Volumize Your Value: Fees As Alternative Revenue Streams
By M. Anne Ballard,
President of marketing, training, and developmental services, Universal Storage Group
Originally published by MSM,
Admin fees, insurance, merchandise, late fees, other fees, charges, and add-on services—all of these can add up to quite a lot of income and improve your property’s overall valuation.
Let’s assume your property income for the year is $1 million, and that you average the same amounts for each of those fees as do we, for this year through June 30, about eight percent of income; then you are collecting about $80,000 or more in combined additional income from all of the aforementioned fees. At the current average cap rate of 5.5 percent, that $80,000 has brought you an additional $1,454,545 in value to your property. Admin fees, late fees, merchandise, and insurance were 10 percent in 2019, pre-COVID, which would equate to $100,000 and $1,818,181 in additional value to the owner.
Who can give up an additional $1.45 million to $1.81 million in value?
All of us seek to have the highest and best possible income stream from our properties and have customers who appreciate a one-stop shop for boxes, supplies, insurance, and other services. We will take a look at these fees and revenue sources to see which ones might add additional value to your property and the services you offer. There are lots of ways to improve your bottom line using these tried-and-true products. These sales require proper training and motivation to implement and handle with ease.
In our business, we have expenses that must be paid, and most are covered by rental income, however there are others that are case specific; for those, we charge fees that are appropriate to the service or action. In all cases, fees must be clearly outlined in the rental agreement the customer signs, whether in person or digitally (as both methods are allowed). Fees cannot be made up or charged unless they are in your agreement; when changes are made, customers must receive 30-day advance notice of the changes for your charges to be valid. Your fees and other lease terms clearly spell out how you will manage the customers’ behaviors and actions. Make sure you have a signed document on all occupied spaces and that you regularly review your lease and fees to keep up with changing laws and statutes.
Admin Fees – To begin, let’s discuss the admin fee, which is a non-refundable fee charged to each new customer to cover the cost of administering the new lease agreement, time, sometimes paper and ink, and software costs. We customarily find these in the range of $15 to $30 per move-in; currently, we are charging at least $20 to 25 at our locations. In prior generations, deposits were taken that required tracking and refunding within 30 days of move-out if no damages were found. This changed such that, by the year 2000, almost all of the top operators, including Universal Storage Group (USG), were now doing admin fees vs. the aforementioned deposits. There are two main reasons: First, we did not have to track this money and issue refunds; secondly, it was an easy nonrefundable income stream for adding in new customers and their data. It is quite common now to charge an admin fee; the only place we find an exception is for online renters, where no fee is charged or the fee includes their new lock and access to an app for use in opening gates, etc.
Late Fees – Nowadays, it is common in self-storage for these fees to be state mandated in the state’s self-storage lien law or other laws. Currently, more than 30 states have such laws, according to the Self Storage Association (SSA). Per Joe Doherty, senior vice president, chief legal and legislative officer
at the Self Storage Association:
– 31 states have laws that provide a safe harbor for late fees of $20 or 20 percent, whichever is greater.
– Four states have laws that provide a safe harbor for late fees at a lower rate:
– New Jersey – $20 or 18 percent, whichever is greater.
– North Carolina – $15 or 15 percent, whichever is greater.
– Arizona – $10 or 20 percent, whichever is greater.
– California has a sliding scale based on monthly rental amount.
– 15 states do not have an express late safe harbor.
Following these guidelines is critical to your operation, although you do have some options.
For example, in most of the states we manage, the law is $20 or 20 percent, whichever is greater. We charge the first $10 or 10 percent, whichever is greater, on the soonest default date allowed in the state statute (effective at 6 p.m.). We then charge the second $10 or 10 percent, whichever is greater, usually around the 14th of the month (effective at 6 p.m.). In California, for example, the law is a little more specific and must be followed; from our California lease we find, “Therefore, if rent is paid after ten (10) days of due date, late fees shall be charged as follows: Ten dollars ($10.00), if the rental agreement provides for monthly rent of sixty dollars ($60.00) or less; fifteen dollars ($15.00), if the rental agreement provides for monthly rent greater than sixty dollars ($60.00) but less than one hundred dollars ($100.00); twenty dollars ($20.00) or 15 percent of the monthly rental fee, whichever is greater, if the rental agreement provides for monthly rent of one hundred dollars ($100.00) or more.” You must stay up to date on all these fees as mandated by your state, if any; join your state association to stay current on what is mandated.
Where there is no mandate, we have successfully used the following schedule: $10 at 6 p.m. on the 6th and an additional $40 at 6 p.m. on the 14th. Make sure to apply the late fee at the earliest possible date to encourage on-time payments. Also define which hour of the day the fee will accrue, typically your business closing time on the day of default to make programming easier for your 24/7 website payments and transactions. Many of us, however, offer a “No Late Fee Guarantee” when they sign up for auto debit payments to their credit card to encourage automatic payments as well as fewer delinquencies and late payments.
Paper Invoicing Fee – This fee covers mailing them an invoice or other documents and is paid monthly; we currently charge $3 per month for this service. The emailing of all documents is provided for free. Many state laws also provide for emailing of all notices versus the old USPS processes; check with your state to ensure you are providing the lowest cost of service.
Lock Cut Fee – As many of us know, it takes time and tools to cut off customer locks, especially if they are disc locks. This fee, which covers the cost of time and equipment, is much lower than having the customer call a locksmith for the same service; our average lock cut fees are $25 for a padlock and $45 for a disc lock. All fees must be clearly stated in the rental agreement or lease. Make sure to update your rental agreement and lease often, specifically when your state has an update to your statutes.
Sale Fee or Lien Fee – These fees vary widely within the industry; some operators charge fees at each step of the process (i.e., lock cut, inventory, advertising, conducting the lien sale, disposition of the goods, etc.). However, we have chosen to charge only the sale fee on the 6th of the month following default of nonpayment for 30 days and necessitating lien sale processing. This way we charge the fee for just having to process them for sale whether they actually go through the whole sale process or not. Currently, we are charging $100 to $150 for this service, but we have seen operators charge $250 for it. Just ensure your rental agreement clearly outlines when the fee is due and the amount.
Cleaning Fee (or Deposit) – As stated earlier, under the admin fee section, most of us don’t charge deposits anymore. Instead, we include paragraphs in our agreements that allow for charging the customer a cleaning fee or charge if things are not left in a “broom swept” condition as the lease states.
“Upon move-out, abandonment, or termination, a Clean-Up Fee of no less than $100 will be assessed for the disposal and/or cleaning of any unit not left in a broom swept condition.”
Transfer Fee – This is the fee charged to move a customer from one unit to another, called a transfer fee. It involves ensuring the customer has in fact vacated one unit and taken possession of the new unit; managers have to make sure it does not overlap or take several days to complete.
After-Hours Access Fee – Sometimes we will give customers access outside of normal access hours, for example, during move-in if they have a moving truck arriving after hours or if they are a commercial client needing access 24/7 or beyond normal access hours. Most of us have access hours from 6 or 7 a.m. till 10 or 11 p.m. If they are contractors and need to be on the job before 6 a.m., this can be a lucrative way to allow such access. Charging for this privilege can keep people from visiting in the middle of the night when untoward activities can take place. We find fees for this service average $25 per month or more. Whatever stipulations you make for this service have to be applied evenhandedly and not in a discriminatory way. Some require a copy of the business license, for example.
Package Delivery Fees – Many consumers love this service to thwart porch pirates! For those of us who receive packages for our customers while they are away or working, a fee can and should be charged. You do not want to be in possession of the package(s) or have any liability for them. Instead, use a Key Release and Package Delivery Acceptance Agreement that outlines how this will be handled. We have the delivery driver sign for the key (with the date and time), place the package(s) in the unit, and then sign the key back to us.
Fees for this service vary, but here’s one example: Elmwood Self Storage and Wine Cellar in New Orleans charges $20 per month for unlimited packages delivered to their private room for packages only. For customers who want to continue delivery to their unit, a $10 charge is levied. Check out their website at www.elmwoodselfstorage.com/luxer-one.
Keycard, Remote, or Lost Key Fee – For specialty unit types, such as safe deposit boxes, wine cellars, and motorized oversized doors like those used for RVs, we sometimes collect a deposit or charge a fee to replace those lost keys, key fobs, or remotes. Fees can range from $100 deposits to $150-plus key or fob.
Dumpster Use Fee – Trash is not free anymore. For this reason, we recommend enclosing and locking trash dumpsters and posting signs saying, “See Manager for Dumpster Use.” Fees can range from $25 for a partial load to $100 or more for a full load. Contact your refuse company for pricing on your costs for extra loads and add a mark up for this service.
Other Fees & Charges – Some operators charge the customer a fee to use credit cards. We include this in our rental rate structure, as it does cost us to process payments this way; instead, it is a cost of doing business that’s factored into our rates.
Add-On Services – If you charge concierge fees to order lunches or flowers for a group using your conference and meeting room, then these should also be delineated in your agreement. Typically, we add 15 percent to the costs of the goods for facilitating these services for our clients. RV-focused facilities may offer other services that should also be defined. Prepping the RV or motorhome for the client, cleaning, washing, stocking up, and more are common services for which fees are charged.
Free Move-In Truck (other uses and fees) – Some self-storage facilities offer a free move-in truck to customers; that service is provided at no charge, but some stipulations should apply. At USG, we require the customer replace the gasoline and buy the insurance we provide. Spell out the charge for not replacing the gas in your free move-in truck agreement.
If you allow them to rent the truck for move-outs or other uses, spell out in detail all charges involved (gas, insurance requirements and costs, damages, hourly rate, and any other specifics).
Insurance Sales – Customers are required in your lease to have 100 percent cash value replacement insurance. Most of us offer pay with rent insurance, and for this we receive an administrative fee or compensation from the insurance provider. This is a viable and important income stream for the store. Customers must have this at move-in and not within a certain number of days. Of course, if they can provide proof of coverage at move-in, then we keep a copy of that in their customer file. We are currently selling policies to approximately 98 percent of new move-ins (about 80 percent penetration overall). You will work with industry providers to negotiate the percentage you will receive, and they will handle all the set up and requirements for you.
Merchandise Sales – Boxes, locks, packing supplies, and other needed supplies can add a significant amount to your income. Pre-COVID, we were averaging $40 of BSPL, box sales per lease, and 55 percent of that is profit using our 2.125 markup to costs. Having supplies on hand can be a lifesaver for customers and brings in additional traffic to the store. Inventory must be clean, priced, and showcased as retail, with plenty of supplies on hand—not just a single item shown as a sample. We like our box stacks to be on furniture movers (we call them box floaters) and stacked chest high in bundles. We offer bundle pricing as well as a box buyback program for returned items that are clean and unused with the purchase receipt. We give a 10 to 15 percent discount when purchasing a bundle, which could be 10 to 15 boxes of the same size. We always load the purchases into our clients’ cars for them. We ask them, “What will you be packing?” to get them talking about their needs. Oftentimes, we can also pick up a new storage customer from this discussion.
Loss of Discount – This paragraph in your lease can also be an income source. It simply says that anyone going 30 days or more delinquent is automatically taken to today’s street or market rate and does not require us to send any additional notices to them to make this effective. You might consider this an easy way to take those clients who are delinquent to a higher rate without any work except changing the number they owe within your system.
Based on your operation and management style, many of these fees and charges can and should be deployed at your operation. For those running sites remotely, or called unmanned in the current vernacular, some of these services and sales items will be challenging. These are the decisions that must be made in setting up your operation or improving your current operation. It is hard to give up that increase in value of the operation that comes from these sources, so being mindful of the income you will be giving up should be part of the thought process in deciding to operate remotely or as an unmanned location.
Whichever path you take for your operation, make sure the fees, charges, and costs of all your programs are clearly spelled out in your rental agreement and that you are following all state mandates or current laws. These fees and ancillary sales can make a big difference to your value and the price you might get at sale.
M. Anne Ballard is the president of marketing, training, and developmental services for Universal Storage Group in Atlanta, Ga. She is a two-term past-president of the Georgia Self Storage Association and the author of “The Hat Lady Speaks, Marketing and Managing Self-Storage,” along with numerous articles and presentations at national, state, and international self-storage conferences and trade shows. Universal is a 12-time winner of “Facility of the Year,” the last six of which Anne designed, and an eight-time winner of ISS Best of Business Award for Best Manager Training also for Best Third-Party Management and Best Operational Consulting. Universal is consistently listed in the Top Operators survey.
This article is provided courtesy of AZSA with the permission of Mini-Storage Messenger magazine. © MiniCo Insurance Agency LLC. All Rights Reserved. It is not intended for further reproduction/distribution without the exclusive permission of MiniCo Insurance Agency LLC