2018 Goals: Here’s Why Measuring Your Attrition Should Be a Priority
The latest data shows a rise in RMR dollars, yet gross and net attrition is up across customer source categories. Learn how to evaluate attrition to help stem losses.
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Whether inspired by a New Year’s resolution or brass tacks goal-setting, here is a crucial objective to achieve in 2018 if you have not already mastered it: Gaining a firm understanding of how to evaluate and manage attrition.
Attrition may not be as misunderstood (underappreciated?) as in previous years, but it is no revelation to suggest far too many security dealers remain woefully ill-informed about even the fundamental differences between gross attrition and net attrition. The gist here is if you don’t measure it, you can’t manage it. Even more urgent: putting in place procedures to identify the reasons for cancellation.
There are no shortage of sound business reasons to get your arms and mind wrapped around the importance of this subject. Here’s a biggie: Attrition is a key metric for valuing an alarm business or a block of accounts at the time of a sale. What’s more, evaluating attrition can lift the curtain on hidden factors that are causing customers to cancel, and possible other critical issues weighing down the business.
You can start getting a handle on the cause of attrition by devoting staff resources to contact subscribers and inquire why they are canceling. If you can’t retain them, you can at least learn valuable insights as to why they canceled. This all leads back to the fundamental differences between gross attrition and net attrition. And why it matters so much.
Did the customer attrite because of poor service? Wooed by a competitor? Are they no longer using the system? Financially strapped? Moving to a different residence? Every reason is another data point to help you analyze what went awry — if anything — and to start formulating a game plan to counter negative effects to those things you can control.
Gross attrition, which is considered more critical to formulating company valuations, is measured simply by the percentage of accounts that cancel during a calendar cycle. In the M&A world, gross attrition matters a ton since it is a direct reflection of lost subscribers a company suffers over, say, the course of a year.
Net attrition adds back subscribers the dealer gains over the calendar cycle that replace the canceled accounts. An example of this is a homeowner who cancels an account but later signs a new contract at a different residence.
For the alarm industry’s latest attrition numbers, I turn your attention to TRG Associates, which collaborates each year with The Monitoring Association (TMA; formerly CSAA) to produce the Attrition Measurement Study. TRG President John Brady presented results for 2016 at the recent TMA Annual Meeting.
TRG reports that all regions and customer source categories increased in dollars of RMR over 2015. However, gross attrition and net attrition actually increased for each category as well. Most notably, net attrition for smaller companies exceeded 7.5% for the first time in the measurement study’s 16-year history.
View this image gallery for charts, stats and details from the study.
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