Records-Storage Primer
Copyright 2014 by Virgo Publishing.
By: Cary F. McGovern
Posted on: 10/01/2005



 

Records Storage remains a mystery to most self-storage entrepreneurs and consultants. This article demystifies and demonstrates the value of an ancillary service that benefits small and large storage operations in any size market.

A decade ago, there seemed to be an aversion for records storage within a self-storage environment, mostly because of simple ignorance of the product. My daddy once told me, “Son, there’s a difference between ignorance and stupidity. All of us are ignorant of something, and there’s nothing wrong with that. The stupid people are those who don’t understand they’re ignorant.”

Thankfully, times have changed. Records storage often finds a home in self-storage, even though one requires lots of active participation with customers and the other is a fairly passive business. How do you reconcile these diverse models? By taking advantage of the technology, techniques and management styles currently available. But first, let’s look at the different types of records storage.

Traditional Records Storage

In the past, traditional records storage was a stand-alone business with demanding requirements for capital, personnel and outside sales. The owner of a traditional records center came from industries like moving and storage, warehousing or transportation. Because the operation was usually undercapitalized, the owner had to wear many hats, including that of salesperson. This meant the business grew very slowly.

Today, traditional records storage involves a new entity: private equity. There are now about 10 private-equity groups buying commercial records centers with the single goal of purchasing market share. These companies look at the industry as a way to achieve permanent return on their investments. Their profit model relies on the annuity revenue of storage volume plus annual creep (record growth minus record destruction).

The good news is this model gives the industry an attractive investment strategy. Revenue always increases because of the permanency of storage along with the built-in growth factor and annual rate hikes. The bad news is the cost of buying mature records centers is high, and there are only so many good ones to acquire. There are about 100 peak performers worldwide, and they’re not for sale because they’re cash cows. They have millions of boxes in storage in the world’s largest markets—Hong Kong, London, Los Angeles, New York, San Francisco, Singapore, Sydney, etc.

Nontraditional Records Storage

Now let’s get to the heart of the matter: Nontraditional records storage has become more prominent in the last decade. It’s very different from traditional storage in its form, content, services, operations, management, marketing and sales. Best of all, it has distinct advantages.

Nontraditional records storage generally emerges within the walls of an existing business with an established client base. It’s most lucrative when coupled with self-storage. Why? Self-storage has certain attributes other businesses lack, such as rentable storage space, a local base of business clients, personnel, a storefront and a need for ancillary services.

Rentable storage space. Self-storage always has space to rent. The only difference between self-storage and records storage is square vs. cubic footage. With records storage, you get to charge for height as well as width and depth.

Local client base. Self-storage customers usually come from the surrounding neighborhood, which almost always contains small businesses. This is a great advantage to records-storage operations, which thrive on this target market.

Personnel. No additional employees are necessary to operate nontraditional records storage. Outsourcing and current staff can handle the load.

Storefront. As a self-storage operator, you have something your traditional competitors don’t have: walk-in traffic. Hundreds or thousands of prospects may walk through your door every year, and some of them will represent small businesses that need records storage.

Need for ancillary services. In today’s business environment, storage facilities must diversify their services to compete. Options include post and shipping, truck rentals, wine storage, boat and RV storage, etc. Records storage adds extraordinary value for business clients, as you’ll read later.

Working Without Exception

The most illogical myth about records storage is it only works in small markets where self-storage is overbuilt. Nothing could be further from the truth. Here are four real-life examples to demonstrate the success of records storage in diverse markets.

Our first example is an eight-facility self-storage operator in a top-five U.S. market with a population of more than 5 million. Each facility is owned separately but managed by the same company. Their business plan has included the sale of records storage to walk-in traffic for nearly 10 years. It also contains two key ingredients: a training program and a compensation program for office personnel. Over the past decade, the facilities have amassed thousands of records-storage boxes. Last year, the operator built a full-service, traditional facility and employed its first full-time salesperson. It continues to operate nontraditional storage out of its storefronts.

Example No. 2 is a single self-storage facility in a fast-growing suburb of a large regional market. It is a “showcase” facility in look and style and has more than 1,800 units. The owners understood the need for hiring qualified office staff who could cross sell their various high-end services. They began their records-storage business more than 10 years ago and have collected several hundred thousand boxes. Two years ago, they built a new warehouse on their property and transitioned to a traditional records center with a full-time general manager and salesperson.

Our third case is a facility in a small market of less than 100,000 people. The owner decided early on that he wanted only customers who would have little or no need for services such as retrieval (known as “under the minimum” accounts). In about seven years, he has achieved 35,000 boxes at an average yield of 75 cents per cubic foot. He offers very little by the way of extras but generates great cash flow.

The last example is a downtown self-storage facility in a city of about 500,000 people. The multistory building has a first floor with 16-foot ceilings and convenient drive-in bays. The shelving was constructed with a catwalk and accommodates about 60,000 boxes. The facility has been full for years. Every year, rates go up, and the owner manages his growth by “firing” the worst-paying client and allowing a more reliable customer to fill the space. He serves only the downtown market with bicycle and foot-courier service.

The list of success stories goes on and on. Don’t let anyone tell you records storage doesn’t work in self-storage—it simply isn’t true. It works in large, medium or small facilities in huge or even the tiniest markets. The only caveat is it requires a sound strategy for marketing and implementation.

The Service Model

As part of your business plan, you must know what your offering will mean to the local market, i.e., your service strategy. There are roughly 37 services commercial records centers can offer. You define your business via those you have the desire, capital and resources to provide. Keep in mind that all services require:

  • People—There are four staffing models: full-time, part-time, temporary and outsourced. None are inherently good or bad. You choose the option that best fits your operation.
  • Process—You must have policies and procedures for providing services, i.e., an operating manual. Policies define the limits of a service, and procedures outline the steps to a predetermined result.
  • Technology—One of the best things about technology is it allows us to do more with less. Choosing the right tools can reduce personnel requirements and increase profit margins.
  • Management—Regardless of the role technology plays, you need management to achieve your objectives. Resources can be automated to a great degree, but only managers can provide supervision.

The Profit Model

In records storage, there’s a big difference between price and yield. This is perhaps the most misunderstood aspect of the business. Your price list may show a specific figure, but your yield per unit of storage may be twice or three times that number. This is not magic. It requires you to carefully construct your services, contract and pricing to optimize yield.

In traditional records storage, it’s common for price and yield to be identical or to vary within 10 percent of each other. In nontraditional records storage, there are a dozen or more factors that raise yield while keeping overall costs low. (For more details about how this works, read “Price and Yield Differences” in the May 2003 issue of Inside Self-Storage, also available in the archive at www.insideselfstorage.com.)

The Value Model

Value is defined by the client, not the vendor. To understand value of any service, you must know what is important to your customers. Space is never the issue in records storage. Business customers can get that anywhere. The real issues are convenience (ease of use plus expediency) and compliance.

Compliance is indeed king of the hill. It has been driven by regulation, litigation, malicious behavior on behalf of employees, and terrorism. People want to keep their records safe and confidential, maintaining documents’ integrity and ensuring they will not be lost or mistreated. The provision of that service is far more important than storage itself. As Forrest Gump might say, “Value is as value does.”

Success Model

When it comes to nontraditional records storage, success is not the result of a single factor but several. When it comes down to it, you’re the one who determines the scope of your operation. The business potential is constrained only by desire, capital and resources. Records storage can work in even the simplest model in the smallest facility.

Cary F. McGovern is the principal of FileMan Records Management, which offers full-service assistance for commercial records-storage startups and sales training in commercial records-management operations. For help with feasibility determination, operational implementation or marketing support, call 877.FILEMAN; e-mail fileman@fileman.com; visit www.fileman.com.