The ever-increasing power of computers and printers creates a perpetually escalating amount of physical and electronic documents that must be managed and stored. Recent trends in litigation have emphasized to corporate America the importance of professional records management. At the same time, there has been a significant amount of consolidation in the industry, as two large national companies acquired a significant percentage of privately owned commercial records centers. As is to be expected, the operations of the acquired companies have been modified to conform to the standards of the buyers. The result has been the elimination of a significant amount of competition in the records-management market.
There is no magic formula for operational success. The one common factor associated with all successful record centers is their dedication to customer service. Centers willing to cater to the specific needs of their customers have a greater level of customer satisfaction and higher gross margins. The size of a national company makes personalized service nearly impossible. Requests for service are handled at a centralized location usually very remote from the customer.
In terms of customer service, independent records-management companies have a distinct advantage over larger ones. A national company must limit the services it offers to a set of standard options. It also lacks the flexibility to meet unique customer requirements. A privately owned records center can tailor its services to meet the individual demands of its clients and maintain personal interaction with them.
Marketing records management is one of the most important aspects of developing a successful business. A successful campaign will include a program that combines Yellow Pages advertising, telemarketing and face-to-face sales. In addition, you will need to develop professional brochures and other collateral. A professional website can also be a great marketing tool.
Records management has very high recurring revenue. When marketing this business, price is not always the most important consideration. Many sales people focus more on price than service. A successful marketing plan will emphasize great customer service that matches a client's specific needs as much as--or more than--pricing.
Growing the Business
To grow a records center, it is necessary to have a dedicated sales effort. Sales cycles can be quite long, typically three to 18 months. However, a client generally signs a long-term contract for three to five years or longer. The cost of switching from one vendor to another makes it less likely a customer will move, as long as he is receiving good service.
If service is a key component in operating a successful records business, good references and happy customers are your best sales tools. Many new record centers focus on acquiring large accounts, but smaller accounts offer much better profit margins. You should know national operations generally do not put a lot of effort into pursuing small accounts.
A commercial records center that has many small to medium accounts is more stable and less susceptible to the financial risk associated with losing one key account. It also has a much greater business value. On the other hand, larger accounts can allow a records center to grow more quickly. In the case of larger accounts, there will likely be more price competition; but even so, clients increasingly are searching for attentive personalized service. They are often willing to pay more for service tailored specifically to their needs.
Over the last few years, there has been a significant increase in the conversion of physical documents to digital images. Until recently, most companies did not consider this a viable option. The process of converting documents to digital files is still a very expensive alternative to storing boxes of files, but demand is increasing. Many people considering the commercial records-management business worry this will make the storage of documents obsolete. This is not true.
It is important to understand even though the cost of storing images has reduced drastically over the last few years, imaging still requires a large amount of manpower. This makes the cost much higher than storage. In addition, most corporations continue to store hard copies of documents converted to digital. There are still many issues relating to the admission of digital images as a substitute to physical copies in legal proceedings, for example.
In short, the increased volume of digital imaging is not likely to negatively affect the records-management business. Commercial records centers should not look at digital imaging as competition to records storage, but an additional service they can offer. In fact, some industry software allows the center to track and manage physical documents and digital images.
Pricing in records management includes two components: storage and services. As a rule of thumb, you can expect service revenue to be approximately 60 percent to 100 percent of storage revenue, depending on market size and competition. Typically, a records-management company charges for pulling, putting away and transporting items to and from the client; adding new items to inventory; destroying items; and faxing, copying and indexing items into a computer system. Commercial records centers also sell boxes and other tangibles.
In some cases, records managers charge consulting fees for assisting companies in solving their records-management issues and establishing regular procedures. The following is an overview of the typical categories of services offered by commercial records managers:
Adding items to inventory. The first step in receiving an account is adding the new items to inventory. This involves entering the item into a software program designed to manage records operations. These software systems are designed to track items as they move about the facility and are returned to the client. At the time an item is entered into the computer, it is given a number converted to a bar code for electronic tracking with portable hand-held devices. A bar-code label is attached to the item. As the item moves around the facility, it is scanned, and the location is automatically updated in the computer system.
Storage. Once an item is received by a commercial records center, the center bills for storing the item. Storage is typically billed in advance at rates ranging from $0.15 to $0.50 per cubic foot per month. Some commercial record centers bill storage quarterly, semi-annually or annually. The fees are generally higher when items are stored in a climate-controlled center.
Retrieving and transporting items. Commercial records centers charge clients for pulling items from storage. Charges for pulling a box or file are approximately $1 to $3. In most instances, the item is then transported to the client. In other cases, the client may wish to view the items at the center. For these situations, a viewing room is provided.
The charges for transportation vary based on the type of request. Centers offer standard, rush and after-hours deliveries. Normally, standard deliveries are scheduled based on cut-off times. For instance, if a customer makes a request by 4 p.m. one day, the item is delivered on the next morning's run. The fees typically charged for a standard delivery are $6 to $35.
A rush delivery is where a client can call any time during normal business hours and schedule a delivery within a specified number of hours. A rush delivery is generally made within two to four hours from the time the client makes the request. The fee charged for a rush delivery is $15 to $100.
An after-hours delivery occurs when the client makes a request for delivery after normal business hours. The fees typically charged for this type of service range from $25 to $250. Not all commercial record centers offer after-hours deliveries. Centers serving medical accounts generally must offer this type of service.
Refiling items. Refiling items is the reverse of retrieving them. Typical charges for refiling a box or file are $1 to $4. This charge is in addition to any fee associated with transporting the item from the client's facility to the record center.
Permanently removing items. This is one of the most controversial areas of commercial records management. This is a charge associated with permanently retrieving an item from a center. Some centers charge the same price for this service as retrieving an item, but most commercial records centers charge a surcharge for permanent removal.
Centers that charge these fees are likely to have a higher level of customer retention because of the additional expense associated with switching from one vendor to another. Those that charge these fees argue there are costs associated with permanently removing items from their facilities and computer systems. The fees also help protect the center from the negative financial impact of losing an account. It might be viewed as a type of business-risk insurance.
Record retention and destruction. Most corporations have records-retention policies that dictate when records should be removed from storage and destroyed. Depending on the nature and confidentiality of the records, the client may wish for them to be destroyed in such a way that they are no longer legible. Typical retrieval fees will then apply, and many centers charge for destruction by the pound. It is not uncommon for centers to subcontract the destruction services to a third party that specializes in this business. It is worth noting commercial record centers can generate additional revenue by selling the shredded materials to a paper-recycling firm, and they do not generally apply the permanent-removal fees discussed above to the removal of items by destruction.
Other services. Examples of other services provided by commercial record centers include faxing, copying, selling boxes and hourly services.
In the business of records management, EBITA (earnings before interest, taxes and amortization) of 25 percent or more of gross revenues is not uncommon. Generally, the larger a records center grows, the higher EBITA grows. Records management also has one of the best recurring revenue streams of any business venture. For the most part, clients sign long-term agreements and stay with their service provider as long as they receive good service. Existing clients grow 5 percent to 15 percent each year.
Off-site records management is much more cost effective than a corporation storing and managing it's own documents. Consequently, the records-management business does well in a bad economy. Furthermore, when it is time to sell the business, there is a ready, willing and able market always interested in purchasing existing businesses. These buyers include national and regional companies and scores of smaller operations looking to grow more rapidly by acquisition.
One of the key elements of the business relationship between the records center and its client is the contract, which details the terms and agreements under which the records center will provide services. It is generally for terms of three to five years and covers such topics as pricing and service parameters.
Another important factor to consider is loss liability for boxes. Typically, these contracts indicate the record-center liability is limited to $1 per box. This risk is then covered by insurance purchased by the record center. It is important to find an insurance agent with experience insuring records management.
There are several experienced consultants who specialize in assisting commercial records centers. These professionals can ensure your success by helping you make the proper decisions and reducing the cost of entry into the market. Make sure the individual has experience in the records-management industry and skills that match your needs. A consultant should be able to:
- Conduct a market survey to assess the existing competition and determine the pricing for the market.
- Assist in the development of a business plan and the setup of a new facility.
- Assist in the creation of a marketing plan.
- Accompany you on some initial sales calls.
- Help locate the best sources and pricing for software, racking, equipment, vehicles and supplies.
- Assist with facility evaluations, security analyses, sales training, telemarketing and operational procedures.
- Help you understand and develop alternative types of records- and information- management offerings.
- It is important to select a consultant with whom you can work cooperatively and who has sufficient background in the business to provide the required level of assistance. Consultants are not only beneficial to new records-business owners--they can also benefit existing businesses that would like to increase market presence and size.
The commercial records-management business is a great one, but it does require commitment. Growth takes time, but once you have acquired customers, the revenue is recurring and always growing. The business also performs well in poor economic times and provides a diverse income stream that can help insulate your balance sheet against other businesses that do not perform as well.
Steven J. Hyman is president of DHS Worldwide, a software-development firm that markets three editions of its Total RecallTM records-management software. These products are designed to cater to the corporate and commercial records-management industries and are available worldwide. They are state-of-the-art, multilanguage-compatible, and web- and barcode-enabled. For more information, call 800.377.8406 or visit www.dhsworldwide.com. E-mail [email protected].