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Why Would You Want to Be in the Records-Management Business?

March 1, 1999

6 Min Read
Why Would You Want to Be in the Records-Management Business?

Why Would You Want to Be in the Records-Management Business?

By Cary McGovern

An existing self-storage business allows you to get into the records-managementbusiness with very low cost and little effort. It multiplies unit revenue within 90 daysand guarantees a steady cash flow for years. Have I caught your interest? Read on.

Why Now?

Two years ago this month, I wrote an article for Inside Self-Storage entitled,"So You Want to Be in the Records-Management Business!" Since then I haveassisted more than 100 operators in the development of a records-storage business withinthe walls of their self-storage facility. Why has this become so popular among thisindustry? Why now? The answers to these questions are very important to you and your plansfor growth and differentiation in a competitive marketplace.

Dispelling Old Myths

The commercial records business was, for many years, considered incompatible withself-storage. For the past two years, my most formidable task was to dispel old myths.Self-storage consultants and the old timers in records and self-storage are not aware ofthe newly developed technologies and techniques that have made records management moreappealing to this industry. It is true to say that records management can be easy,inexpensive and highly profitable when you use these new models developed for theself-storage.

Benefits

Storage revenue improvement. There is nothing in the business of storage thatequals or surpasses the revenue generated by records storage. Simply put, you are leasing"air." Since records are stored in vertical shelving units, you are renting eachcubic foot of your units' square feet. If you don't believe me, just perform the followingsimple calculation:

  • Take any unit (the bigger the better) and measure the square footage.

  • Multiply that number by the ceiling height (probably 8 feet, but the higher the better).

  • Multiply the gross cubic footage by .65 (65 percent of the actual cubic footage is available).

  • Multiply by .25 (25 cents per month per cubic foot is the national average, but it could be much more).

  • Multiply by 1.65 (for every dollar that you generate in storage, you generate 65 cents in base service revenue). This number equals a month's revenue from your unit. Compare that to your existing revenue for the same unit.

Product differentiation. You have customers today who have records in storageunits you are renting to them. I can guarantee you one thing in this business: It isalways better--and cheaper--for the customer to manage out his records. I have never donea calculation on records storage vs. records management that does not validate this.Because of this, records-management companies (known as commercial records centers)actively seek your customers out. You will always lose the business to the commercialrecords center if they identify your customer.

Let's demonstrate how that works: Take a customer with 50 boxes in storage. Each box isan average of 1.5 cubic feet (boxes vary in size), equaling 75 cubic feet. Look at yourrent for a 10-by-10 unit (maybe $55 or more) vs. the cost for records management at 25cents per cubic foot ($18.75). A total of $18.75 with a $35 minimum equals a net yield of46 cents per cube, and the customer saves $20 each month. But the real cost savings are inthe handling and delivery--industry estimates for retrievals are as much as $25 to $50 ifthe company sends its own employee to get the record.

Cash-flow stabilization. The business of records management has been compared,financially, to an annuity. Records grow at an average rate of 18 percent, compoundedannually. This means that in four years, a typical customer doubles his record cartons instorage. Records typically remain in storage for many years. Even though you can calculatethe appropriate life of the record, customers rarely do. So your records inventory shouldgrow and grow and grow.

Additionally, you have protection against someone taking your account. In the industryit's called "the hostage fee." Every carton has a permanent retrieval fee, so ifa customer with 1,000 boxes wants to move somewhere else, it costs him the retrieval feefor each box. In the commercial-records industry, this ranges from $2 to $5 or more perbox--quite a protection or your cash flow. Iron Mountain and Pierce Lehey actually financetheir businesses based on this "hostage fee." They can go to the bank and basetheir collateral on the fact that, even if all records left today, they would make aprofit.

Long-term business value. Records-management businesses have a high value whensold. Several major records-management companies regularly buy records-storage businessesor the "book of business" held by a competitor. The sales price ranges fromvaluing the storage revenue over several years to a per-box price. Even if you decide thatthis business is not for you after a few years, you can sell your "book ofbusiness" and make a substantial profit.

Operating Components

Many of the operating components already exist in your self-storage business. My rolein assisting companies that get into the records-storage business have been focused onkeeping the operating and labor costs down. The new model for records management in aself-storage facility includes key-cost control and manpower-reduction techniques.

Use of existing units--No new building costs, simply use your existing units.You may choose to build a larger facility after you have generated the business.

Leased racking one unit at a time--You can have optimized racking shipped to youfor an entire unit, and then have each newly converted unit added to the terms of yourlease.

Metered software (pay per access)--Rather than buy the software, lease it onetransaction at a time. There's no cost until you use it.

Standardized operating processes--There is no need to reinvent the wheel.Operating processes are simple and straightforward. It requires basic inventory controlusing bar codes and the metered software.

Canned marketing techniques--Marketing can take several forms and be casual oraggressive. There are some methods that are tried and true.

Outsourced courier services--Couriers are typically small businessmen withcovered pick-up trucks. There is an existing model for courier splits with the dispatcher.You become the dispatcher and take 40 percent with no overhead.

Retrievals done by the courier--Negotiate with the courier to do the actualretrieval. You pay him a bit more, but reduce your manpower costs. He will bring the itemto the office to be validated against the customer-order request.

Outsourced monthly billing with electronic deposits--The metered softwareautomatically calculates charges and generates a bill. Electronic charges from MasterCardor Visa, and credits to your checking account automatically reduce end-of-the-monthexpenses.

Video, audio and computer assisted training--Audio tapes, video cassettes,computer help programs and other cost-saving assets assist you in getting your staff welltrained with little effort.

The original question was, "Why would you want to be in the records-managementbusiness?" The better question is, "Why wouldn't you want to be?"

Revenue Example:

10 x 10 = 100 sq. ft.

100 x 8 = 800 cu. ft.

800 x .65 = 520

520 x .25 = $130

$130 x 1.65 = $214.50

Regularcolumnist Cary F. McGovern is a certified records manager and owner of File Managers Inc.,a records-management consulting firm that also provides outsourcing services, file-roommanagement and litigation support services for the legal industry. For more informationabout records management, contact Mr. McGovern at File Managers Inc., P.O. Box 1178, AbitaSprings, LA 70420; phone (504) 871-0092; fax (504) 893-1751; e-mail: [email protected]; www.fileman.com.

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