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What does a half-price move-in offer actually cost a self-storage store?

The move-in offer is an acquisition cost, not an impairment of the rent roll, and the sector argues about the smaller half of it.

Julian R. Sterling · from Self-Storage Real Estate

A half-price move-in offer on the average unit is worth £141 in present value. The customer it buys is worth £2,188, so the offer repays itself in 2.0 months, and value covers total acquisition cost — discount plus marketing, £267 — 8.19 times over. The discount is not a rent reduction but the price of an asset. At that price, the depth of the promotion has never been the expensive part of acquiring a storage customer.

One customer, end to end

The store underwritten here is a mature building in Manchester: 590 units, 50,000 sq ft of gross internal area, 79.6 per cent occupied by unit count, offered at £8.4 million. The standard British offer is half price for 8 weeks. On the average unit, that offer and the customer it produces look like this.

One customer, end to end

Per customer	Amount
Full monthly rent on the average unit	£160
Months paid, on average	13.8 months
Gross rent collected over the stay	£2,428
Discounted at the required return	£2,192
Margin on the marginal customer	99.8 per cent
Value of one customer	£2,188
Discount given at move-in, discounted	£141
Marketing spent to find them	£126
Total cost of acquisition	£267
Value, over cost	8.19x

A rent reduction is a permanent impairment of an income stream. A move-in offer is a one-off payment made to secure a customer whose value depends on how long they stay. The two belong in different lines of a model and are routinely put in the same one. Placed in the right line, the offer repays itself in 2.0 months, and the value of one customer would finance 13.7 months of entirely free storage before that customer stopped being worth acquiring.

The discount is the smaller half

The marketing is the other half, and the two are rarely put together. This store spends £51,541 a year on marketing and customer acquisition to produce 408 move-ins — £126 each. Set beside the £141 of discount, the promotion is only 52.7 per cent of what it actually costs to bring a customer through the door. The argument the sector conducts in public is about the smaller half.

Between the discount and the marketing, the store spends £109,074 a year — 11.0 per cent of its rent roll — simply to replace the customers it loses. Not to grow. To stand still. That is the cost of having no leases, stated as a number. In an office building the equivalent line — letting agents, rent-free periods, void costs, fit-out contributions — is enormous when it falls but falls rarely. Here it falls every month, for ever, and it is booked as an operating expense rather than as the capital cost of maintaining a rent roll.

Because the offer is cheap relative to the customer, it is tempting to conclude that discounting is free and to go deeper. It is not free, for a reason the arithmetic does not show: a deeper promotion attracts a different customer, and the customer attracted by the deepest offer in the market is disproportionately the one who leaves soonest. If a deeper discount shortens the average stay by even a month, the store must find 2.7 more customers a month to hold its occupancy, and the gain disappears.

Everything moves with the length of stay

The value of a customer, the move-ins needed to stand still and the annual cost of standing still are all functions of one number — and it is the number operators report least often.

What a month of stay is worth

Length of stay	Move-ins needed each month	Value of one customer	Cost of standing still, each year
8.0 months	58.7	£1,268	£188,193
10.0 months	47.0	£1,585	£150,555
12.0 months	39.1	£1,902	£125,462
13.8 months	34.0	£2,188	£109,074
16.0 months	29.4	£2,536	£94,097
20.0 months	23.5	£3,171	£75,277

A store that keeps its customers 8.0 months instead of 13.8 must find 58.7 new customers every month rather than 34.0, for ever, to stand in the same place. That is not a marketing budget difference. It is a different business, run by more people, in a market that may not contain that many customers. It is also why the depth of the offer matters far less than what the offer does to the survival of the intake it buys.

What to do with it

• Move the discount out of the rent lines and into acquisition, next to the £126 of marketing, and report one number per move-in: £267.
• Ask for move-in and move-out counts by month for three years. Length of stay, the value of a customer and the cost of standing still all reconstruct from those two series, and an operator who cannot produce them does not know the most important number about the store.
• Treat a move-out as a capital event. The store loses a customer carrying £1,094 of remaining value on average, and must spend £267 to replace them.
• Fund retention on the same test. A month of extra stay across the whole customer base is worth £15,369 a year to this store, against a marketing budget of £51,541 spent almost entirely on people who are not customers yet.
• Settle the depth of the promotion by measurement rather than by argument: run it at two depths in comparable stores, and compare the survival of the two intakes at twelve months.

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