Why Would You Want to Be in the Records-Management Business?
Copyright 2014 by Virgo Publishing.
By: Cary McGovern
Posted on: 03/01/1999



 

Why Would You Want to Be in the Records-Management Business?

By Cary McGovern

An existing self-storage business allows you to get into the records-management business with very low cost and little effort. It multiplies unit revenue within 90 days and guarantees a steady cash flow for years. Have I caught your interest? Read on.

Why Now?

Two years ago this month, I wrote an article for Inside Self-Storage entitled, "So You Want to Be in the Records-Management Business!" Since then I have assisted more than 100 operators in the development of a records-storage business within the walls of their self-storage facility. Why has this become so popular among this industry? Why now? The answers to these questions are very important to you and your plans for growth and differentiation in a competitive marketplace.

Dispelling Old Myths

The commercial records business was, for many years, considered incompatible with self-storage. For the past two years, my most formidable task was to dispel old myths. Self-storage consultants and the old timers in records and self-storage are not aware of the newly developed technologies and techniques that have made records management more appealing to this industry. It is true to say that records management can be easy, inexpensive and highly profitable when you use these new models developed for the self-storage.

Benefits

Storage revenue improvement. There is nothing in the business of storage that equals or surpasses the revenue generated by records storage. Simply put, you are leasing "air." Since records are stored in vertical shelving units, you are renting each cubic foot of your units' square feet. If you don't believe me, just perform the following simple calculation:

  • Take any unit (the bigger the better) and measure the square footage.
  • Multiply that number by the ceiling height (probably 8 feet, but the higher the better).
  • Multiply the gross cubic footage by .65 (65 percent of the actual cubic footage is available).
  • Multiply by .25 (25 cents per month per cubic foot is the national average, but it could be much more).
  • Multiply by 1.65 (for every dollar that you generate in storage, you generate 65 cents in base service revenue). This number equals a month's revenue from your unit. Compare that to your existing revenue for the same unit.

Product differentiation. You have customers today who have records in storage units you are renting to them. I can guarantee you one thing in this business: It is always better--and cheaper--for the customer to manage out his records. I have never done a calculation on records storage vs. records management that does not validate this. Because of this, records-management companies (known as commercial records centers) actively seek your customers out. You will always lose the business to the commercial records center if they identify your customer.

Let's demonstrate how that works: Take a customer with 50 boxes in storage. Each box is an average of 1.5 cubic feet (boxes vary in size), equaling 75 cubic feet. Look at your rent for a 10-by-10 unit (maybe $55 or more) vs. the cost for records management at 25 cents per cubic foot ($18.75). A total of $18.75 with a $35 minimum equals a net yield of 46 cents per cube, and the customer saves $20 each month. But the real cost savings are in the handling and delivery--industry estimates for retrievals are as much as $25 to $50 if the company sends its own employee to get the record.

Cash-flow stabilization. The business of records management has been compared, financially, to an annuity. Records grow at an average rate of 18 percent, compounded annually. This means that in four years, a typical customer doubles his record cartons in storage. Records typically remain in storage for many years. Even though you can calculate the appropriate life of the record, customers rarely do. So your records inventory should grow and grow and grow.

Additionally, you have protection against someone taking your account. In the industry it's called "the hostage fee." Every carton has a permanent retrieval fee, so if a customer with 1,000 boxes wants to move somewhere else, it costs him the retrieval fee for each box. In the commercial-records industry, this ranges from $2 to $5 or more per box--quite a protection or your cash flow. Iron Mountain and Pierce Lehey actually finance their businesses based on this "hostage fee." They can go to the bank and base their collateral on the fact that, even if all records left today, they would make a profit.

Long-term business value. Records-management businesses have a high value when sold. Several major records-management companies regularly buy records-storage businesses or the "book of business" held by a competitor. The sales price ranges from valuing the storage revenue over several years to a per-box price. Even if you decide that this business is not for you after a few years, you can sell your "book of business" and make a substantial profit.

Operating Components

Many of the operating components already exist in your self-storage business. My role in assisting companies that get into the records-storage business have been focused on keeping the operating and labor costs down. The new model for records management in a self-storage facility includes key-cost control and manpower-reduction techniques.

Use of existing units--No new building costs, simply use your existing units. You may choose to build a larger facility after you have generated the business.

Leased racking one unit at a time--You can have optimized racking shipped to you for an entire unit, and then have each newly converted unit added to the terms of your lease.

Metered software (pay per access)--Rather than buy the software, lease it one transaction at a time. There's no cost until you use it.

Standardized operating processes--There is no need to reinvent the wheel. Operating processes are simple and straightforward. It requires basic inventory control using bar codes and the metered software.

Canned marketing techniques--Marketing can take several forms and be casual or aggressive. There are some methods that are tried and true.

Outsourced courier services--Couriers are typically small businessmen with covered pick-up trucks. There is an existing model for courier splits with the dispatcher. You become the dispatcher and take 40 percent with no overhead.

Retrievals done by the courier--Negotiate with the courier to do the actual retrieval. You pay him a bit more, but reduce your manpower costs. He will bring the item to the office to be validated against the customer-order request.

Outsourced monthly billing with electronic deposits--The metered software automatically calculates charges and generates a bill. Electronic charges from MasterCard or Visa, and credits to your checking account automatically reduce end-of-the-month expenses.

Video, audio and computer assisted training--Audio tapes, video cassettes, computer help programs and other cost-saving assets assist you in getting your staff well trained with little effort.

The original question was, "Why would you want to be in the records-management business?" The better question is, "Why wouldn't you want to be?"

Revenue Example:

10 x 10 = 100 sq. ft.

100 x 8 = 800 cu. ft.

800 x .65 = 520

520 x .25 = $130

$130 x 1.65 = $214.50

Regular columnist Cary F. McGovern is a certified records manager and owner of File Managers Inc., a records-management consulting firm that also provides outsourcing services, file-room management and litigation support services for the legal industry. For more information about records management, contact Mr. McGovern at File Managers Inc., P.O. Box 1178, Abita Springs, LA 70420; phone (504) 871-0092; fax (504) 893-1751; e-mail: fileman@acadiacom.net; www.fileman.com.