Inhibitions, weight and track of time are examples of things most of us enjoy losing. Sanity, hair and a winning lottery ticket, on the other hand, are examples of things most of us dread losing. From an alarm dealer’s perspective, customer accounts fall squarely among the latter. Losing accounts, or attrition, means losing money, and no one wants that.
Yet, customer turnover is an inevitable component of conducting a service-oriented business, such as security. Thus, all security practitioners find themselves confronted with the attrition condition.
The trick is keeping existing clients satisfied, while continuously bringing in new ones, or at least bringing in enough of them to offset lost accounts. That’s the basic recipe for growing a business and remaining profitable.
It seems simple enough, but, in practice, it’s almost never that cut and dry. A variety of variables—originating from both the dealer (e.g., competition, service and pricing) as well as the customer (e.g., moves, bankruptcy and death)—create complications that can challenge and vex even the most skilled manager. Technological advances and fluctuations in the economy play a role as well. The type of security company (local vs. mass market), central monitoring station (full service vs. contract only) and class of end user (residential vs. commercial) also affects the attrition rate.
On the surface, most of these factors appear to be beyond the control of the average alarm company. However, it’s heartening to know dealers actually do have the capacity to reduce or prevent many of them. Hence, identifying the causes of lost accounts and combating those agents with sound business practices can minimize the extent of attrition.
Quantify Your Attrition Rate, Set Standards
The first step is analyzing your accounts to establish your attrition rate. This process must be done annually to allow important comparisons to be made between years, thereby providing the basis for determining your business’ expected and acceptable attrition rates. Of the dozen dealers surveyed for this article, half say their annual attrition rates are between 5 percent and 8 percent, with a high of 12 percent and a low of 1 percent. Most of them say those rates have been holding fairly steady in recent years, while the majority peg about 5 percent as the figure to shoot for.
Moving, Money, Making Change Top Loss List
Every customer has his or her own specific reason for discontinuing his or her alarm service. But, broadly speaking, the reasons typically fall into three categories, which can be easily remembered as “The Three Rs”: relocation, resources and realignment.
Data culled by TRG Associates has pinpointed poor service, low up-front system investment, homeowner status and unscrupulous sales methods as key attrition contributors.
Are You Meeting Your Clients’ Expectations?
A fundamental consideration pertaining to attrition is customer satisfaction. For the most part, are people happy with their alarm system and provider? It depends on whom you are talking to and whom they are talking about.
End users appear to be generally content with their alarm vendors. Dealers, on the other hand, tend to believe most customers are enamored with their service and disenchanted with the service of their rivals.
Good Credit, Service Abate Attrition
There are several measures alarm dealers can utilize to lessen their attrition rates. Research by SLP has found that nearly 80 percent of the causes cited by former customers as the reasons for their discontinuance of alarm service—affordability, service problems, billing problems, bankruptcy and false alarms—are ultimately controllable by the dealer.
The affordability and bankruptcy aspects relate to the necessity for dealers to meticulously check out a customer’s credit before selling them a system.
SLP, which has extended more than $300 million in financing to alarm dealers, has established a strong relationship between customer credit ratings, as determined by their Equifax Beacon Credit Score, and the propensity for them to pay slowly or not at all—leading to attrition via account termination. According to SLP, scores below 625 make up 77 percent of account cancellations.
Attack Your Attrition Before It’s Too Late
Much like death and taxes, attrition is not going away. In fact, in the coming years, security dealers will not only have to contend with losing their customers to other dealers, but to other industries as well. Deregulation is opening up the security field to telephone companies and utilities, while technology is blurring the lines between home automation and systems integrators and alarm professionals. One ace in the hole that security professionals have against these new competitors is their collective experience, which has been developed and tweaked during the course of decades.
The introduction of new challenges and hurdles into the already complex mix of factors that affect attrition makes it more imperative than ever that dealers implement business practices conducive to retaining old accounts and attracting new ones. Experience, commitment to quality and common sense can pay off handsomely.