February 14, 2022 by Agata Kaczmarek
IBIS World gives us a general insight into the $23 billion a year self-storage and warehouse leasing industry raging in the US. Over 182,000 businesses have opened nationwide to take their share of the pot. Increasing in both 2020 and 2021, despite the pandemic, profit is expected to reach the highest share of revenue since 2002 with a growth of 2.5% every year.
Common Steps to Starting a Self-Storage Unit Business
Such promising revenue numbers beckon forward when it comes to making the decision to start such a business. Let’s review some of the most common steps needed for a successful and profitable business.
- Budget for the business and determine the potential size
- Determine the target market and perform market research in the area
- Finance the business and purchase or rent space and equipment
- Complete all required paperwork and form a legal entity
- Obtain required permits and insurance to operate as a business in the area
- Set up necessary accounting and banking
- Start an advertising campaign
- Complete any necessary renovations before opening the doors to the public
How Much Does It Cost to Start a Self-Storage Unit Business?
The first question business owners ask is the cost of starting up their desired business. Like any other business, self-storage unit businesses have associated costs to start a profitable business.
Three sources (Storable, LovetoKnow, MakoSteel) give us estimated startup costs of starting a new self-storage unit business.
Minimum startup cost for a self-storage business = $1.5 million
Maximum startup cost for a self-storage business = $2.4 million
Average startup costs for a self-storage business = $2.0 million
The majority of the expenses incurred during the startup process fall into the following categories:
- Land purchasing
- Construction
- Permits and licenses
- Outfitting the premises
How Much Can a Self-Storage Unit Business Make in Sales?
The potential revenue for any business varies due to a number of factors. The size of the self-storage facility, whether it’s one or two floors, the market need for storage in the area, and how many units are likely to get rented at any time.
- How to Set the Price of One Unit?
The price of each unit is the key to running a successful business and making a profit. The revenue potential is held within this business element. There are two approaches to setting the right price.
Market-Based Pricing
A quick and simple approach to setting a price is completing market research. Staying competitive in the market can make all the difference and it’s not time-consuming. Search engines provide quite a bit of information on prices in the same area.
Target Based Pricing
This approach will require more work than the first, but it has an end goal in mind. Rather than setting the price to match those of competitors, you work to set the price of potential gross profit margin.
The typical profit margin of a self-storage business, according to Storable, is around 41%. Target-based pricing means setting the price in such a way that you’ll meet that goal. According to QT Business Solutions, there are around $3 in operating expenses for every raw square footage of the facility.
Calculating the amount to charge per storage unit will depend on a couple of factors. For example, you’ll need the exact amount of square footage of the facility and the sizes of the units, and their number. Once you have the information, you can double any potential expenses to get to the required revenue to meet at least the 41% profit, unless you are aiming higher.
- How full will the facility get?
Self-storage unit businesses run year-round which alleviates one potential worry. However, estimating revenue will depend on how many renters there will be. QT Business Solutions explains that most facilities see an occupancy rate sitting at around 90% in today’s market.
Though most businesses in the industry will shoot for occupancy of around 80% to 90%, Storable tells us that 65% of occupancy will at least cover the operating and debt expenses of the business.
With the current trend in downsizing homes and apartment versus home rentals, self-storage units are a popular choice among millennials. 2020 showed an occupancy average of 91.7%, and those numbers have been holding steady, if not growing.
Of course, those who own a self-storage unit business should not shoot for anything higher than around 90% so that there is always storage to rent. You do not want to find yourself shooting for 100% occupancy and have nothing left for new customers.
Self-storage unit business revenue potential
The revenue potential for a self-storage unit business is quickly calculated once you have all the right information on hand.
To start with our example, let’s say we are using a facility the size of 50,000 square feet -- the average for these types of businesses. To cover the expenses required to run the business, Truic advises setting the price at around $9 per square foot, per year.
This estimates the yearly revenue around $450,000, or $37,500 monthly. Of course, this number is for 100% occupancy, which means we need to deduct vacancies of at least 10%. This brings us to a total of $405,000 a year before any other expenses are taken into account.
Self-Storage Unit Business Annual Revenue
Three sources (Truic, SweatyStartUp, BizFluent) tell us the expected revenue amount for a 50,000 square foot self-storage unit business.
Minimum revenue for a self-storage unit business = $90,000
Maximum revenue for a self-storage unit business = $600,000
Average revenue for a self-storage unit business = $450,000
What Are Common Expenses for A Self-Storage Unit Business?
Self-storage unit businesses come with the potential for higher revenue. On the flip side, there are also quite a few ongoing expenses to track. These expenses will vary based on the size of the building and its location.
Expenses are divided into two categories: variable and fixed. Fixed expenses don’t change from month to month, whereas variable expenses can change.
Variable Expenses for a self-storage business
- Utilities
- Repairs
- Maintenance
- Landscaping (especially for areas with a cold winter season)
- Credit card processing fees
- Office supplies
Fixed Expenses for a self-storage business
- Loan Repayments
- Taxes
- Management services
- Advertising and marketing
- Insurance
- Software
- Retail type products (boxes, tape, etc)
- Pest control
How much profit can a self-storage business generate?
Profit from a self-storage unit business will vary drastically. Depending on the area, the size, and the market need, this business has the potential for a high return on investment.
Self-Storage Unit Business Profit Margin
Three different sources (Storable, BizFluent, RoadLessTraveledFinance) provide us with the expected profit margin for a self-storage unit business so that you too know what goals to set.
The minimum profit margin for a self-storage unit business = 11%
The maximum profit margin for a self-storage unit business = 60%
The average profit margin for a self-storage unit business = 41%\
If you’re exploring starting your own self-storage facility and need to create comprehensive financial projections for planning, investors, or lenders we offer a CPA-developed, easy-to-use, and affordable template built specifically for self storage businesses
Top Right Photo by Ketut Subiyanto from Pexels
