“It’s the little details that are vital. Little details make big things happen.”
~ John Wooden
Coach John Wooden was known as a stickler for little details. Considering that he won 9 NCAA College Basketball Championships and is known in most circles as the greatest coach in the history in any sport, we should all learn more about his philosophy of taking care of the little things.
I try to write about business lessons that apply to any industry, but here I want to focus exclusively on self-storage to make the example of just how much impact the little things have on bottom line revenue. Ours in an industry where many consider revenue to be dominated by one thing – rental income – and certainly that is the mainstay, but I want to illustrate how paying close attention to the little things can have massive impact on overall performance.
Let’s consider for our example we have a mature property, 85 – 90% occupied that typically brings in rental income of $45k. Secondary income (late fees, admin fees, insurance, merchandise sales and truck rentals) bring in an additional $3k on an average month. Not counting mortgage, let’s put our monthly operating expenses at $15K, leaving us an NOI (Net Operating Income) of $30k. Based on this simple example, secondary income generates 10% of our monthly store NOI.
Regardless of what we do each month, our expenses are going be fairly consistent month to month – the one exception being merchandise sales. If we sell more merchandise that means we also have to buy more merchandise, so for the sake of our example I’m going to say merchandise costs are 40% of gross – that is if we sold $1,000 of merchandise, it would cost $400 to replace our inventory. Of course there are other variables such as utilities in the south, snow removal in the north, additional marketing campaigns, etc., but here we will use a consistent of $15k monthly expenses. Also, for the sake of our example, let’s say we’ve had a 6% year over year NOI revenue increase, so last year we were averaging $42,300 per month top line and $28,200 bottom line (NOI).
Let’s look at the impact extra attention to “the little things” does for our performance. By focusing efforts at the store, we increase our secondary income categories listed above by $1,000 for the month after deducting for additional merchandise expenses. All other monthly expenses being consistent, we changed our NOI from $30K to $31k because this is all additional revenue. From this viewpoint, we had a respectable 3.3% month over month increase, however, in the bigger picture, our year over year NOI increase goes from a respectable $1,800 per month (6%) to an increase of $2,800 or 10% over last year. That’s huge, but that’s only the beginning. When secondary income was $3,000 per month, it equated to 10% of NOI. At this higher level, rental income at the store hasn’t changed at all, but secondary income is now 12.9% of NOI.
Digging deeper, in order to maintain our mature property at 85 – 90% occupancy, let say we average 30 rentals and 30 vacates per month. For those 30 new rentals, our average secondary income is:
● 70% insurance enrollment or $189.
● $15 merchandise sales per new rental or $450
● 50% collection of admin fees or $270
● $600 truck rentals
● 60% collection of late and lien fees or $1491
This amounts to our monthly secondary income average of $3,000.
Just based on these numbers, even if truck rentals remained unchanged, what effect would it have if we really focused on the other 4 areas of secondary income?
● 90% insurance enrollment or $243.
● $25 merchandise sales per new rental or $750
● 90% collection of admin fees or $513
● $600 truck rentals
● 90% collection of late and lien fees or $2236
Now your secondary income amounts to $4,342 or almost a 45% increase to secondary income! That’s going to make a lot of people very happy! Do that for 12 months and you’ve taken a property that was mature and stable and with little chance of putting up such exceptional numbers and by simply focusing on the little things, you’ve made the store far more profitable. As Coach Wooden explained, that’s how you make big things happen!