Prosaic as they may seem, safe deposit boxes are in demand, and the service must be managed to provide a payback to your institution.

Here are some steps toward evaluating the potential payback and feasibility of the safe-deposit it service.

The first step is to arrive at the number of boxes that you intend to offer, by box size. The mix of sizes is as important as the total number. The demand by size may vary greatly by locale because of demographics and the mix of available boxes in the area.

The projected rental income will depend on this size mix. A 10-inch by 10-inch box may generate as much as five times the rental revenue of a 2-inch by five-inch box.

To assess the demand per box size among your customers, do a survey in a newsletter or as a "sign-up sheet." Inform them that the results will determine, among other things, if you will offer safe deposit services. Give your customers some ideas as to how each box size could be used so that they can more accurately predict the box size that will best suit their needs.

Establish Rental Rates

Your next step is to obtain the range of rates for each box size offered in your locale. Safe deposit rates vary widely from community to community. The rates charged locally should be the most important gauge in determining your rates.

In addition to establishing the competitive rates by box size, determine how well local supply per box size is satisfying demand.

Ask each institution what box sizes are currently available after asking for rates. This information will further help determine the most favorable mix of box sizes for your vault.

You will learn a lot by doing this competitive survey. For example, you might notice that the institution with the lowest rates has a low vacancy rate and the one with the highest rates has a high vacancy rate.

This scenario will suggest that setting rates somewhere in the middle will help you attain the optimal occupancy rate.

Don't be afraid to set rates on the high end of the range in your community. Financial institutions have overlooked safe deposits when raising rates for other services in the past. Some are still charging the same rates as 20 years ago.

Estimate Start-up Costs

Your third task is to estimate all start-up expenses for offering the service. Start by getting estimates from as many vault companies as possible.

Choose the company offering the best value on safe deposit boxes and their installation. Next, obtain estimates from outside consultants on their fees for developing the procedure manual, lease agreement, cards, and forms.

Compare these fees to an estimate of what it will cost to develop these in-house and make the "make or buy" decision.

Estimate other one-time expenses associated with offering the service. You will want to include initial staffing and training expenses that are not expected to recur.

Estimate Operating Expenses

Salaries will be the biggest expense, but you also have to consider insurance, periodic training, maintenance, and the vault's share of management and other credit union expenses. The initial investment in boxes, installation, operations system, and training should, for our purposes, be spread over 10 years.

Estimate Rental Revenue

The maximum revenue available from a given mix of box sizes and box rates needs to be multiplied by an estimated occupancy rate to arrive at the yearly estimated rental revenue.

Make a 10-year projection that reflects a low start-up occupancy rate which increases in the second and third years. Assume your maximum (but reasonable) occupancy rate is reached in the third year and is maintained.

When projecting revenues, it is best to avoid speculating on the effects of inflation.

The final step is to record the projected revenue for each of the 10 years less the projected expenses (including amortization and depreciation of start-up expenses) for those years.

Revenue estimates in excess of expense estimates tell the story. You have your "Go/No Go" decision expressed in dollars. If the number is positive, you have the green light.

And if you maintain competitive rates, control costs, and establish a conscientious personnel training program, safe deposit will not only satisfy customer demand but generate an attractive return on your investment.

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