skills across multiple industries, including airline, hotel, gaming, multi-family, online retailing, telecommunications, distribution, and high-tech manufacturing.
When you work with Prorize, you’ve done more than invest in the industry’s leading price optimization and revenue management solution. You’ve also expanded your pricing team.
Prorize partners with clients and provides access to Ph.D. level expertise in addition to direct support as the new pricing recommendations are implemented. Customers can expect an ongoing relationship characterized by regular contact via over-the-phone and in-person meetings to provide status updates and gather feedback.
Self-storage operators of all sizes can have a world-class revenue management solution and achieve higher profits by optimizing pricing and maximizing revenue with Prorize.Source: Mini Storage Manager (MSM)