Inside Self-Storage 02/2001: Permanent Storage Revenue

By Cary F. McGovern

Storage revenue in the commercial records-storage industry is considered permanent. Annual growth rates from existing business, net of destruction, range from 15 percent at more mature companies to 18 percent to 22 percent for new start-ups.

The Nature of Records-Storage Revenue

The maintenance of business records is required of every organization. Records management is considered to be a nuisance and is one of the first services companies look to outsource. There are perhaps 1 billion boxes of records stored in every nook and cranny of this country--possibly more. No one knows for sure. The general attitude toward records storage is that records are "out of sight, out of mind"--until there is a problem. Problems generally come in the way of an audit or litigation. The importance of records then is catapulted from the basement to the executive suite overnight. The single largest problem in recordkeeping is, "I can't find the file," while the second most prevalent is, "I don't know what to keep or how long to keep it."

A combination of these two problems becomes a goldmine for records-storage companies throughout the world. It is clear that after 50 years, the records-storage business is booming. Prism International (formerly the Association of Commercial Records Centers) is adding new members each month. New start-ups are forming everywhere. North America, Europe, South and Central America, Australia, Asia and the Pacific Rim are all experiencing records-storage growth as businesses and their requirements grow throughout the world.

Companies such as HP, Xerox, Canon and other equipment manufacturers have added to this growth by placing printers, copiers and faxes in networks connected to every desktop. Yes, we use computers, but we also print everything out. We are confused about what to keep and in what form, so we keep it all. It seems endless. Commercial records organizations worldwide show annual growth from their existing account base to be from 15 percent to 22 percent. This kind of growth ensures your base storage volume and revenue may double every four to five years

Storage Revenue as Permanent Revenue

Iron Mountain, the world's largest commercial-records organization, is a publicly traded company and issues regular industry updates that can be viewed anytime at www.ironmountain.com. Once on the company's website, look at the very bottom of the page and click on "Press Releases." You will learn a great deal about the financial nature of the business by perusing this information. I would like to refer you to two press releases in particular:

• 2/1/00: Iron Mountain Inc. Completes Acquisition of Pierce Leahy Corp.

Storage revenues, which are considered a key performance indicator for the records- and information-management services industry, are largely recurring since customers typically retain their records for many years.

• 10/31/00: Iron Mountain Reports Third-Quarter 2000 Financial Results

Storage revenue, which is the driver of total revenue, had an internal growth rate of 11 percent for the quarter and 12 percent for the nine months ended Sept. 30, 2000. Service and storage material sales revenue posted an internal growth rate of 10 percent for the quarter and 14 percent for the nine months ended Sept. 30, 2000.

The first reference discusses storage revenue as a key indicator of performance. Please understand that storage revenue is in fact an annuity. It simply grows every year. The reference to "largely recurring" is quite an understatement. Iron Mountain boasts in the same release that this is the 47th consecutive quarter that storage revenue has increased. In fact, most companies tend to keep business records for extraordinary periods of time because it is easier and cheaper to store them than it is to make a decision about whether to keep them. We live in a complex world of regulation. On top of that, we are the most litigious society in the world. Comparatively speaking, it is easy to decide to keep records for the long-haul.

The second reference discusses the rate of growth. More mature records centers tend to have lower growth levels because their entire base is larger. Older records mound up and are very inactive while new start-ups generally have much more active files with a higher growth rate. My personal experience with customers over a 25-year period is that you can expect at least 18 percent growth compounded annually in a new start-up operation for at least the first five years. After that it may drop off to as low as 15 percent. New accounts can grow 100 percent or more during their first year in storage. This seems to be true because the company and its employees realize that not only can they store and retrieve records easily and inexpensively, but they can find them for the first time without hassle. Records boxes seem to come out of the woodwork when you provide a professional service the customer can rely on.

The industry is moving toward a more technology-based delivery method. This adds value to the customer. All the major records-management software vendors are adding Internet-based modules to their packages. This is rather expensive for new start-ups because the commercial records vendor actually becomes an application service provider with a file server, website and technical support. For more information about traditional records-management software, refer to the following websites: www.oneilinc.com (RS-SQL); www.andrewssoftware.com (InfoKeeper); www.dhsassociates.com  (Total Recall); or www.firmshome.com (FIRMS).

Regular columnist Cary F. McGovern is a certified records manager and the principal of File Managers Inc., a records-management consulting firm specializing in implementation assistance and training for new, commercial records-center start-ups, as well as marketing support for existing records centers. For more information, visit www.fileman.com.

FileMan Records Management is developing a model for selling records-management services on the Internet. The company will soon be piloting several versions of its method. If you are interested in becoming a FileMan Pilot participant, e-mail fileman@fileman.com or call toll-free (877) FILE-MAN.