The True Cost of Free Storage

GUEST EDITORIAL

Repossession company owners hear this phrase every time they court a new client, “how many free days of storage do you offer?” or some variation.  For most of us this question is answered begrudgingly and usually begins the standard back and forth of negotiation.  Often this leads to at the very least relinquishing any fees for storage for a certain amount of days to this new client, and as a result the owner gave away his highest profit item in the hopes of earning more work.

Now some of you reading this are rolling your eyes and saying to yourself “here comes another lecture about giving our services away”.  No, I won’t do that because I am just as guilty as you are and have the same conversation with every new client and current client for that matter every time we discuss fees.  This is a point of emphasis for the clients and it can be easy to figure out why, money plain and simple.  However, what I will do and to my knowledge what no one else has done to this point is demonstrate how much that free storage really costs the average company.

For this exercise I am going to make some assumptions to show the method, the numbers I quote are based off an average sized lot and the point is for each of you to apply your own numbers to get your true cost.  So, let’s assume ABC repo company has a storage lot that has 200 spaces to store cars at full capacity.  Let’s also assume that due to the size of this lot it is staffed with two full time lot attendants open during normal business hours Monday through Friday.  Now that we have established the parameters let compile all of our fixed costs…(see below)

Lot Rent for one acre of land =                                       2,500.00

Utilities (electric, water, internet)                                       550.00

Dumpster/ trash service =                                                     150.00

Maintenance (everyday use items and up keep for lot)    750.00

Insurance estimated                                                                  250.00

Two full time employees @ 30k per year                          5,000.00

Total monthly fixed costs                                                     9,200.00

 

Now that you have your total fixed costs, divide that number by total number of spaces available on your lot.  For this sample lot we have 200 spaces and it cost the company 46.00 per space per month.  Take it one step further and divide that number by days in a month (30) each individual spot cost the company 1.53 per day.  Now I know what your saying, well that’s not that much but you may be overlooking a couple of things.

First for my company we average 12 days storage on our lot before the vehicle is moved to auction or redeemed.  That means the average car costs this company 18.36 in storage alone.  Also, this number is based off the lot being totally full all the time which let’s be honest isn’t always the case.

Using this method, we can break the numbers down depending on storage levels.  The more open spaces on your lot the more money per day those spaces cost.

100% capacity or 200 cars stored cost 46.00 per space for 1.53 per day.

75% capacity or 150 cars stored cost 61.00 per space for 2.04 per day.

50% capacity or 100 cars stored cost 92.00 per space for 3.06 per day.

At the beginning of this article I mentioned that storage is our highest profit item and that we gave it away.  Why do I say it is our highest profit item?  Well, basically it’s simple, as repossession service providers it is our job to of course repossess vehicles.  As part of our duties we have no choice but to supply extended service of condition reports, pictures, personal property storage and storage until vehicle can be sent to auction.  We all would love to be able to hook and drop at the nearest auction lot and not have the added expense of providing these extended services, but we know that is not feasible.

We take on the liabilities of having these fixed costs that are separate from the actual repossession due to client request or local repo law as a necessary part of the business.  We pay for it whether we collect money for it or not so that means any fees that we do collect would go straight to the bottom line.  100% of storage monies collected are bottom line dollars that we gave away!!

So how do we go about change?  How do we start the conversation to get back to being able to charge this fee?  Well it starts with knowing exactly what it costs you to store that car.  I talk to vendor managers all the time that say they hear agents complain that they need more money but don’t ever present them with numbers explaining why.  Well here is an easy first step to have that conversation.  You as the agent have all the responsibility of storing that car, you should be able to charge a reasonable fee for that service.

Pull a lot inventory report, imagine if you could charge five dollars, or even ten dollars per day for every car on your lot right now.  What could that do for your company?  What could that money do for your employees, or your equipment?

It costs money to do business and we as cannot continue to roll these costs into just the repo fee.  All I can say is start the conversation and be armed with your numbers!

 

Jeremy Cross

President, International Recovery Systems

http://www.irsrepo.com/

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