A worked break-even for handing a store to a third-party manager: the fee, the costs the owner stops paying, and the uplift that has to cover the gap.
A third-party management fee is worth paying when the manager raises revenue by more than the fee costs net of what the owner stops spending on managing the store itself. On an illustrative store with £1.4 million of revenue, a 6 per cent fee plus a £15,000 platform charge, against £75,000 of the owner's own management cost, breaks even at a revenue uplift of 1.82 per cent. At a 4 per cent uplift the store earns £28,640 more a year, worth £477,333 at a 6 per cent cap rate.
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 →
Owners of one or two stores often compare a 6 per cent fee with nothing, because a self-managed store has no management line in its accounts. It has the cost all the same: someone sets street rates every week, decides the rate increases, answers the phone after hours, runs the website and the pay-per-click budget, buys the software and supervises the site staff. On a store with no leases, where every customer can leave this month, those tasks are the revenue. A large operator spreads them across hundreds of stores and claims to do them better. The decision is whether the better is worth more than the fee.
| Input | Value |
|---|---|
| Gross revenue, self-managed | 1,400,000 |
| Site operating costs, the same under either option | 490,000 |
| Owner's own management cost (supervision, software, call handling, web) | 75,000 |
| Third-party fee, on gross revenue | 6.0% |
| Fixed platform and marketing charge, a year | 15,000 |
| Revenue uplift expected from the manager | 4.0% |
| Capitalisation rate, illustrative | 6.0% |
The owner's own cost, 5.36 per cent of revenue here, is the number most comparisons leave out. Build it from the real items, including the owner's time at a market rate, not from a guess.
Step 1: net operating income, self-managed. 1,400,000 − 490,000 − 75,000 = 835,000, a 59.6 per cent margin.
Step 2: the manager with no uplift. The fee is 6% × 1,400,000 = 84,000. Net operating income is 1,400,000 − 84,000 − 490,000 − 15,000 = 811,000. Handing over the store costs 24,000 a year before the manager has done anything: the fee and the platform charge, 99,000, less the 75,000 the owner stops spending. At a 6 per cent cap rate that is 400,000 of value.
Step 3: the break-even uplift. The manager's fee rises with the revenue it creates, so the uplift has to cover the gap after the fee is taken from it:
R × (1 + u) × (1 − fee) − platform = R − own cost
u = (R − own cost + platform) / (R × (1 − fee)) − 1
= (1,400,000 − 75,000 + 15,000) / (1,400,000 × 94%) − 1 = 1.82%
In Excel: =(Rev-Own+Platform)/(Rev*(1-Fee))-1
The manager has to lift revenue to 1,425,532, an extra 25,532 a year, before the owner is any better off.
Step 4: the expected case. At a 4.0 per cent uplift revenue is 1,456,000, the fee 87,360, and net operating income 1,456,000 − 87,360 − 490,000 − 15,000 = 863,640.
| Line | Self-managed | Third party, 4.0% uplift |
|---|---|---|
| Gross revenue | 1,400,000 | 1,456,000 |
| Site operating costs | 490,000 | 490,000 |
| Owner's management cost | 75,000 | 0 |
| Management fee and platform charge | 0 | 102,360 |
| Net operating income | 835,000 | 863,640 |
| Value at a 6.0% cap rate | 13,916,667 | 14,394,000 |
The manager is worth 28,640 a year and 477,333 of value, even though the margin falls from 59.6 to 59.3 per cent. Margin is the wrong scorecard: a manager that grows revenue will often look more expensive on margin than an owner who manages for free on paper.
| Revenue uplift | Fee 5% | Fee 6% | Fee 7% |
|---|---|---|---|
| 0.0% | −10,000 | −24,000 | −38,000 |
| 2.0% | 16,600 | 2,320 | −11,960 |
| 4.0% | 43,200 | 28,640 | 14,080 |
| 6.0% | 69,800 | 54,960 | 40,120 |
Each point of fee moves the break-even uplift by about a point: 0.75 per cent at a 5 per cent fee, 1.82 at 6 and 2.92 at 7. Each point of uplift is worth 13,160 a year after the fee. The uplift is the variable to diligence; the fee is the variable to negotiate. Ask the manager for evidence on stores like yours: street rate and in-place rate against local competitors before and after takeover, and move-ins per enquiry, not a portfolio average of revenue growth.
Small stores face a second problem. A minimum fee of 3,000 a month, 36,000 a year, on a store with 450,000 of revenue is an effective 8.0 per cent, against 27,000 at the headline 6 per cent. Below the size where the minimum bites, the break-even uplift rises fast.
Break-even uplift = (revenue − own management cost + fixed charges) / (revenue × (1 − fee)) − 1. Here 1.82 per cent. Below it the owner is paying for a logo; above it every point is worth 13,160 a year and 219,333 of value. The free workbooks for this case build the store's revenue from cohorts of customers, which is where an uplift has to come from, and how to value a self-storage facility shows how net operating income becomes a price.
Contracts are usually a percentage of gross revenue, often with a monthly minimum and separate platform or marketing charges. This illustrative case uses 6 per cent plus 15,000 a year. Check the minimum: at 3,000 a month, a store with 450,000 of revenue pays an effective 8.0 per cent rather than the headline rate.
Enough to cover the fee net of the owner's own management cost. With 1,400,000 of revenue, a 6 per cent fee, a 15,000 platform charge and 75,000 of own cost, the break-even uplift is 1.82 per cent, or 25,532 a year. A 5 per cent fee lowers it to 0.75 per cent; 7 per cent raises it to 2.92.
Usually, and that is not the test. In the worked case the margin falls from 59.6 to 59.3 per cent while net operating income rises from 835,000 to 863,640, because revenue grows by 4.0 per cent. Judge the decision on net operating income and value, not on margin.
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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