By Blake Laufer, Founder, MiStall Insight Inc.
I often hear about parking operations lamenting that they are unique. And they are. Very few industries are simultaneously impacted by their physical layout, special interest groups, pricing limitations, weather conditions, political agendas, and technological advancement – all at the same time.
Subsequently, with so many moving parts it’s difficult for parking operations to measure their success. How is my operation doing? Are we profitable? Are we serving our parkers fairly? Am I succeeding as a manager?
We are not alone. Many other industries have similar challenges to parking, and so instead of examining what makes parking different, we should look at how parking is the same. Furthermore, we can learn from other industries how they measure success, and we can adapt those measures to ourselves.
Supply and Demand: It’s the Law
As you’re probably aware, the Law of Supply and Demand works to balance the amount of supply (product available from manufacturers) with demand (amount of product desired by consumers). When prices are higher consumers buy less and manufacturers produce less; when prices are lower consumers buy more and manufacturers produce more.
The Laws of Supply and Demand can be distorted by various factors. One such distortion occurs in the fixed-supply industry where there supply of product is scarce, like parking. In parking the “manufacturer” is the parking operation, and the parking operation cannot easily change the supply of parking spaces in the short-term. (Over the long-term it’s possible to change your supply – build a new garage, for example, but over the short-term we have roughly the same number of parking spaces available to be sold every day.)
Other fixed-supply industries include airlines (with a fixed number of seats on a plane), hotels (with a fixed number of rooms in the hotel), marinas (boat slips), movie theatres (seats), cruise ships (cabins), storage facilities (bays), cargo ships (containers), roadside advertising (billboards), and others.
Furthermore, these products are perishable goods: when a day goes by and the product is not sold then the revenue opportunity is lost. For example, consider an empty parking space, an empty airline seat after take-off, or an unoccupied hotel room overnight – all of these products have expired and cannot be sold after-the-fact.
In fact, all these industries suffer similar challenges to parking: How to leverage their supply to ensure that all the capacity is used? And what can be done to control the amount of demand so that it meets the supply?
The answer is metrics.
Most of these other industries have specific performance metrics that they’ve developed on an industry-wide scale in order to indicate their success in measuring criteria that are important: revenue, cost, customer satisfaction, efficiency, and more.
These other fixed-supply industries are well-ahead of parking when it comes to knowing what to measure and how to measure it. The good news is that we can learn from their experience and apply their KPIs (key performance indicators) to parking.
Lessons Learned from Airlines
Airplane seats are just like parking spaces – there’s a limited number available on the plane (and by extension think of the airplane as a parking lot). Flying with filled seats generates revenue for the airline, while flying with empty seats are a lost opportunity. Airlines do an impressive job filling their planes to capacity so that they maximize revenue.
“Load Factor” is an airline measure of the number of seats that are filled on an airplane. For example, a plane flying with 100 passengers and 120 seats has a load factor of 0.83, or 83% occupancy. The parking equivalent, of course, is measuring periodic occupancy and availability – something common to all parking operations.
Airlines take it a step further: Every airline also measures their “Break-Even Load Factor”; that is the percentage of the seats the airline has in service that it must sell at a given yield (price) to cover its costs. Few parking operations attempt to match their per lot or per space costs to occupancy. Such a KPI would suggest a bare-minimum occupancy threshold to ensure a parking operation is profitable.
“Revenue Per Available Seat Mile” is a more sophisticated KPI of the airlines. This is the average fare paid per mile per passenger, even when there are multiple legs in the passenger’s journey. It’s a passenger-centric measure of the customer. Now considering that parkers may park multiple times at your operation in a given week or month (multiple legs) we get a better idea of the overall value of the parker and at the same time can assess changes in fares (parking rates) over time. This is a form of dynamic pricing and nudging the demand to match the available supply. In parking we should consider adopting the equivalent of this metric: computing the revenue-per-transaction or revenue-per-hour of a multi-use parking credential like a monthly pass or semester permit to get insight into how much we’re really being compensated for multiple-use parking.
Lessons Learned from Hotels
Hotel rooms are like parking spaces where the guest sleeps for the night. Different rooms have different amenities (standard room, king-suite, wheelchair accessible, extended-stay) which are just like parking spaces with different sizes and conveniences available: compact car space, ADA space, EV space, long-term parking, and so on. From this perspective, hotels are merely parking lots with overnight parking for humans.
In the hotel industry perhaps the single-most common metric is “Revenue Per Available Room”. It is a KPI that incorporates both room rate and occupancy into one number, making for a convenient snapshot of how well a hotelier is filling the rooms and how much it can charge. Of note is that it only counts available rooms – that is, rooms that are not under construction or otherwise out-of-service.
There is no parking equivalent of this metric, but there should be. Something like Revenue Per Available Space-Hour could work. This measures the revenue per space for each hour that that the space is available. A space that is not available (say, due to construction or a special event) does not count. But the other spaces that are being sold should be measured by revenue per space-hour to give an idea of which spaces are most profitable, and how pricing can be adjusted to shift demand to less-desirable locations.
Lessons Learned from Hollywood
Movie theaters are like parking lots, and seats are parking spaces. What’s interesting about the movies, though, is the uniform pricing. Some movies are good and some are bad… but they’re all the same price, thanks to uniform pricing rules enacted in 1972. The movie studios set this prices, not the theaters – and that’s also like parking, where many parking operations implement pricing that is dictated to them by the City, or board or Regents, or some other authority. Such prices are an abomination to the Laws of Supply and Demand.
What do theater owners do to fight back? They find their profits elsewhere, such as selling amenities (popcorn and a drink). Theater owners have lobbied with some success to offer pricing to special interest groups such as seniors and students, or “cheap Tuesdays” (a form of dynamic pricing). And perhaps the best tool they have? Multiplex theater owners can add more theaters to show the same flick on multiple screens (variable supply).
Is there a parking equivalent for these tactics? Most parking operations don’t sell amenities, but they could: EV spaces may come with an extra fee for the convenience of a charging station, and some entrepreneurial parking operations offer car washes or oil changes – parking doesn’t have to provide the service, but alternatively parking could offer a coupon/discount for a local service shop. Finally, regarding changing the pricing, parking sometimes offers variable rates (early bird special, flat rate after 3pm) and may offer discounts based on the audience (visitor versus monthly pass holder).
But when it comes to varying the supply, that’s where movie theaters have the advantage. Parking operations may have some options to “conditionally zone” from time to time and in high-demand or oversold areas (like the X permit is valid in Lot Y on Tuesdays), however such options are generally limited.
Lessons from the Cruise Lines
Cruise ships are floating parking lots, and their cabins are parking spaces. Cruise Lines know that filling every room prior to departure is critical because cruisers are a captive audience and will spend more money (and time) in the casinos, restaurants, and shops
One of the KPIs that cruise lines use is “Booking Pace”, which is the rate at which reservations are made for a particular date. This is important for cruise lines (and other hospitality industries) to monitor and control; they use history and patterns along with pricing incentives to achieve the desired demand, eventually resulting in a full ship at departure time.
Booking pace can be applied in parking in some situations as well, such as a campus permit sale reservation window prior to the Fall semester. By looking at the patterns and history of booking pace parking operations can better anticipate sold-out situations and be prepared to find parking alternatives for consumers.
Lessons from Dynamic Pricing
Most of the other fixed-supply industries have implemented dynamic pricing. They set prices based not just on demand, but also based on the type of consumer and what that consumer is willing to pay.
To learn lessons in dynamic pricing, perhaps the best place to look is Uber, and the other TNCs. Uber didn’t invent “surge” pricing, but they certainly seem to have perfected it. Keep in mind that these temporarily increased prices don’t just work to dissuade consumers – they also work to increase supply but offering drivers a premium to get their cars on the road.
What about parking? So far dynamic pricing in parking has been limited to a handful of operations willing to experiment with the concept. The key to dynamic pricing in parking is not to adjust the “rack” rate (where parkers pay on arrival to the facility) but rather to offer appropriate discounts for parkers reserving parking in advance of arrival. By doing so the parking operations can price parking in a way that helps fill (but not overfill) a lot. Furthermore, this enables parking operations to know their clients better, and with that knowledge comes a higher opportunity for customer service, to offer products that are more suitable to the client, and to extract just the right fee that the client is willing to pay.
The Last Word: Data
All parking operations should be measuring their key performance metrics regularly. Occupancy is the starting point of many calculations and having a handle on occupancy leads to better KPIs. Having a history of regular occupancy data-points is even better, so that before-and-after scenarios can be measured for success.
Parking operations may be unique, but they’re not alone. Other fixed-supply industries have led the way in determining the measures of success for their businesses and parking can take those lessons and apply them in a parking-oriented manner. Parking won’t be able to break the Law of Supply and Demand, but there are many ways to adjust the demand curve to match supply, to the benefit of both the consumer and the parking operation.