4 1 Market Segmentation Self Storage Units example essay topic

Table of Contents 1.0 Executive Summary... 3 2.0 Company Summary... 4 3.0 Services... 7 4.0 Market Analysis Summary...

8 5.0 Strategy and Implementation Summary... 11 6.0 Management Summary... 13 7.0 Financial Plan... 14 1.0 Executive Summary This business plan describes a proposed self-storage facility to be established in Mora, Minnesota involving the construction of a new facility. Total project costs are estimated at $105,449 including construction price and pre-opening expenses (see section on Start-up Summary).

Based on current and projected strong demand for self-storage units, rental revenue is projected to grow rapidly as units fill up from the first year's target of $32,000 to $68,400 by year three. After tax profits will grow sharply from $5,500 in the first year to $28,800 in the third year. 1.1 Objectives The principals of this proposed project plan to take advantage of the strong demand in the self-storage industry to achieve a major presence in Mora. The ownership of other small businesses in the area will assist in gaining full occupancy quickly.

Goals have been set to rent 50% of the proposed 50 unit spaces within the first six months of 2003. An additional 25% will be rented in the first half 0 f 2004, with the remainder to be filled in the second half of 2004.1. 2 Mission The mission of the principals is to provide quality storage facilities at reasonable prices to the residential and commercial community of Mora, Minnesota and the surrounding county. 1.3 Keys to Success The keys to success in the self-storage business are: 1.

To provide dry, secure, and clean facilities with convenient access. 2. To have good connections in the area to direct customers needing temporary storage space. 3.

To be able to adapt as storage and market needs change. 2.0 Company Summary Smith Self Storage is a start-up project to be located in Mora, Minnesota. The owner's are experienced in small business management in the surrounding area. The building to be constructed for this project is a large pole building divided into 50 each, 10 ft x 20 ft storage units with concrete floors.

The building will not be heated. The land for this project is already owned by the principals and will provide a large driving and parking area with the possibility of additional storage units in the future. It is estimated that, with the approval of the Township Board the construction of this building will take place in June of this year and be ready for occupancy by July 1 of this year. Demand for the units is strong, as evidenced by the success of existing self-storage facilities. Bank financing for 70% of the project costs is expected with the remainder supplied by the owner's.

2.1 Company Ownership The company will be a partnership between two individuals: Robert W. Smith and David A. Smith. Each will own 1/2 of the company. 2.2 Start-up Summary Advertising and promotion will rely heavily on ads in the Yellow Pages, as well as initial local newspaper ads at the time of opening. We are assuming the Yellow Pages and local newspaper ads will cost approximately $46.00 per month for the first year only. They will be reduced in the second year to half this amount and eliminated in the third year. Property taxes ($1,195.00) are projected and significant increases are not expected.

Building maintenance is normally a very substantial item on a building of this size, but the new facility should not require a very large amount of maintenance. We assume an annual amount for maintenance equal to $2,750.00. Utilities: - Water and sewer assumed at rate of $26.00 per year. - East Central Electric estimates the electricity needed to power the rows of low draw tube lighting to run $25.00 per month.

- Trash removal is projected at a level of $54.00 per year. - Misc. expenses for utilities are estimated to be $700.00 per year. - The total for utilities is estimated to be $90.00 monthly. Insurance: Property and liability insurance amounts to $1,500.00 annually for the type of building.

Telephone: Most of the telephone bill will be the charges for the Yellow Pages ads. These costs are already included in advertising and promotion. We assume the telephone bill to amount to $15.00 per month. Bookkeeping / auditors /legal: Bookkeeping and billing will be handled by ourselves and estimated to cost $400.00 annually. Start-up Requirements Start-up Expenses Legal $300 Stationery, etc.

$50 Brochures $150 Consultants $200 Insurance $400 Rent $0 Supervision $1,500 Other $2,374 Total Start-up Expenses $4,974 Start-up Assets Needed Cash Balance on Starting Date $1,800 Other Current Assets $0 Total Current Assets $1,800 Long-term Assets $98,675 Total Assets $100,475 Total Requirements $105,449 Funding Total Investment $36,300 Current Liabilities Accounts Payable $0 Current Borrowing $0 Other Current Liabilities $0 Current Liabilities $0 Long-term Liabilities $69,149 Total Liabilities $69,149 Loss at Start-up ($4,974) Total Capital $31,326 Total Capital and Liabilities $100,475 2.3 Company Locations and Facilities Smith Self Storage will be located in Mora, Minnesota, in location about 2 miles from the downtown retail area in the center of Mora, Minnesota. The owner's current businesses are located in the same plot of land in which the storage facility will be located. 3.0 Services Smith Self Storage will provide short and long term self-storage services in the east central Minnesota community. The company owners have extensive experience is operating small businesses in the area.

This will help the owner's to attract customers to utilize the storage space at the maximum capacity. Smith Self Storage will provide about 10,000 square feet of well maintained self-storage units that will be offered for both residential and small business renters. 3.1 Competitive Comparison All self-storage facilities that could be found in Mora or the area bordering Mora were surveyed with the following results: Name Size Price B & B Mini Storage 5 x 10 $58.00 Dave's Mini Storage 5 x 10 $58.00 EZ Mini Storage 5 x 10 $59.00 Mora Public Storage 5 x 10 $58.00 4.0 Market Analysis Summary Based on an informal survey of self-storage facility owner's in the Mora area we are expecting to rent 95% of the available units to residential customers and the remaining 5% to the commercial sector of the market. A total of 50 self-storage units will be created and offered for rent by Smith Self Storage in a location 2 miles from downtown Mora. The present supply of these units is insufficient to meet the demand as evidenced by a survey of all self-storage facilities within easy reach of Mora residents. 4.1 Market Segmentation Self-storage units are needed by residential customers for storage of personal items as well as by commercial customers for storage of stock.

It is estimated that 95% of the planned self-storage units will be taken up by the residential segment of the market and the remaining 5% will be directed toward the commercial segment. This split is expected based on the existing customers of the existing self-storage facilities in Mora. The commercial segment is small businesses, many of which have inadequate on premises storage. The market research shows that the annual market potential for the residential and commercial self-storage service in Mora is about 7500 customers. This estimate is based on the Self-Storage Association's assumption that 40% to 55% of the population has used self-storage facilities. This estimate includes individuals who need storage facilities due to moving arrangements or to store excess household property.

The table and chart below outline the market potential for both customer segments. Market Analysis Potential Customers Growth 2003 2004 2005 2006 2007 CAGR Commercial 5% 500 525 551 579 608 5.00% Residential 5% 7,500 7,875 8,269 8,682 9,116 5.00% Total 5.00% 8,000 8,400 8,820 9,261 9,724 5.00% 4.2 Target Market Segment Strategy Since the demand for local self-storage services substantially exceeds the local supply, Smith Self Storage will simultaneously market its services to the two major customer segments - residential and commercial customers. The company will not pursue the large business segment due to the limited service scope it can provide to such customers at the existing facilities. The market analysis shows that local self-storage rates are substantially higher than national averages. Smith Self Storage will position itself to both customer segments as a conveniently located and affordable quality self-storage facility.

Both customer segments will be effectively reached via the local Yellow Pages ads and through contacts through our existing small businesses. 4.2. 1 Market Needs Customer needs in the self-storage industry have certain similarity across different market segments. The underlying need is for reliable, safe, dry and accessible self-service storage facilities. Due to the overwhelming demand, customers are less price sensitive and consider convenient location as the major buying decision criterion. Residential customers use self storage facilities to temporarily store their property while moving to a new location. This need originates in the mobility of the American population and the affordability of rental accommodations.

Such customers usually rent 25 to 100 square feet depending on the size of their household and they rent on a weekly or monthly basis. The other group of residential customers rents self-storage facilities for longer periods to keep their oversize property like boats or other equipment that either does not fit in their garages or is not used on a constant basis. Small business customer segment requires self-storage facilities to temporarily store their stock or merchandise. These customers may use the storage facilities more often than residential customers and they benefit from convenient loading areas, extended operating hours and better equipped storage units of bigger size. 4.3 Industry Analysis According to an article from Inside Self-storage the national industry average rental income generated by self-storage units is $6.00 per square foot per year, or $. 50/sq. ft. per month.

In the market to be served by Smith Self Storage the average storage rate is more than double this amount. All units within the area were surveyed and the availability was uniform, either the facility was full or only had one or two available units to choose from. The self-storage industry really only started in the late 1960's when a few far-sighted people recognized the growing need for residential and commercial storage. The industry has doubled in size each decade. Returns on investment have been very impressive-often twice that of other forms of real estate investment. The reasons for this have been the mobile society, the tendency to live in rental apartments, and the general increase in the accumulation of property, especially leisure articles such as skis, boats, exercise equipment, etc.

It could be argued that the higher than national average rates enjoyed by local self-storage facilities may not continue indefinitely, but there is no indication of any downward pressure at this time. It should also be pointed out that during an economic down-turn the self-storage industry does not suffer to the extent that other industries suffer. Should the supply of self-storage units begin to outstrip demand, Smith Self Storage should be well positioned to deal with the competition due to its ability to offer larger units and the same rates. 4.3. 1 Industry Participants Although there are a few nation-wide players in the self-storage market, the industry is still fairly dispersed in which many small companies take part. 4.3. 2 Competition and Buying Patterns Convenience is probably the single most important factor in the decision of where to rent a self-storage unit. Residents choose to rent one in a nearby town probably based on proximity to the route taken by the renter to and from work.

If no units are available nearby, then renters will travel further away. 4.3. 3 Main Competitors See the section on Competitive Comparison for names of competitors. In the present market situation, competition plays a very weak role. 5.0 Strategy and Implementation Summary The sales and marketing strategy is fairly simple by virtue of the fact that self-storage facilities are in short supply. Smith Self Storage will simply have to inform the public of its existence by advertising in local newspapers, and by placing Yellow Pages ads.

5.1 Competitive Edge Although the current local demand exceeds the supply and Smith Self Storage will have no problems fully utilizing its capacity, the market situation may change in the future. The company will fully utilize its experience in small business in the local community to establish a strong foothold in the business. This will be reached by providing excellent service and offering extra service features like security fencing and large storage units. 5.2 Sales Strategy Most inquiries will come through the Yellow Pages ads. Proper telephone manners and professional handling of on-site inquiries are essential. Even though there is an excess of demand over supply, and unfriendly manager or clumsiness over the telephone will cause needless lost sales. 5.2.

1 Sales Forecast Due to the fact that demand has been outstripping supply in this market, Smith Self Storage may well be able to rent out all of its new units within the first year of operation. Prices paid for self-storage units reflect this strong market demand. It is assumed that half of the units will rent in the first six months of operation. Twenty-five percent to be rented in the first six months of 2004, leaving the final 25% to be reached in the last six months of 2004.

Within these time spans, the growth, for projection purposes, will be assumed to be straight line, i.e. the first 50% of the total space will be reached in equal monthly increments during the first six months, and so forth. The building measures 250 ft x 40 ft. Allowing for 50 units, sales for the first month would be $475.00. The second month would have $950.00 in sales, etc. Many self-storage companies charge administration fees to first-time customers. Deposits are also no uncommon.

In addition to these sources of income, the sale of certain related items such as cardboard boxes, tape, packing materials, storage containers, plastic mattress covers, etc. can be substantial. However, for projection purposes, it is assumed that income from these sources will wash out any credit losses. Sales Forecast Sales 2003 2004 2005 Unit Rentals $32,063 $60,563 $68,400 Admin Fees $0 $0 $0 Other $0 $0 $0 Total Sales $32,063 $60,563 $68,400 Direct Cost of Sales 2003 2004 2005 Unit Rentals $0 $0 $0 Admin Fees $0 $0 $0 Other $0 $0 $0 Subtotal Direct Cost of Sales $0 $0 $0 5.3 Milestones The following table shows the milestones that Smith Self Storage has established. Milestones Start Date End Date Construct Building 5/15/2003 6/15/2003 Opening Ads 6/15/2003 6/15/2003 Brochures / Stationery 6/15/2003 6/15/2003 6.0 Management Summary The management of Smith Self Storage will rest with Robert Smith and David Smith, both of whom are successful in the moving and self-storage industries. 6.1 Personnel Plan Operating hours are planned to be 7 a.m. to 7 p.m. Monday through Friday and 9 a.m. to 5 p.m. on Saturdays.

Smith Self Storage will be closed on Sundays. A salary draw of $8300.00 will be taken between Robert Smith and David Smith. 7.0 Financial Plan A commercial loan needs to be negotiated to finance approximately 70% of the total project costs. A 15-year mortgage will be applied for with an 8.5% interest rate. First repayment of principle is planned in October of 2003 with monthly installments of interest and principal to continue until the loan is fully repaid in 2018.7.

1 Important Assumptions General Assumptions 2003 2004 2005 Current Interest Rate 8.50% 8.50% 8.50% Long-term Interest Rate 8.50% 8.50% 8.50% Tax Rate 38.00% 38.00% 38.00% Other 0.00% 0.00% 0.00% Calculated Totals Payroll Expense $8,300 $8,300 $8,300 New Accounts Payable $17,186 $22,432 $23,744 7.2 Key Financial Indicators The following charts shows the benchmarks for Smith Self Storage 7.3 Break-even Analysis Break-even Analysis: Monthly Revenue Break-even $1,937 Assumptions: Average Per-Unit Variable Cost $0.00 Estimated Monthly Fixed Cost $1,937 The total operating costs are $1448.00 monthly and the interest expense runs $490.00. This gives a total fixed cost of $1938.00. The break-even chart shows that in order to break even a little over one third of the total self-storage space available for rent must be rented. 7.4 Projected Profit and Loss Advertising and promotion will rely heavily on ads in the Yellow Pages, as well as initial local newspaper ads at the time of opening. We are assuming Yellow Pages ads as well as local newspaper ads are estimated to cost $46.00 monthly for the first year only. They will be reduced to half this amount in the second year and eliminated in the third year.

Building maintenance is normally a very substantial item on a building of this size and it should be noted that expenditures for building maintenance would need to be larger if the building were being used for offices rather than storage. Industry profile ratios based on the Standard Industrial Classification (SIC) code 4225, General Warehousing and Storage, are shown for comparison.