Selling records management, storage and services requires an effective sales strategy. The annuity aspect of this business can make this one of your best investments. This article discusses why the return on investment is significant, even for small accounts.
Investors have misunderstood records-management revenue for a very long time. Only commercial-records insiders have had a full understanding of the ripple effect of a single new account.
Selling records management requires diligence. Traditionally, it requires a six-month sales cycle and a well-trained salesperson armed with a consultative selling approach and effective sales management. So, why would any investor spend that amount of time and effort--as well as considerable money--on a 1,000-box storage account? The reason isn't clear until you look closely at the effect of this relatively mundane sale.
Looking at the Market
Commercial business in the United States falls into four groups:
- Large multinational and Fortune 500 companies.
- Major regional and smaller national organizations.
- Local businesses and government.
- Small-office/home-office businesses.
The first group is the primary domain of the large, multinational, commercial records companies such as Iron Mountain, ReCall and a handful of others. The second group is the prime market for the most aggressive, regional, commercial records businesses. The third group represents a huge market with an average of 500 to 2,500 boxes and has typically been on the low end of the sales chain because of the cost of marketing. The fourth group has not been considered a candidate for traditional records-management sales. However, there may be a way to turn these small companies into valuable clients. That will be the subject of another article.
Business Markets in the United StatesMultinational & Fortune 500 Companies
Large Regional & Small National Companies
Local & Small Regional Organizations & Governments
Small Office & Home Office
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Most locally operated, commercial records companies market to groups two and three. Since the number of prospects increases as you go downward through the pyramid (see diagram), the potential-prospect list grows as well. After completing more than 50 market analyses in North America and several in Europe, I have come to the conclusion that more than 75 percent of group three has never been called on by a commercial-records salesperson.
According to Iron Mountain, the market share remaining in the United States is 60 percent. My number reflects a larger percentage because the higher-end market has been captured, but the middle and lower ends of the market have had very little activity. You may be surprised at how many 1,000-box accounts are out there. My personal experience is these are abundant and need the most help.
Key Factors to Remember
Before we take a look at what happens in a real-life, 1,000-box account, keep in mind there are several key considerations and idiosyncrasies in records management:
Contract term--The recommended contract term is usually a minimum of two years. This ensures recovery of the costs of racking and sales.
Automatic contract renewal--The standard records-management agreement principally used in the industry includes a contract-renewal clause without prior notification.
Automatic price escalation--Prices for storage and retrieval services are generally tied to a reasonable factor, i.e., the Regional Cost of Living Index published by the federal government.
Permanent-retrieval fee--Known lovingly in the commercial records industry as the "hostage fee," the permanent-retrieval fee requires the customer to pay both a retrieval fee and a "perm-out" fee for boxes that will not return.
Compound growth rate--I recently read an article that cited a compounded growth rate of 5 percent for this business. Although this may be true for a mature commercial records center with customers who have stored for many years, new centers with new accounts may experience a much higher compounded growth rate during the first five years. This can be as high as 15 percent or more. I prefer to use a number that splits the difference: 7.5 percent.
These factors will keep boxes in your facility for a long, long time. Iron Mountain refers to records-storage revenue as "largely recurring revenue," since customers typically retain their records for many years. The nature of the business is it continues to grow at a compounded rate. Let's look at an example.
The 1,000-Box Account
The numbers I use in this section are considered industry averages. I have tempered them to make a conservative point.
Storage Revenue on a 1,000-Box Account
- Although the standard box size is 1.2 cubic feet, many other sizes exist. The average appears to be 1.5 cubic feet.
1,000 boxes (storage units) x 1.5 cubic feet = 1,500 feet in initial storage
- In North America, the average cost for records stored per cubic foot is 25 cents.
1,500 feet of storage x .25 = $375 per month in storage revenue
- For each dollar of storage, a low-end provider of services can expect 65 cents of service revenue (although this could be much higher).
$375 in storage revenue x 1.65 = $618.75 per month in storage and base service revenue
- One year of billing includes 12 months.
$618.75 in storage and base service revenue x 12 = $7,425 in revenue for the first year
- The growth is compounded annually at 7.5 percent for the first five years.
Year 1 = $7,425.00
Year 2 = $7,981.88
Year 3 = $8,580.52
Year 4 = $9,224.05
Year 5 = $9,915.86
Total revenue for the first five years = $43,127.30
Customers for Life
I want to emphasize this is not the end of this account or its growth. It may be just the beginning. Selling records-management services is not a single sales event, but a lifelong relationship with the customer. Many accounts have achieved much higher growth rates during the first five years, and some have 1:1 or even 2:1 service-to-storage ratios.
Selling records-management services is an investment in an annuity that will continue to grow for many years. It is not a simple business. It is not just storing boxes. Those companies that do well will integrate services and technology into a comprehensive set of problem-solving solutions for their clients.
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 [email protected]; www.fileman.com.