Over the past several decades, the self-storage industry has become a hub for all sorts of storage, including the storage and management of records. The product is no longer just "do it yourself," but can include a menu of services. The question is: Why become a custodian rather than simply a caretaker?
This article discusses storage diversification and the issues it prompts. First, let’s take a look at some of the advantages you have over other businesses in your area that may lead to storage diversification or ancillary services.
- High visibility: Your location, signage and visibility by the passing public
- Large-scale property: The available space on existing site or nearby
- Capital resources: Diversification costs are low compared to a new business
- Walk-in traffic: Cross-selling opportunities are abundant
Self-storage facilities are expensive to build and deal with large parcels of real estate that can be designed to suit any type of storage. The real estate and building costs are usually bundled into one real estate loan. This acquisition of real estate is predominately for use in self-storage but can be easily leveraged into other storage revenue potential.
Traditional commercial-records center (CRC) owners, on the other hand, generally have no other business except records storage plus a handful of related services such as pickup, delivery, retrieval, re-file and destruction. Perhaps 50 percent have leased facilities; this includes some of the giants in the industry. It is simply not a real estate business.
Capital for self-storage facilities is part of the owner’s investment plus the real estate loan. Many owners are wealthy and like to diversify their investment portfolios. Working capital is usually included in the front-end strategy with long understood benchmarks based on community size, competition and other factors.
Seventy-five percent of all CRCs worldwide have fewer than 200,000 boxes and are small businesses that are generally strapped for capital. The traditional CRC has a long breakeven point and success means new investment in racking. The prices are currently driven by the need for steel in China and India. High-rise racking of 30 to 60 feet is common in the CRC industry. The higher the rack, the more yield per square foot, but also the more expensive the price per box position fully loaded (materials, freight and installation).
Most CRC entrepreneurs make a very good living, but hit their personal jackpot when they implement an exit strategy. There are about 11 buying companies currently active in the CRC investment space.
Labor has been anathema for a typical self-storage facility. A facility usually requires little labor since it is very much a “do-it-yourself” industry. Having an older couple or a site manager and perhaps a handyman is more than normal for many self-storage facilities. Asking or requiring people who are willing to work harder or be more computer literate is more costly and requires more owner management and oversight.
A traditional CRC can have from a handful to dozens of employees. Traditional records-management statistics show that as much as 45 percent of the total overhead of CRCs is employee-related cost. Where does one find good employees to handle the labor? Here’s a few good suggestions:
Two men and a truck. Not the franchise, but a small moving company assigned the task of bringing in new account boxes. This varies from a few hundred to several thousand; you decide who you want as a client and their size. (More on this in Small Business Packages below.) Margins after cost are usually 100 percent for these services.
Soccer moms. Every market has a plethora of available labor that has left the traditional workforce, including stay-at-home moms. Many desire to work when kids are at school. You can find qualified individuals through local churches and schools. I have also hired college students, who also have varied availability. These individuals provide inventory, re-boxing and indexing. Margins after cost are usually 100 percent for these services.
Independent courier. All cities, even small communities, have couriers. Most couriers are subcontractors to a larger courier company. Many courier companies are actually dispatchers and have no trucks or people other than sales and dispatch. The common split between an independent subcontractor and a dispatcher is 60 percent for the subcontractor plus any fuel surcharge, and 40 percent for the dispatcher. This fixes your margin with no capital or employee expenses.
Document-destruction subcontractor. Document destruction has proliferated in North America because of security, confidentiality and corporate and consumer fear. Most document-destruction companies destroy the confidential trash you provide them with additional destruction clients and used paper (a valued commodity). They will provide a resource for you at a negotiated rate, usually about 75 percent of the list price. This fixes your margins at 25 percent without any capital investment.
The self-storage industry has come a long way from the early days when sales were more or less unheard of, except for the over-the-counter market. I have clients in self-storage who have full-time salespeople vending several products. Sales are important to the ramp-up growth of any self-storage facility.
But sales are a must for CRCs. There is no storefront or counter for customer transactions. In fact, clients rarely come to the CRC. Below is a list of various types of sales positions you might include for your facility:
- Full-time sales: best for fast volume
- Part-time sales: owners and their spouses often do this
- Agent sales: there are many agent salespeople in all communities
- Retired sales reps: could include former big-name company sales reps
- Telemarketing sales: works to some degree
- Over-the-counter sales: requires training and scripting
- Existing self-storage clients: many will have small businesses
There is no limit to the number of services in a CRC. All services in a CRC are labor-intensive and traditionally managed by most. Progressive CRC owners have successfully entered into document destruction, data media vaulting, e-vaulting, imaging, fulfillment (pick, pack, ship and deliver), commodity warehousing and other related storage products. As technology improves, there will be many more opportunities for service growth and wealth.
For decades, marketing was limited to signage and Yellow Pages ads. Today, self-storage operators use a variety of marketing avenues, including the Internet. A good marketing plan works well with a selling strategy in an aggressive high-end self-storage facility. Marketing works, but must be constantly measured to ensure each facet of the marketing budget pays for its return on investment.
Most CRC owners don’t have a marketing budget. Commercial-records management has long been an “under the radar” business. No longer is this the case because the issue of storage is secondary. Businesses need to ensure compliance as their top priority. CRCs are way behind the curve on marketing. Recent studies show that all markets in North America are no more than 30 percent saturated, and the small-business market is less than 10 percent saturated. What an overlooked opportunity!
Small-business accounts are costly for sales reps and most CRCs do not understand their value. A handful of CRCs do market directly to small-business accounts and tend to keep this precious secret from the industry. Most concentrate on the 1,000 box account, while the average client volume in North America for a traditional CRC is an 830-box account.
Value-Based Exit Strategy
Private equity has come to commercial-records management. It has become a targeted “space” for private equity funds. Why? Records storage is an “annuity.” The annuity grows annually from creep—growth of an existing account less destruction. This averages 9 to 25 percent depending on the number of years after the acquisition of the client account.
Contracts are considered permanent and, thus, revenue is considered permanent as well. Buyers want contracts representing books of business, not property. The value of the business is in relationship to the value of the contract. Contracts are assignable and have steep penalties for early or long-term withdrawal. Acquisitions are priced at a multiple of EBITDA or gross sales.
As a self-storage entrepreneur, you should consider records storage as a potential investment. It is simple and easy to implement. You may choose to stay with it or grow your business into a traditional CRC at proven benchmarks.
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. To reach him, call 877.FILEMAN; e-mail [email protected]; visit www.fileman.com.