How to Prevent Attrition and Hold on to That Valuable RMR
Don’t sit back idly while attrition takes its toll, take countermeasures.
Growing your account base and RMR is a goal of most alarm companies, but we can only do that if we control the losses. Also referred to as “attrition,” uncontrolled losses can neutralize, or worse, reverse the hard work you spend on growing your business.
However, I’ve found that many alarm dealers don’t measure or monitor their attrition as much as I thought they would. In fact, many don’t even know how.
Some alarm dealers have a tendency to believe they’re OK if they finish the year with the same or more accounts or RMR than they started with. And if that’s the case, then they don’t have attrition, right?
Not so, and I’d like to clear up some misconceptions about attrition and offer some ideas to control your losses.
Measure Gross Attrition on Annual Basis
There are a few ways to measure losses. I’ll focus on “gross attrition” because this measurement of attrition is most often associated with company valuations and financial analysis.
Gross attrition is calculated by measuring the losses in the number of monitored alarm accounts from Jan. 1 to Dec. 31 (or any other one-year time frame). For instance, let’s say ABC Security has 1,000 monitored accounts on Jan. 1.
Now, let’s say 900 of the original 1,000 are still online on Dec. 31. In this example, calculating ABC’s gross attrition is simply 100/1,000, or 10%, which just happens to be about where the national average for alarm companies hovers (10%-12%).
Keep in mind, gross attrition percentage only analyzes how many of the original accounts are still online; it does not consider new or replacement accounts added during the calculation period.
I recommend that alarm companies measure their gross attrition year over year, at a minimum. It’s a good gauge of your company’s ability to retain customers.
It’s also a calculation that may have a big impact on the value of your business when you’re ready to sell, because it’s a key statistic that conveys to potential buyers the ability of the account base to sustain itself year over year.
The lower your gross attrition, the more valuable your account base may be. Gross attrition rates may also factor into the ability to procure financing, because lenders want to see how well a company is retaining what it sells.
So, how do we control attrition? One of the best ways is to deliver excellent service. Still, customers will cancel for reasons other than poor service, which is why I recommend having a defined process to handle and track cancellation notices.
Far too often, I’ve seen alarm companies simply “process” the cancellation instead of helping to solve the problem that’s causing the customer to cancel.
In order to potentially save some accounts, your cancellation calls should not only go to your best and most knowledgeable employee(s), it’s important that you give them the authority to make decisions and to take the reasonable action necessary to save your customers.
Reason for Cancelling Can Influence Your Response
Let’s consider residential attrition here; establish why your customer wants to cancel in the first place. Is your customer moving? It wouldn’t be surprising since that’s one of the biggest reasons for attrition.
By understanding the reason behind the cancellation, you have the ability to turn it into an opportunity. Do they need a system at their new place? Can you sign up the new owners?
It takes a proactive approach to know for sure – otherwise, you might not only lose your existing customers, but the new owners might not even know to call you to activate their system.
What about those customers who get better offers? Empowering your employee(s) to make quick and immediate counter-offers within parameters that you set can go a long way to keeping your customers with little compromise.
Lost employment or other hardship? Giving a customer a few months of free monitoring might help their situation and just might save your account. It can also turn customer into a loyal fan who can help grow your business with referrals.
Besides, the cost of giving them a short period of free monitoring is significantly cheaper than finding a new customer. How about customers who say they no longer use their alarm or don’t see the value in a monitored system?
You have to ask first, and once you know, there are several things you can do such as offering home control, interactive systems, thermostat, lighting, cameras (a pet cam perhaps?) – related services can breathe new life into a traditional alarm system and enhance your value as a provider.
It’s a good reason to start adding them to your portfolio if you don’t have them as options already I’ll bet many of your customers don’t even know that security integrators can offer these services.
When they do find out, I’ll also bet you’ll save some of these accounts! Regardless of the reason, the key is your response starts with one simple question: “Why would you like to cancel?” You can’t save them all – especially if you’re not asking – and the ones you can just might make a significant impact on your bottom line.
If you weren’t monitoring attrition before, I hope you’re at least considering it now. You’ll be glad you did in the long run.
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