SMS Billion Dollar Marketing Mindset

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					The Billion-Dollar Marketing Mindset
By Derek M. Naylor




W
We all know of people who enjoy the finer things life has to            Most industries must work diligently to create advertising
offer. They drive whatever exotic vehicles they want and             that creates one sale. After that sale, they hope the customer’s
couldn’t care less that gas is approaching $4 per gallon. They       experience was good enough to earn a second sale sometime
travel on plush private jets to business meetings and long           in the future.
Caribbean vacations. They wear silk, cashmere, linen and                But that’s not true for you. If you rent someone a unit, you
organic-cotton clothes while dining on exotic food prepared          get the first month’s rent, profit from packing supplies and
by world-class chefs.                                                maybe an extra few dollars from a pay-with-rent tenant
   Not all of these folks are celebrities, captains of industry or   insurance sale. And then, one short month later, you get
public officials. They live in peace with their families and do      another chunk of revenue from that person. This happens
what they want, when they want. If I listed some names, you          again and again until they move out. Some folks will only
wouldn’t recognize a single one. Yet, they live a dream lifestyle    stay for a few months, but others will stay for years, paying
that few can even imagine.                                           you rent each month.
   How do they do it? They have built multiple businesses               It’s a marketer’s dream come true to acquire a customer
using a certain marketing mindset that I’m going to teach            and automatically earn sales for months or years on end.
you in this article. You’ll have a new view on marketing that        Most operators take this valuable gift for granted. Imagine if
will drastically increase the profitability of your self-storage     you had to re-sell each customer every month. It wouldn’t be
business and any other business venture you might embark             much fun or very profitable.
on in the future.                                                       Once you understand the power of this, you can easily
                                                                     begin to focus your energy toward your most important
The Gift That Keeps on Giving                                        objective, which is acquiring customers.
  As a self-storage operator, you have a rare gift that most
industries don’t get to enjoy without significant effort, planning   Acquiring Customers
and execution: You earn repeat sales automatically when a new           Savvy marketers understand that it’s perfectly fine to lose
tenant rents from you.                                               money on the first sale. And if the economics work out, it’s
                                                                     OK to lose money on the first few sales. In other words, if
                                                                     your average tenant brings a net profit of $700, it’s worth it
                                                                     to pay $350 or even more to acquire that renter through a
  Factbox                                                            marketing channel.
    “Be passionate about getting more referrals                         Smart operators gladly pay $350 for a new tenant rather
                                                                     than hold an excessive inventory of vacant units. They
  and repeats from existing and former customers.                    don’t look at a tenant as being worth only $70 because the
  These are the lowest-costs rentals you can get.                    total value is $700. Further, they understand the importance
                                                                     of building the value of their asset by about $2,450 each
  On the other end of the spectrum are the
                                                                     time a new customer rents, even if they pay $350 for a
  highest-cost per lease tenants—those garnered                      new tenant!
  through Yellow Pages, newspaper and radio/                            Most operators have a flaw in their thinking when it comes
                                                                     to marketing. They believe they need to recover their
  TV ads.”                                                           marketing investment after the first month’s rent is paid by
                                                                     the new tenants generated. In reality, as long as cash flow
  —M. Anne Ballard, Universal Management Co.,
                                                                     allows, you can wait for several months to begin profiting
  ISS Factbook 2008
                                                                     from your marketing investment.
                                                                   Scenario 1            Scenario 2         Scenario 3
                    Advertising Campaign Investment:                    $3,500             $1,500              $1,500
                    New Tenants Acquired:                                 10                  10                   2
                    Average Monthly Rent:                                $70                 $70                $100
                    Average Length of Stay:                            7 Months          10 Months           10 Months
                    Net Ancillary Income:                                $25                 $35                 $10
                    Cap Rate:                                      7.5 percent           7.5 percent         7.5 percent


  To help illustrate this important concept, I’d like to walk            Wait and See
you through a few scenarios.                                                Your only other option is to wait and see. If you’re in a
  In this scenario, tenants are worth $515 and your cost to              fantastic market, you’ll reach stabilization eventually without
acquire each is $350, leaving you with $165 net operating                spending much on marketing. As I see it, two problems exist
income/cash flow. In the big picture, you’ve added approximately         with this type of thinking. I’ve never been a fan of
$21,994 to the value of your asset using a cap rate of 7.5 percent.      unpredictable, passive growth strategies. You have no idea
Before looking at the math this new way, most operators                  when you’ll stabilize and are gambling with fate.
would consider such a campaign a dismal failure.                         	 Empty units are worth absolutely no cash flow to you.
  Ask yourself how you would’ve reacted before reading this              They’re only worth the land they sit on and the dismal value
article if you spent $3,500 on a marketing campaign and only             of used-building materials. During stabilization it’s much
saw 10 tenants as a result.                                              better to have a paying tenant in a unit—even if you don’t see
  Now, let’s look at another scenario.                                   a penny of profit for 7.5 months—than it is to have an empty
  In this case, tenants are worth $735 and your cost to acquire          unit. After you reach stabilization, having 5 percent to
each of them is only $150. This leaves you with $585 of net              10 percent of each unit size empty is essential. But until then,
operating income/cash flow with a big-picture gain of $77,980!           get tenants in those units.
Most operators can relate well with this scenario as $150 is a              Ideally, you’d profit from new tenants from day one and
common cost per acquisition (CPA) and the other contributing             wouldn’t have to spend a penny on marketing to acquire
numbers are not far off.                                                 them. I completely agree with that. However, that’s simply
  Are you starting to understand the power of this kind of thinking?     not a reality in competitive markets.
Let’s walk through one more scenario just to be certain.                    The bottom line is this: Marketing is an extremely lucrative
  This time, tenants are worth $1,010 and your cost to acquire           investment. The wealthiest people in the world realize
each is a whopping $750, leaving you with $260 of net                    marketing and innovation are usually the only two things that
operating income/cash flow with a big-picture gain of $6,931!            make you money.
  You might think these numbers are unrealistic. If so, speak               If you don’t have the cash to invest like you should in
with a good broker about this as they deal with these                    marketing, beg or borrow to get it; it will be well worth it.
numbers every day.                                                       After all, this billion-dollar marketing lesson has been working
  Obviously, operating expenses need to be considered when               since the beginning of free enterprise and will continue long
determining your net operating income. But, even after                   into the future.
considering those expenses, you’ll be wise to think in terms of
acquiring customers, CPA, lifetime value and cap rates.
  I also realize that cash flow is a huge issue with this type of
thinking. In the third scenario, you had to wait 7.5 months to
get your initial cash back. In a lease-up situation, dealing with        Derek M. Naylor is president of Storage Marketing Solutions, a full-
this can be difficult, but it’s absolutely the smartest way to           service, results-oriented marketing and advertising agency dedicated
think about increasing the value of your asset, which is why             to the self-storage industry. For a free subscription to his e-newsletter,
proper financing is crucial because you need the cash to sustain         call 800.941.4805; e-mail dnaylor@storagemarketingsolutions.com;
aggressive marketing like this.                                          visit www.storagemarketingsolutions.com.


                                     Reproduced with permission from Inside Self-Storage, October 2008. For electronic usage only.
                                            Not to be printed in any format. ©2009 Virgo Publishing. All Rights Reserved.
Self-Storage Talk
“Our best bet for marketing has always been
referrals from previous or current customers.
We offer a $25 credit or gift card to the
tenant passing on the referral and $25 credit
to the new renter. We still have referrals
coming in from tenants who rented years
ago! We love that!”
–submitted on www.selfstoragetalk.com, the
online forum for the self-storage industry
Ideally, you’d profit from
 new tenants from day
one and wouldn’t have
   to spend a penny
     on marketing
    to acquire them.

				
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posted:10/28/2011
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