Permanent Storage Revenue

THE NATURE OF RECORDS MANAGEMENT

By Cary F. McGovern

Storage revenue in the commercial records-storage industry is consideredpermanent. Annual growth rates from existing business, net of destruction, rangefrom 15 percent at more mature companies to 18 percent to 22 percent for newstart-ups.

The Nature of Records-Storage Revenue

Themaintenance of business records is required of every organization. Recordsmanagement is considered to be a nuisance and is one of the first servicescompanies look to outsource. There are perhaps 1 billion boxes of records storedin every nook and cranny of this country--possibly more. No one knows for sure.The general attitude toward records storage is that records are "out ofsight, out of mind"--until there is a problem. Problems generally come inthe way of an audit or litigation. The importance of records then is catapultedfrom the basement to the executive suite overnight. The single largest problemin recordkeeping is, "I can't find the file," while the second mostprevalent is, "I don't know what to keep or how long to keep it."

A combination of these two problems becomes a goldmine for records-storagecompanies throughout the world. It is clear that after 50 years, therecords-storage business is booming. Prism International (formerly theAssociation of Commercial Records Centers) is adding new members each month. Newstart-ups are forming everywhere. North America, Europe, South and CentralAmerica, Australia, Asia and the Pacific Rim are all experiencingrecords-storage growth as businesses and their requirements grow throughout theworld.

Companies such as HP, Xerox, Canon and other equipment manufacturers haveadded to this growth by placing printers, copiers and faxes in networksconnected to every desktop. Yes, we use computers, but we also print everythingout. We are confused about what to keep and in what form, so we keep it all. Itseems endless. Commercial records organizations worldwide show annual growthfrom their existing account base to be from 15 percent to 22 percent. This kindof growth ensures your base storage volume and revenue may double every four tofive years

Storage Revenue as Permanent Revenue

Iron Mountain, the world's largest commercial-records organization, is apublicly traded company and issues regular industry updates that can be viewedanytime at www.ironmountain.com. Once on the company's website, look at the verybottom of the page and click on "Press Releases." You will learn agreat deal about the financial nature of the business by perusing thisinformation. I would like to refer you to two press releases in particular:

Storage revenues, which are considered a key performance indicator for therecords- and information-management services industry, are largely recurringsince customers typically retain their records for many years.

Storage revenue, which is the driver of total revenue, had an internalgrowth rate of 11 percent for the quarter and 12 percent for the nine monthsended Sept. 30, 2000. Service and storage material sales revenue posted aninternal growth rate of 10 percent for the quarter and 14 percent for the ninemonths ended Sept. 30, 2000.

The first reference discusses storage revenue as a key indicator ofperformance. Please understand that storage revenue is in fact an annuity. Itsimply grows every year. The reference to "largely recurring" is quitean understatement. Iron Mountain boasts in the same release that this is the47th consecutive quarter that storage revenue has increased. In fact, mostcompanies tend to keep business records for extraordinary periods of timebecause it is easier and cheaper to store them than it is to make a decisionabout whether to keep them. We live in a complex world of regulation. On top ofthat, we are the most litigious society in the world. Comparatively speaking, itis easy to decide to keep records for the long-haul.

The second reference discusses the rate of growth. More mature recordscenters tend to have lower growth levels because their entire base is larger.Older records mound up and are very inactive while new start-ups generally havemuch more active files with a higher growth rate. My personal experience withcustomers over a 25-year period is that you can expect at least 18 percentgrowth compounded annually in a new start-up operation for at least the firstfive years. After that it may drop off to as low as 15 percent. New accounts cangrow 100 percent or more during their first year in storage. This seems to betrue because the company and its employees realize that not only can they storeand retrieve records easily and inexpensively, but they can find them for thefirst time without hassle. Records boxes seem to come out of the woodwork whenyou provide a professional service the customer can rely on.

The industry is moving toward a more technology-based delivery method. Thisadds value to the customer. All the major records-management software vendorsare adding Internet-based modules to their packages. This is rather expensivefor new start-ups because the commercial records vendor actually becomes anapplication service provider with a file server, website and technical support.For more information about traditional records-management software, refer to thefollowing websites: www.oneilinc.com(RS-SQL); www.andrewssoftware.com(InfoKeeper); www.dhsassociates.com (Total Recall); or www.firmshome.com(FIRMS).

Regularcolumnist Cary F. McGovern is a certified records manager and the principal ofFile Managers Inc., a records-management consulting firm specializing inimplementation assistance and training for new, commercial records-centerstart-ups, as well as marketing support for existing records centers. For moreinformation, visit www.fileman.com.

FileMan Records Management is developing a model for sellingrecords-management services on the Internet. The company will soon be pilotingseveral versions of its method. If you are interested in becoming a FileManPilot participant, e-mail [email protected]or call toll-free (877) FILE-MAN.