Selling and providing records- management services creates a unique revenue opportunity for entrepreneurs and developers. Once you have earned a client, you will likely retain that company for its lifetime. However, there are several important issues that need attention to ensure this.
In last month's column, I discussed the value of a typical 1,000-box account in records management. That account generates more than $43,000 in revenue over the first five years of service. This is not the end of the revenue stream but just the beginning. Records are typically retained for an average of seven to 10 years.
It is also true to say most clients do not manage their destruction process until volume becomes very large. As companies grow, their volume also grows between a low of 5 percent and a high of 25 percent annually, depending on the age of the business. Newer businesses tend to grow at higher rates, while more mature businesses grow at a slower pace. The three common circumstances that generate growth in storage from the base account volume are:
1. Client businesses tend to grow as they mature, which stimulates more volume in records storage.
2. As documents undergo the destruction process, they are replaced with larger volumes of the same.
3. Most businesses lack a retention schedule. Clients tend to keep records longer than required.
Ensuring a Lifetime Relationship
There are several absolutes for the retention of records-management clients. These are:
Absolute 1: The right contract form. There is only one "right" contract form in the records-management industry. PRISM International is the trade association that has promulgated this contract. It (or a modified form of it) is in use in most commercial record centers around the world. It has been built through years of experience in the records-management industry.
Absolute 2: Contract term. Be specific about the term of your agreement. It is common for a contract term to be initially set for a number of years--perhaps two or three years at a fixed rate and then on an annual basis with a price escalation thereafter.
Absolute 3: Automatic contract renewal. The contract should include an automatic renewal clause after its initial term. The automatic renewal terms should be clear and require no action by the records-storage center or the client.
Absolute 4: Periodic price escalation. Price escalation clauses should be tied to the term of the contract. You should tie the increase to something reasonable, i.e., the regional cost-of- living index. Price escalation could be annual, biannual or follow any other specific time period.
Absolute 5: Limitation of liability. The limitation of liability is one item in your contract that should never be altered. The industry generally prefers $2 per unit (box) or a fixed rate, such as the cost of replacing the box. Never accept responsibility for the contents of the box. It is possible the client may ask for excess valuation insurance. You may choose to offer this insurance through a third party or suggest the client purchase it as an addendum to his own insurance.
Absolute 6: Permanent-withdrawal fee. One of the most common practices in the industry is the inclusion of a permanent-retrieval fee in the price schedule. The purpose of this is to offset the cost of racks and general overhead, as well as the cost of the final retrieval and data entry. It is usually priced at a fixed rate per box. It guarantees you will not lose money on any box that you bring into storage, since an immediate retrieval will pay for the expenses of your rack and overhead. It is also the most important deterrent to losing business because the cost is generally prohibitive.
Absolute 7: Failure-to-pay penalty. The penalty should be covered in the contract so you can take appropriate action and recover your costs of collection and rental fees past due. This clause usually contains wording that withholds access to any records when a payment is past due.
Absolute 8: Rate schedule that sets pricing levels. Schedule A is the price list. Prices may vary across the board from client to client. The rate schedule should list every cost to the client. It is recommended the reverse side of the Schedule A have a very clear description of each service and its basis of charge. This will support your position on service and activity pricing.
Absolute 9: Rate schedule that sets initial charges. Schedule B should detail all of the one-time charges that will be incurred for the initial collection of records. It should cover when these fees will be charged and define each charge specifically.
Absolute 9: Excellent client service. In the end, there is only one way to ensure a client will never leave. He must be continually delighted. You must have a client-care program that ensures clients regularly receive value-added services.
Regular columnist Cary McGovern, CRM, is the principal of FileMan and FIRMS (FileMan Internet Records Management Services), which offer full-service records-management assistance for commercial records-storage start-ups in self-storage operations. For assistance in feasibility determination, operational implementation or marketing support, or for questions on the FIRMS Sales Manager, call 877.FILEMAN, e-mail firstname.lastname@example.org; visit www.fileman.com.