GENERAL RULES OF THE MOBILE

DOCUMENT SHREDDING INDUSTRY

About the author: David Murray of Evergreen Financial has been financing equipment for companies in the document destruction industry since 1998. He is a long-time member of NAID and is the sponsor of Shredding 101 at the NAID 2004 and 2005 conferences. You can contact him at 800-239-3814.

Over the years, Evergreen has interviewed hundreds of document destruction companies and has seen the financial statements of many of them. In doing so, Evergreen has learned a number of facts about the industry. The purpose of this article is to share some of that general information with you.

 MOBILE SHREDDING TRUCKS

The foundation of the industry is the truck. There are many types of trucks and many types of shredding methods. Most of my experience relates to fast, professional trucks and so the comments in this article do not necessary apply to the other types of trucks.

A "professional truck" would be one of the highly automated trucks with the following characteristics:

• Device to pick bins up off the ground
• Shred at 3,000 pounds per hour or faster
• Have the ability to automatically unload the shredded paper in a matter of minutes
• Cost from $185,000 to $225,000

In addition, there are other types of trucks commonly used in the industry, such as the common Shred-Tech model 20 which generally does not have the ability to lift a bin off the ground and generally shreds between 1,000 and 1,500 pounds per hour. There are also a number of box trucks with a generator and a shredder in them. There are exceptions to every generalization, but these trucks are generally more labor intensive and operate slower. Their potential monthly revenue is less, although I have heard of one company that gets more revenue from their Shred-Tech model 20 than others get with the more expensive trucks.

EXPENSES

A "professional" truck costs about $10,000 per month to keep in the field (debt service, drivers' wages and benefits, insurance, fuel, etc.). Bins and consoles cost about $60 to $70 each.

REVENUE

A "professional" truck should generate $25,000 per month at capacity on average. (I know people who get $30,000 per month in revenue from slower trucks, so this is highly subjective). If the business has many rural accounts, revenue could be under $20,000 because of the amount of drive time. If the truck box holds a very limited amount of paper or if it is time consuming to drop paper at the recycler, then the revenue again could be under $20,000 per month. Small box trucks and time consuming trips to the recycler can diminish the number of shredding hours during normal business hours and thus reduce revenue. Those who generate more than $25,000 per month in revenue may have some of the following characteristics. They may be baling their own paper, so that they never waste time traveling to the recycler. They may be in a concentrated setting so that the drive time between accounts is less. They may be using their trucks to shred more than the normal 8 hours per day. They may be very effective sales people, who are good at holding their prices higher than others.

GROWTH

The key to building a substantial business is to place lots of bins each month (good companies place 40 to 100 per month). Good companies find lots of purge jobs too. The normal methods of soliciting business include:

• Yellow Pages
• Web Site
• Telemarketing
• Referral Programs
• Sales People
• Newspaper Advertising
• Public Relations
• Smart Networking
• Proper "branding" of your trucks
• Direct Mail

Others have tried radio (on business stations), billboards and a few other ideas. The jury is still out on the effectiveness of these other methods.

BRANDING OF TRUCKS

Make sure your domain name is visible on your truck including from the BACK and TOP of the truck. It is much easier to remember a web site, than a phone number. Most people who see your truck are walking or driving, so it is imperative that you give them something easy to remember.

WEBSITE

Make sure your web site is easily gotten to from the various search engines. If your site doesn’t show up on page one in the normal search engines, consider a web optimization service. It is often said that half the population will now look for a business on the internet, instead of the yellow pages.

MARKETING PROGRAM

You must have a systematic marketing program. I have talked to many people who say they make 20 calls per day. However, when I ask when was the last day they made those calls, the answer is typically something like "last month". Then I hear the reason for not making the calls is because "we are too busy" to make them. You must have a program that continues every month in some sort of systematic way. You must reach out and get the customers you want. You can "outsource" many functions of your marketing program.

SALES TEAM

The high growth companies have some sort of sales team. It may consist of two or three telemarketers who find leads for the management or sales people to close. It may consist of outside sales people, who find and close their own leads. Most of the growing shredding companies belong to one or more of the referral programs that exist for this industry. Those programs generate leads for the management or sales people to close.

Don't hire "hungry" people, hire "excellent sales people", even if you have to recruit them. One place to recruit them is from the other companies who already know where all the paper is, for example the document storage people. Another good place to recruit from is similar companies, which have recently had a change in management. The best example of this is independent but successful companies who have been acquired. Some of the sales people in those companies might not be comfortable working for a large company.

REVENUE

There are three normal sources of revenue, Route Revenue, Purge Revenue, Recycling Revenue and a new source called Consumer Revenue, which is generally part of Purge revenue. For startups, the Purge and Route revenues are about the same and the recycling revenue is fairly low (about 5% of other revenue). For mature companies, Route revenue approaches three times Purge revenue. Recycling revenue stays about 5% until you get a baling operation, at which time Recycling revenue increases to 10% to 15% of total revenue.

 ROUTE REVENUE

This is the lifeblood of the business. The greatest characteristic of this industry is that most of the revenue is monthly recurring. The attrition rate for customers of independent document destruction companies is very small. Larger accounts such as hospitals are harder to keep because of the pricing pressure on such accounts and such accounts go out to bid periodically. Smaller accounts are generally less susceptible to pricing pressure.

 PURGE REVENUE

For many document-shredding businesses that are less than one year old, Purge revenue might be as high as 50% of total revenue. Mature businesses with substantial routes, probably enjoy Purge revenue of 20% to 30% of total revenue. Purge revenue will increase each month and each year, even as it decreases as a percentage of total revenue. An average Purge job generates between $300 and $400 each. Some companies have minimum charges on Purge jobs. From time to time, you will see Purge jobs for thousands of boxes. Slow truck owners have a productivity disadvantage on those types of jobs. It is can be very effective for someone with two or three fast trucks to win the large purge job and then complete the job with multiple trucks on site at one time. It is common that stationary shredders take some of those jobs. Big Purge jobs are obviously price competitive. Interestingly, big purge jobs are also time sensitive. I know of one document destruction company who consistently completes large purge jobs at a price which is higher than the incumbent shredder, because they can do it so much faster than the other shredder.

RECYCLING REVENUE

The sale of shredded paper does not add up to much until you get some volume. Baled paper sells for about $50 per ton more than UNBALED paper. Most studies suggest you need 100 to 150 tons per month to justify baling. Recycling revenue is generally under 3 cents a pound unbaled and over 5 cents a pound baled. 100 tons would equate to $10,000 per month in recycling revenue. See paragraph below on BALER OPERATIONS

CONSUMER REVENUE

Consumer revenue including those who have 1 to 5 boxes of shredding per year is a growing segment of the industry. Some shredding companies avoid it and some embrace it at profitable pricing.

 CAPACITY

Next we are going to look at what a truck does at "capacity". We are going to look at capacity from a couple points of view, such as number of tips per month, number of stops per month, and number of route customers.Suppose a truck generates $25,000 per month in revenue and 80% of that revenue is Route and 20% is Purge revenue.

 NUMBER OF TIPS PER MONTH

A truck should be able to service 600 to 800 tips per month (some people say 1,000 tips per month). (Divide that by 20 days is 30 to 40 tips per day). Multiply the number of tips by revenue per tip and that is your monthly revenue from ROUTES. (600 tips * $33 per tip is $20,000 per month in route revenue.) If you are getting 1,000 tips per month, your revenue per tip could decrease to $20 per tip. This thinking does not apply to hospitals or big companies, which may have 50 to 100 bins at one stop. The pricing in these accounts is all over the board. The competition in these accounts will include all the national companies.

NUMBER OF STOPS PER DAY

Another way to look at it is by the number of stops per day. Depending upon the drive time and PURGE time, people report to me that they are making between 12 and 20 stops per day. Many of their stops have multiple bins. To get 30 tips from 15 stops, means the average customer has two bins to be tipped. Some bins will be tipped weekly, some twice a month, some once a month. 600 tips may require 400 bins to be placed. Divide that by the number of bins you place each month and you see how long it takes to get a truck up to capacity.

NUMBER OF CUSTOMERS

The average revenue per route customer is reported to be between $75 and $150 per month. If you want to be doing $20,000 per month in Route revenue, you probably will need to have 130 to 200 customers for each truck. Divide your goal for the number of months to get a truck up to capacity by the number of customers you need and you see how many new customers you need to add each day and each month. The life blood of growing document destruction companies is the systematic marketing program.

OUT OF SPEC PRODUCTS/ELECTRONIC MEDIA DESTRUCTION

Keep an eye open for destroying "out of spec products" and "electronic media" in addition to paper. These are manufactured or printed products with a flaw, or out of date or even counterfeit goods. In some cases certain products have to be destroyed because releasing them to the general public (by throwing them away) could be dangerous, such as police uniforms or products which are deemed to be unsafe. Some of the fast, professional trucks will not shred many "out of spec" products, especially those with a metal or plastic content.

BALER OPERATION

Baled paper sells for $50 to $70 per ton MORE THAN unbaled paper. The sale of paper (baled or unbaled) "doesn't matter much" until you get over 100 tons per month. Once you are over 150 to 200 tons per month, think strongly about a baling operation. The costs of a baling operation includes securing 5,000 to 10,000 sq.ft. of space. Balers cost $50,000 to $100,000. Don't forget electrical work can cost $10,000 if the building isn't wired properly. The "pit" for the conveyor can also cost $10,000. People are starting to sell "pitless" conveyors and "air flow" systems to replace the conveyor in a pit. Depending on the type of shredded paper you have, dust collection may be a major expense too.

A big factor in determining when to get into baling is the effort you have to put forth to dump the paper at the recycler. If it takes 90 minutes to go to the recycler, to dump paper and get back to your route, then that lost productivity becomes very important. If you go to the recycler three times a week and you have three trucks, you are losing about two days per week of productivity by not baling. That is 40% of one truck's capacity.

CONCLUSION

Like any business, it takes longer than you want to get started. Like any business, it takes professional effort to grow.

Listen to your competitors, vendors, suppliers, etc. They have learned something through the school of hard knocks. Don't listen to the business that has been around for years and still has one truck, unless that is your plan too.

Don't be afraid to grow: If your sales and marketing program generates an $X,000 increase in revenue in each of the past few months, that growth will probably continue. It has for everyone else. If you have a professional marketing program, the growth will accelerate. Don't be afraid to grow. It is hard to go in debt for $195,000 for a new professional truck. It is even harder to do that twice a year. Do it if your marketing program and growth dictate it.

Everything listed above, I have heard or seen in the businesses for which I have financed equipment. I hope you can use some of this information.