What is Dynamic Pricing and How Does it Work in Self Storage?

Is your self-storage pricing strategy bleeding cash while you’re sitting at 90% occupancy?  

Scott explains one of the most urgent and transformative trends in the self-storage industry today… dynamic pricing and AI-powered revenue optimization.  

As markets soften, promotions spike, and new supply floods the industry, savvy operators are turning to real-time data-driven pricing models to protect margins and outsmart the competition.  

Scott breaks down exactly how dynamic pricing works, what tools you need, and how to implement this system step-by-step, even if you're starting small.  

WHAT TO LISTEN FOR

2:44 What is dynamic pricing in self storage?

5:27 How can AI increase storage revenue at 90% occupancy?

7:03 What are the risks of using dynamic pricing?

8:44 How do I start using dynamic pricing in self storage?

10:23 How is AI used to predict self storage demand?

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Chapters

• 2:44 What is dynamic pricing in self storage?
• 5:27 How can AI increase storage revenue at 90% occupancy?
• 7:03 What are the risks of using dynamic pricing?
• 8:44 How do I start using dynamic pricing in self storage?
• 10:23 How is AI used to predict self

Transcript

Scott Meyers (00:01):

Hello everyone. Welcome back to the Self Storage Podcast. I'm your host, Scott Myers, and today we're going to be diving into one of the hottest and honestly most urgent topics in the US self storage industry right now. And then is dynamic pricing and revenue optimization. And obviously AI is at the heart of all of this because it is the engine that is running dynamic pricing and that revenue optimization. So if you've been watching trends lately, rents are still continuing to soften it In many markets, they're coming up in some, we're seeing some trending in the right direction. But as we head into fall, some folks are trying to keep that momentum. And we are seeing once again, a softening of the rents in many markets. New supply is hitting the ground as it continues to, and we're doing the same thing. We've got projects that are coming online right now, some both developments as well as new developments too, as well as conversions and promotions are eating away at the profits.

(00:53):

And we are, I don't want to say part of that, but that is just what you do. We are doing our best to keep the rents at a certain level, but offer some promotions until we lease up rather than reduce rents. But in some markets that we've had to do even lower than the time in which we did our feasibility study for these profits. So the big question is what to do, how to operate as protective revenue and margins when the market gets competitive. Well, it's the age old question, isn't it? Because we all know that the race, the bottom in the race to the bottom, the first person there loses. So how do we keep that from being ourselves? Well, that's where dynamic pricing comes in because it's somewhat of a sudden forget it, but not quite. So a stick with me in the next 30 minutes, I'm going to break down what it is, why it matters, and how you can start implementing it in your own storage business.

Big Announcer (01:44):

This is the Self Storage Podcast with the original Self storage expert, Scott Myers.

Scott Meyers (01:52):

All right, so let's start with some context across the us. The self storage market is recalibrating, and after years of record, occupancy and rent growth, we've been seeing occupancy softening in several metros, especially in the Sunbelt where new supply has been very aggressive. We've also seen street rates dropping in some markets, a double digit year over year declines, and operators have had to rely heavily on promotions just to keep units filled and really kind of buy occupancy from their competitors. And the REITs have been very active in this realm since 2020. So in short, margin compression is real. And when costs like labor taxes and insurance are, well, some are skyrocketing, some are climbing and some are skyrocketing like insurance. Well, the only lever you can reliably pull is smarter pricing on that end, on the other side of the expense load. So what exactly is dynamic pricing and self storage?

(02:44):

At its core, it's adjusting rental rates in real time based on supply demand, occupancy, seasonality, and even competitor pricing. And I say especially competitor pricing, it's the same strategy airlines and hotels have been using for decades. You've all seen this. You've seen it happen on Priceline in other areas. If you've ever booked a flight and notice the price change a day later or sometimes hours later, well that's dynamic pricing at work. So for us in self-storage, it means that we can raise rates when occupancy is high. We offer small discounts. And when the units sit vacant, and when I say discounts, we're typically offering a promotion and not lowering rates, but this is what the model does. And as we set it up, it will lower rates temporarily, so it aligns rates with demand surges like college move outs or peak summer moving season. So instead of setting a flap price once a year and that leaving it as we did way back, you let the market help you price smarter.

(03:40):

And again, AI is at the engine of this, which allows you to do this basically instantaneously. So here's how it works in practice. Let's break it down step-by-step. It starts all with the data inputs. You need to monitor occupancy levels, your competitors' rates, market demand and seasonality. The good news is the software, whichever provider you choose, is going to do this for you. So what are the triggers? When do these promotions kick in? Well, when occupancy on a certain unit type crosses 90%, if that's where you set it, prices go up. If it falls below 70% prices drop or promotions kick in, I prefer, we prefer promotions rather than the price drops. That does depend upon the market, and it does depend upon the speed or the velocity of lease up on once you pull those levers. If you're not seeing an uptick in occupancy and revenue, well then we switch from pricing to promotions or from one to the other.

(04:35):

So some of the platforms like Storage, Yardi, other specialized revenue management software can automate this. And again, AI is at the heart of this, but there are some manual pilots, even without software, you can test rate changes on one or two unit types and you can track your move-ins. And here's an example. Let's say you're running a 94% occupancy overall, but your 10 by 10 climate controlled units are 100% full. Well, it's a clear signal to push those rates up by five to 10%. Conversely, if your five by fives are sitting empty, well, it's a definitely time to drop the rates slightly or offer a limited time discount. And I would also say to, if you've got a lot of five by five sitting, if you can turn them into a five by 10, we will do that as well. And so this kind of revenue optimization and self storage can literally mean the difference between a facility that's profitable and one that is bleeding cash.

(05:27):

And there are plenty of case studies to promote that, but one in particular, one real workplace study, an operator that we spoke with that's in our mastermind was struggling with stagnant revenue despite being at 90% occupancy. And one would assume, and maybe those of you that are new to the industry may assume that 90% of occupancy we should be doing good life is good, right? Well, if your rates have dropped 40 to 50% in the market because competitors have put pressure on or just due to the market dynamics, well, it doesn't matter what pizza you're at, you're not going to hit your goals and your numbers. But after implementing a dynamic pricing model, their average revenue per unit increased by 8% in six months. Now, that doesn't sound like a lot, but they reduce the reliance on the first month free promotions by 40%, which is huge.

(06:15):

And then their NOI improved by over $100,000 annually across just two facilities. And I believe, if I'm not mistaken, these weren't large facilities that were right around 40 to 50,000 square foot. Now, these numbers aren't guaranteed, but they show the power of how letting the data drive the pricing rather than just guessing or matching the guy down the street and doing it in real time because it is backed by him and again, powered by ai. So what are some of the challenges and risks? It sounds too easy, Scott. Well, dynamic pricing isn't perfect. It just isn't. So let's talk about the challenges. First of all, you may get a little bit about tenant pushback. Nobody likes seeing crisis change constantly, and you'll need to communicate clearly that pricing reflects up market and demand, and then also the data accuracy. If your inputs are off, well, your pricing will be too.

(07:03):

So as the old adage says, garbage in, garbage out, and the supplies here as well and in spades and in small markets or in secondary or tertiary markets with less competition, aggressive pricing changes can really backfire on you because these folks, they have the ability to be more aggressive, match lower without small impact because people aren't going anywhere. And so just be cautious if you're in those smaller markets. And then the overall adoption of tech for some owners implementing new software feels daunting. This may be you, but the key is to smart start small test and then expand as we always talk about here, start small test and then expand. And so what are some of the action steps that you can take? Well, what should you do if you're listening and thinking, okay, it's time. I've heard about this. I want to try this.

(07:54):

Well write this down if you haven't been taking notes already. Here are three quick win steps for implementing for the first time revenue managements and optimization. So it starts with number one, auditing your pricing, pull up your Unix and compare against your top five competitors. Are you underpriced or over promoting? And you can do this by, without going back into a whole lot of previous episodes, but if you look at how to do a market analysis, we've covered this in previous episodes, it's as simple as going to SpareFoot, visiting your competitors on their sites. Their pricing should be on there at least close enough with a handful of sizes that they have. And then be careful, be cautious, because some of these are internet and promotional rates rather than actual rates. And so you may have to call to actually get the actual rates. And so asking them the question, what happens when my promotion rate burns off?

(08:44):

If this is the rate that's on right now, and then get a couple of prices for a couple of the unit sizes and then determine the average, and then do that across all of your competitors within a five mile radius. And you'll have the rates, okay, pick one unit, type then to test in your own unit mix and at your own facility, maybe your 10 by 20 or climate control units, adjust by just 5% and then monitor the move-ins over the course of 30 days. We always do a 30 day test, 30 to 45 days so that we're sure that we cover the ins and outs of the month on even a little bit of seasonality. And then number three is you set alerts by occupancy threshold. So for example, if occupancy drops below 75% on unit type, you adjust pricing down. And if it goes above 90%, well then you adjust it up.

(09:30):

And this phase approach gives you data without risking your whole facilities revenue at once. Okay, so that's it in a nutshell, and I want to make it any more complicated in that. But let's talk about what this looks like once you implement it and then the future of revenue management once you implement it across your facility. And then all facilities. So looking ahead, dynamic pricing is changing pretty quickly and it's only going to get more sophisticated. The predictive analytics that help us forecast a demand before it happens is a real thing. And so we are using this now. We're using our revenue management and pricing models, our software, and we are using it to predict what our demand is going to be and factoring that into our analysis when we're looking at new sites or even existing sites that we're looking to acquire. And they've been fairly accurate.

(10:23):

I've been pleasantly surprised by that. We've been utilizing this form of a predictive modeling on the front end for a little over a year now, and has been spot on even in the lease up of a new facility that's coming into a market. And so when you integrate the marketing with these pricing systems, you're going to then automatically adjust your Google ad spend alongside a unit pricing. And we've also seen that ad spend come down as well. So it's a double benefit. Not only are you optimizing your pricing, you're reducing your promotions, but also reducing your ad spend as well. So it is a win-win win, truly. And yes, AI is going to take this to continue to take this to the next level, but again, we've touched on this on previous episodes, and we will continue to touch on how AI is going to really change the face of how we market and how we operate our facilities.

(11:11):

So for now, the operators who get comfortable with dynamic pricing are simply going to outperform those who don't. And so that is really the key, and that you've heard me talk about ai and my approach to this is that it's not a nicety anymore. It's not something that is going to allow you to get ahead. Although yes, it is. And yes it will, but for a short time, just a short window because once everybody starts to adopt it, then that's going to become the new norm, and that is 100% of the direction that we're heading. It's not a prediction. It's not me trying to be prophetic. That's just the reality of where we're at and what this looks like in the market and what it looks like in the market for self storage as well. And so that's, that's all we're going to touch on today in today's episode with regards to dynamic pricing and revenue optimization. But they're not just buzzwords, they're truly survival strategies in today's US market that is no longer something that you could do or that will give you a leg up. You have to do this if you were going to survive in today's market in the US and truly means the difference of being profitable while competitors have fight over discounts. This is your edge. So thanks for tuning in. Until next time, I'm Scott Myers helping you unlock success in self storage.

Big Announcer (12:26):

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