Hot Seat: Not Tracking Gross and Net Attrition? You Should Be
Each year TRG Associates Inc. and the Central Station Alarm Association (CSAA) collaborate to produce the Attrition Measurement Study. The report aims to measure the number of customer RMR losses (gross attrition) and the offsets to those losses through resigning like customers/locations and other increases in the RMR related to the same base of customers (net attrition). At press time, TRG President John Brady was finalizing data for the 2012 survey. He joins the conversation to discuss the latest attrition results and related topics.
What stands out for you in the 2012 Attrition Measurement Study?
We are going to finally eclipse $200 million in recurring monthly revenue. In fact, we are going to have more than $250 million worth of RMR reported to the study. The beauty is that total doesn’t include ADT. Now that they are a standalone company they are far more forthcoming with their key metric information. We already know on the residential side that they were $252 million. Put that on top of what independent dealers reported and it really gives everyone a good feel what went on in 2012.
Should dealers be tracking both gross and net attrition rates?
Yes, absolutely. The difference between gross attrition and net attrition is absolutely the measurement of each management team and their focus on customer retention. If you don’t measure it, you can’t manage it. It is absolutely vital that you measure both, but it’s even more critical that you put in a system to understand the reason for the cancellation. Find out why the customer is leaving. Was it poor service? Did a competitor take them? Is it because they are no longer using the system? Are they moving? Every reason helps management analyze what they have done wrong and start to figure out how to regain that RMR.
Do you have some tough love for companies you advise that don’t track both types of attrition?
We have clients who will say their attrition can’t be controlled. That could not be less true. We’ll spend a day or two with them and talk to their service and installation technicians and we’ll talk to the receptionist. After those two days we’ll go back into the boardroom and I hand them a mirror and say, “Everybody look in this mirror because this is what’s causing your attrition. It is manageable. You are the ones ticking off the customer. You are the ones who put in the automated attendant and they can’t stand it.”
You absolutely need to understand your reason for attrition so that you can manage each reason.
Are there indications in the 2012 data that illustrate sustained economic recovery?
Residential attrition is going to go down a little bit versus 2011; commercial is going up a little bit. It is sort of a mixed trend but still solid, solid numbers compared to most industries. The two things that were a little surprising were “[the customer] moved” category definitely went up. Everybody’s moves went up. It helped shift attrition upward. I view it as an opportunity for retention. I always call it the two-for-one. I want to get the house the customer left and I want to get their new house.
Also, for the first time in about five years we started to see price increases of the older customer base. And we also started to see evidence of upselling, which obviously helps lower attrition. That is managing your customer base to put them on better technology, maintain them and lower attrition. What we saw was more evidence of price increases and we also saw more evidence of fewer rate reductions. We had a lot of rate reductions to keep the customer in 2008 and ’09 and ’10 because it made good business sense. We saw a lot of attrition being driven by rate reductions to keep the customer. We saw less of that in 2012, which is good news.
In your view will interactive/home automation services significantly affect attrition rates?
The “no longer using the system” category is the fourth highest percentage reason for attrition [7.6% in 2011]. If we can start to bring security and environmental or home monitoring out of the home to the actual subscriber at their business, in their car, on vacation, wherever they are, it is going to make a huge difference. AlarmNet, Telular, Alarm.com and other companies are absolutely helping to address this issue of “no longer using the system.”
Now I can look in the house when I’m on vacation. I can see when Johnny gets home and see that nobody is with him. It is going to help tremendously. It supports a much higher level of RMR, but most importantly it brings the customer into really using the system and letting the system serve their needs even when they are not home. You can see [in the metrics for a large client TRG has studied annually since 2006] where the more interaction level that is being purchased, the lower the attrition. It is absolutely huge for our industry. The numbers prove it. It is going to be a huge help in managing and lowering attrition for customer bases.
Among the top reasons for attrition cited in the annual measurement study, which one proves difficult for dealers to contend with?
One the hardest reasons to determine is who you lost the account to or “lost to competition.” Invariably customers don’t like to say why they switched. I always council my clients to say, “Guys, I know it’s a tough call to make after the customer has left. But call them and thank them for the fact they were even a customer at all. And No. 2, don’t assume they will never come back.”
Especially now that we have some of the bigger providers in the space — the cable and phone carriers and now DirecTV that just came in — find out where they went. Because from a competitive perspective trying to understand who is taking your customers is terribly important. It’s not as important about who they are; it’s what are they selling and what package are they selling and why did you lose so that you can look at your packages. You can decide if you want to adapt or not.
You may say, “I’m going to lose to the zero down and $29.95 per month, I don’t want that business.” Fine, but at least make that decision knowingly as opposed to not having a clue why you lost the customer. If you don’t measure it, you can’t manage it. If you don’t know that you are losing to competitors, how are you going to manage to stop it?
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