Pricing and staff compensation for records-storage services are two areas that generate a lot of questions for new operators during the startup phase. Pricing always depends on real costs, while compensation is sales driven. This article discusses a comprehensive strategy for both.
The first step in determining your pricing is to understand the parameters of your offering. You need to develop a “Services Guidebook,” which contains a name and definition for every service you offer. It also identifies a pricing strategy for each, including its resource requirements, value to the client, value to the records center, sales compensation and, finally, an implementation plan. In essence, this document outlines your business policies.
Pricing strategy generally employs a formula approach: cost plus profit margin equals price. The question that always arises in any new records center is how to determine costs before operation begins. This can be difficult, but here’s a simple outline that can facilitate the process:
- Negotiate fees with your primary outsourced resources, e.g., courier services.
- Determine the overhead attributable for supervision of each resource, perhaps 10 percent.
- Estimate the cost of supplies, e.g., boxes, software, hardware, etc.
- Find out what local competitors are charging for similar services.
- Estimate total costs using the data gathered in the first four steps.
- Add your markup. Forty percent is usually appropriate for base-level services such as retrieval, re-filing, pick-up, delivery and box-level indexing. Other services such as re-boxing and file-level indexing may have much higher margins.
- Measure your calculations against your competitors’ price lists.
- Decide if you want to offer discounts to encourage new business. For example, consider offering a deal in which you bring in a new client’s initial boxes at a reduced rate or no cost.
- Set your final price.
- After three months, review your costs and adjust price based on actual results.
The right compensation program is the one that gets your sales staff to bring in new business. Good salespeople are driven by rewards. As the owner, you have the choice of basing their pay on storage revenue or service revenue. You can even try some combination of both to create a plan that works for everyone.
Compensation founded on storage revenue is fairly straightforward—with a couple of caveats. Typically, a new salesperson gets commissions based on a percentage of first-year revenue, perhaps 40 percent to 50 percent of gross. Since you don’t want to pay your staff until you have revenue in your hands, here’s how it works:
A new account signs a contract, but his boxes might come in over a 90-day period from the date of the signing. The sales rep should be compensated based on the total volume at the end of the 90 days, but his payment should be spread across the next 12 months. This means he gets equal payments during contract months three through 14. For example, if he brings in a 1,000-box account at 35 cents per box, that’s $350 per month, or $4,200 per year. Multiply that by a 40 percent commission and you get $1,680, or $140 per month.
Compensation based on service revenue is quite different. Generally, records centers don’t pay salespeople for retrievals, re-files, pick-ups or deliveries; they pay based on the ancillary services sold by the rep at the beginning of the contract. These might include box repackaging, file-level indexing, record-name clarification, strategic retention services and others.
Compensation can range from 20 percent to 50 percent of the net profit on each service, which should be set and documented in your Services Guidebook. For example, re-boxing might carry as much as a 75 percent margin, which means the salesperson’s commission could be substantial.
Let’s look at a sample scenario: Your repackaging service is priced at $8 per box ($5 per unit for time and labor plus $3 for the box itself). Depending on your resources, your actual cost might only be $2.50 per box, giving you a $5.50 margin. If your salesperson gets a 40 percent commission, he earns $2.20 per box. This compensation should be awarded only after payment is collected from the client. I suggest paying these commissions once a month.
Keep in mind that services vary greatly from one records center to another, and they all require the resources of people, processes, technology and management. For this reason, carefully determine the scope of your offering and make sure your salespeople understand it. You don’t want staff selling a service you cannot or will not support.
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 email@example.com; visit www.fileman.com.