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DETERMINING DELIVERY FEES
Balancing Profits And Competitive Pricing
By Julie Bawden Davis
 Ironically, the most challenging and costly part of mobile self storage is the element that makes the industry so unique. Many in the business will tell you that delivery costs cause a lot of head scratching. “The transportation component of this business creates a lot of debate,” says Ed Leos, controller for Public Storage, Inc. in Glendale, Calif., “yet at the same time, the convenience factor of delivery is the key selling point of the industry and the reason mobile self storage exists in the first place.”
Considering how expensive transportation costs can be, it’s not a wonder that the very subject causes consternation. “Talk to many people in the industry and they will tell you that their biggest loss leader is delivery fees,” says Leos. “Drivers’ rates are expensive, and then there are the trucks and thousands of dollars in equipment—not to mention insurance costs and fuel charges. Many operators run at a 35 to 50 percent loss in that area of the business.”
What then, are mobile self storage owners doing regarding delivery fees? Some will charge delivery fees and fuel surcharges up front, while others factor those costs into their overall rates or even absorb the fees to bring in customers. Which is the best strategy?
Free Delivery?
Mention complimentary delivery and you’ll get a wide range of opinions on the subject. In many cases, those companies offering free delivery do so to bring in more business. Such offers are usually valid within a certain local delivery area and stipulate that the consumer rent for a specified period of time. “Free delivery promotions with a minimum stay requirement are common as a way to increase rentals,” says Leos, whose company offers complimentary delivery within a 30-mile radius providing the customer agrees to a minimum three-month rental. “The 30-mile radius is set not only because of the costs associated with transportation, but to ensure that the customers are comfortable with the location of their belongings,” he says. Tim Birkmire, co-owner of Birkmire Big Box Rentals in Erie, Penn., also offers delivery at no charge. He notes that his decision to provide complimentary transportation works for his business and his goals; however, it might not be the right choice for everyone.
“We’ve chosen to offer complimentary delivery because we are a relatively new company and we wanted to be noticed and get our product out there,” says Birkmire. “We decided that a good way to do that is provide the best value, so we kicked off the business with free delivery. This tactic, however, is a stepping stone to build business and not necessarily something we’ll be doing forever.”
Birkmire notes that the decision regarding delivery fees should not be made lightly. “Everyone’s situation is different,” he says. “It’s important to look at your own individual market and investment costs before offering something like free delivery, because you are giving service away. We have been able to offer free delivery because we were already in the industry before starting the company and had the necessary equipment,” he says. “The tactic also works well in our particular market, which is a small city consisting of a service area with a 25-mile radius.”
For other mobile self storage owners, offering free delivery isn’t feasible. “I don’t think there is any way around delivery fees,” says Tom Johnston, a partner in Store to Door. The 10-year-old Woburn, Mass.-based company has locations in five cities. “Transportation costs are such a big part of the service and are always rising,” he says. “Within the first five months of starting business, we were charging delivery fees. We wouldn’t survive otherwise. If a company doesn’t want to charge delivery fees, then they’ll have to make it up in another way.” Mobile self storage operators like Johnston are against the idea of free delivery for a number of reasons. As Johnston sees it, free deliveries set up a bad precedent for the consumer. “Anytime you provide a service to a customer, they should expect a fee. It’s much better to have all costs clearly delineated.”
“If an operator is not charging re-delivery fees, then the operator must increase charges elsewhere, which creates several problems,” says Frank Amodio, Sr., CEO of Amodio Moving, Inc. in Hartford, Conn. “By building transportation into the monthly rental, you penalize the customer who only stays for one month versus the client who rents a container for a very long time,” he explains. “You are also unable to categorize expenses correctly and therefore can’t accurately capture costs and get a clear indication of the bottom line.”
Opinions are similar when it comes to re-delivery fees as well. While most companies do charge a re-delivery fee because the business relationship is ending, a few do not. “The companies that charge for initial delivery and final delivery separately capture pricing fees accurately,” says Amodio, who notes that generally consumers think of delivery and re-delivery as two separate items.
Jered Brown, owner of Mobile Attic in Atlanta, Ga., likes to take the middle road on re-delivery fees and offer options. “I let customers decide if they want to pay the re-delivery fee up front or when they are ending the service,” he says. “This varies our revenue flow.”
One stumbling block that has caused all mobile self storage owners great pause is the rising cost of fuel. “The fluctuations in fuel costs make it important to be very careful when pricing transportation fees,” says Amodio. “Some operators are even charging a fuel surcharge that is variable and tied to the cost of the fuel.” Many companies that aren’t yet charging this fee are considering doing so.
Making Delivery Profitable
While many in the industry have resigned themselves to losing money on deliveries, some operators have actually figured out how to make a profit, such as Mike Lowe, president and CEO of SMARTBOX Portable Self Storage, LLC, headquartered in Richmond, Va. Founded in 2003, the company services more than 60 million people in 15 cities.
“Delivery is a convenience factor for the customer, and we have worked hard at having a transportation system that is very flexible for our franchise owners and also very cost effective,” says Lowe, who notes that his company’s ability to make a profit from delivery charges came after developing the business.
“When you first start out, you often have a very large territory with one truck bouncing around like a pinball, which is not a very profitable scenario,” he says. “Your first year, expect to lose money on transportation. Once you build up a substantial business, however, with more condensed routes and good routing and scheduling, you can make a profit. It takes scale, size, productivity, and efficiency from the operation side.”
Amodio goes on to say, “The sooner you can ramp up the business in terms of size and scale, the sooner you can become more efficient and profitable.” Lowe’s company maintains efficiency in a number of ways. “Going back and forth to the warehouse will quickly kill profit. In our case, we are able to carry seven boxes on a truck, so we can actually perform up to seven deliveries at once. In order to be efficient, we look at how many customer stops we can make in any given day with each of these systems without returning to the warehouse. In some of our markets where we can pick up empties and then drop them off at a new location, we can make 14 to 17 customer stops in one day with either not returning to the warehouse or only returning once. Grouping deliveries geographically is another important strategy.”
Another key part of the profitability puzzle is the warehouse location. It’s important to get a good location in the first place, as that greatly affects routing and transportation. Look at where your customers are most likely to be and then position the warehouse in a central location. When choosing the site, study traffic patterns around the warehouse during prime times such as morning and evening. Whether you decide to charge delivery fees, all operators suggest pointing out to your customers what a great value your service provides and the many benefits you offer. Remind them that without your service, they would have to rent a truck, load it, and unload it, as well as experience the stress of driving the truck to the storage facility. Any way you look at it, you provide them with a great savings.
Julie Bawden Davis is a freelance writer based in Orange, California. Her work appears regularly in The Chicago Tribune, The Los Angeles Times, The Orange County Business Journal, and Family Circle Magazine. She has also written four non-fiction books, and lectures regularly on a variety of topics including business writing.
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