consultants to the trade

Marina Dock Age, September/October 1995

Three Dimensions of Establishing Dry Storage Rates
by Dennis P. Kissman

Although boats are three-dimensional objects, most marinas limit themselves to using only length as the determining factor when establishing rental rates.

A dry rack marina is much more restricted in its ability to change rates based on boat length because the structure itself limits the length of boats that can be stored. Although boat length is one of the important elements in establishing rates in a wet slip marina, it should have little or no bearing on dry rack marina rate structuring.

Picture a dry rack marina structure. It resembles a bank vault without the safety deposit box doors. The amount of revenue that a bank can generate from its safety deposit boxes is directly proportional to the number of drawers. But the number of drawers is limited by the amount of square footage on the walls surface. The price of each safety deposit box is equated to the height, width and depth of the openings the individual safety boxes fit into. Setting the rate structure can be simplified by eliminating the depth from the calculation because the maximum depth is fixed by the size of the structure. Setting rental rates for the individual safety deposit boxes becomes a mathematical formula.

If we assume that each unit of measure (i.e. square inches, square feet or square meters) is valued at $1 and the wall can accommodate 100 boxes that measure 2 units high and 5 units wide, then the rental rate is $10 for a specified period of time (2 x 5 x $1 = $10). The maximum amount of revenue that can be produced during this specified period in this example is $1,000 ($10 x 100 = $1,000), representing 1,000 units (100 x 2 x 5 = 1,000). Assume the demand is for a variety of safety deposit box sizes. Our limiting factor is still the 1,000 units because the size of the surface has not changed. Therefore, any combination of box sizes cannot exceed 1,000 units. The following table represents how a mix of boxes may appear:

You can see how the total number of boxes changed, but the total number of units must always remain at 1,000. We stated our per unit price is $1, giving us a maximum revenue of $1,000, except now the boxes would be priced according to the opening size, or $10, $20 and $60, respectively for the specified period of time.

When you rent a safety deposit box, the bank does not care how much you put into it as long as it fits. Similarly, as long as a boat can fit into the opening and the marina has the capacity to lift the boat, length should become a secondary consideration when structuring your rental rates.

Let’s see the impact on revenues when all boats in your marina do not have the same height and width. Most marinas charge about a 25 percent premium for excessive height or beam. The problem with this approach is that in most instances the increased size equates to something other than a 25 percent increase in value.

Let’s perform the following exercise to determine if your marina is receiving the maximum revenue based on your occupancy. For purposes of this example, we will make certain assumptions. When you try it at your marina, substitute your own particulars.

Assumptions:

120 racks - each rack is 5 feet high, 10 feet wide and has a maximum depth of 28 feet, totaling 6,000 square feet of rentable opening space (5 x 10 x 120 = 6,000).
Our present rate structure equates to $5.50 per foot of boat length per month.
The average boat length in storage is 23 feet.
Occupancy is at 100 percent for the year.

Using these assumptions, what is the maximum amount of revenue that can be generated from the racks based on the current rate structure?
The total monthly revenue is $15,180 ($5.50 x 23 x 120 = $15,180).
Convert this to an equivalent rate based on the 6,000 square feet of rentable surface area ($15,180 / 6,000 = $2.53 per square foot)

Since all boats are of the same dimensions, try to accommodate your customer. Continuing with our example, use the same assumptions except that 20 of your customers boats have radar arches and will not fit into your standard rack. These customers require an opening of 9 feet high and 10 feet wide and the average boat length is 28 feet. You change your rack configuration to fit these boats and charge a 25 percent premium. With these changes made, what is the new amount of total revenue generated per month? These twenty boats will generate total revenue, including the premium, of $3,850 (28 x $5.50 x 20 x 125 percent = $3,850).

The next consideration is that these 20 larger boats require 1,800 square feet of surface space. In addition, there is approximately a 20 percent waste factor due to the new sizes not being exactly twice the original size. This adds another 2000 square feet out of the total 6,000 available, leaving 4,000 square feet available for the standard racks that equate to a total of 80 racks (4,000 / (5 x 10) = 80).
The total number of racks that now fit is 100 - not the 120 of the original size. Considering our original assumption, these larger boats reduce the overall average boat length to 22 feet (120 x 23 = 2,760) - (20 x 28 = 560) = 2,200 / 100. At the $5.50 per month rate the remaining boats would generate a maximum revenue of $9,680 (22 x $5.50 x 80 = $9,680). Add this to the revenue produced from the larger boats with a premium, and the total is $13,530 ($9,680 + $3850 = $13,530) or a 12.2 percent loss in revenue as compared to pricing the racks on the surface area concept based on using the same basic rate.

The point is that this 12.2 percent loss comes right off your bottom line because there is no additional cost involved. Also, a pricing policy based on opening size or surface size can be fairly administered to avoid customer criticism. Do not be lulled into the idea that just because your marina is full there is no upside income potential.