The existing customer rate increase that maximises net income, found from one measured cycle and the shape of the response.
The optimal existing customer rate increase (ECRI) is the one that maximises rent from the customers who stay less rent lost from those it drives out. If a measured 10 per cent increase causes 5 per cent extra move-outs and the response rises with the square of the increase, the optimum on an illustrative 300 customers paying £110 a month is 8.83 per cent, worth £18,166 a year. Where the vacated units re-let at street rate it rises to 15.14 per cent.
Worked in full in Self-Storage Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Self-storage customers hold monthly licences, so the increase applied to the people already in the store is what builds the rent roll, and every operator has to decide how far to push it. How many move-outs a rate increase can afford answers the defensive question: the break-even is i / (1 + i) of customers notified. This article answers the next one. If move-outs rise as the increase rises, there is a best increase, and it can be found from one measured point and one assumption about the shape of the response.
| Input | Value |
|---|---|
| Customers eligible for an increase | 300 |
| Average in-place rent, a month | £110.00 |
| Measured response: a 10% increase caused | 5% extra move-outs |
| Response shape: extra move-outs = a × ib | b = 2 |
| Loss per leaver, unit stays empty, a year | £1,320.00 |
| Loss per leaver, unit re-lets at £95 after three months, a year | £572.50 |
| Capitalisation rate | 6.0% |
The re-let loss is £1,320 less what a replacement pays over the remaining nine months, £855.00, net of £107.50 of move-in discount and marketing: £747.50 recovered. "Extra" means move-outs above the store's normal churn, measured against a control group of customers who did not receive the letter.
Step 1. Fit the response curve
x(i) = a × ib. With b = 2 and the measured point x(10%) = 5%: a = 0.05 / 0.102 = 5.0. So a 6 per cent increase causes 1.80 per cent extra move-outs and a 15 per cent increase 11.25 per cent.
Step 2. Write the annual net gain
Net(i) = N × [(1 − x) × i × 12R − x × L], where N is customers, R the monthly rent and L the annual loss per leaver.
Step 3. Maximise
With the unit left empty, L = 12R and the bracket becomes 12R × [i − a i2(1 + i)]. Setting its derivative to zero gives 3a i2 + 2a i − 1 = 0, so i = (−2a + √(4a2 + 12a)) / 6a = 8.83 per cent. In Excel, put the increase in one cell, Net(i) in the next and let Solver maximise it; or tabulate Net(i) and take the maximum.
Step 4. Read the result
At 8.83 per cent, 3.90 per cent of customers leave, against a break-even of 8.11 per cent, and the store gains £18,166 a year, £302,763 of value at 6.0 per cent.
| Increase | Extra move-outs | Customers lost | Gain if nobody left, £ | Net gain, £ | Share of optimum |
|---|---|---|---|---|---|
| 3% | 0.45% | 1.3 | 11,880 | 10,045 | 55% |
| 5% | 1.25% | 3.8 | 19,800 | 14,603 | 80% |
| 8% | 3.20% | 9.6 | 31,680 | 17,994 | 99% |
| 8.83% | 3.90% | 18,166 | 100% | ||
| 10% | 5.00% | 15.0 | 39,600 | 17,820 | 98% |
| 12% | 7.20% | 21.6 | 47,520 | 15,587 | 86% |
| 15% | 11.25% | 33.7 | 59,400 | 8,168 | 45% |
Anything from 6.1 to 11.5 per cent earns at least 90 per cent of the maximum. The optimum is a plateau, not a peak, and the cost of missing it by a point or two is small. The cost of missing it by a lot is not: a 3 per cent increase forgoes 45 per cent of the gain, and a 15 per cent increase, which still looks profitable on the gross line of £59,400, gives up 55 per cent of it to move-outs.
Where the unit size is full and the vacated unit re-lets, each leaver costs only £572.50, so the store can afford more of them. The optimum rises to 15.14 per cent, with 11.45 per cent extra move-outs and a net gain of £33,399. On a store that is full in small units and half empty in large ones, the right increase differs by size, and a single store-wide rate is wrong for both.
| Exponent b | 3% measured | 5% measured | 8% measured |
|---|---|---|---|
| 1.5 | 24.8% (£40,304) | 12.3% (£18,376) | 5.8% (£8,163) |
| 2.0 | 13.8% (£28,902) | 8.8% (£18,166) | 5.8% (£11,694) |
| 3.0 | 9.9% (£26,536) | 7.8% (£20,759) | 6.2% (£16,534) |
The optimum ranges from 5.8 to 24.8 per cent across beliefs that are all plausible before measurement. The measured point matters more than the exponent: moving from 5 to 3 per cent observed move-outs raises the optimum by five points at b = 2. A store that has run one increase cycle and counted its extra move-outs against a control group has most of what it needs; the exponent can be fitted once a second cycle at a different increase has been measured.
Setting the increase from the gross line. A 15 per cent increase on 300 customers at £110 is £59,400 a year if nobody leaves, and the operator who books that figure will push increases until move-outs force a retreat. On this curve the true gain at 15 per cent is £8,168. The opposite error is as common: an operator who sees move-outs rise after the letters concludes the increase failed, when anything up to 8.83 per cent was raising net income.
The calculation is for one increase cycle. Customers who stay receive further increases, usually capped relative to street rate, so the optimum for a long-staying cohort also depends on the cap and on length of stay. Measure the response per cycle, not once.
The free workbook for this case includes the Rate Increase Planner, which fits the response exponent from your own move-outs and solves for the increase that maximises net operating income.
As far as the measured response allows, and no further. On an illustrative store where a 10 per cent increase causes 5 per cent extra move-outs, the optimum is 8.83 per cent if vacated units stay empty and 15.14 per cent if they re-let at street rate. The answer depends on the unit size's occupancy, so it should be set by size, not for the whole store.
Move-outs rise faster than the increase, and the rent lost from leavers overtakes the rent gained from stayers. On 300 customers at £110 a month, a 15 per cent increase looks worth £59,400 a year if nobody leaves, but with 11.25 per cent extra move-outs it nets only £8,168, against £18,166 at the optimum.
Not very precisely. The net gain is flat near the top: on the illustrative store any increase from 6.1 to 11.5 per cent earns at least 90 per cent of the maximum. What matters is measuring extra move-outs against a control group, because the optimum ranges from 5.8 to 24.8 per cent across plausible beliefs before measurement.
This article is one calculation from Self-Storage Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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