Attrition: The Silent Killer
Attrition is a key metric in the security industry. Your rate of attrition directly impacts the health, profitability and ultimate value of your security alarm company. In the alarm industry, revenue is measured in terms of recurring monthly revenue (RMR) therefore your company’s gross attrition rate, the percentage of accounts you lose over a set period of time, directly impacts your revenue. As a key value driver, attrition will be a primary focus of potential buyers and will directly influence the price they are willing to pay for your accounts or entire company.
Attrition is also one of the most misunderstood concepts in the alarm industry. Read on to find out how to calculate an accurate attrition rate, why attrition should be addressed, and how to use the customer experience as an antidote to attrition.
How to Calculate: The alarm industry views both gross attrition and net attrition as important, yet different, metrics. Simply put, gross attrition measures the percentage of accounts that cancel, either outright or are 90-days past due. Net attrition incorporates the accounts that a company has gained over the course of the year, replacing those that have cancelled; in other words, a new customer that moves into the home of a cancelled customer would offset the cancellation.
Addressing the Reasons: You can’t combat attrition effectively until you know exactly why your accounts are cancelling, whether from internal factors (such as customer service issues) or external factors (such as competition or economic conditions).
To effectively drive down attrition, your strategies must address the underlying reasons for cancellation. Cancellation for company-related reasons can be addressed through internal process changes, which includes providing better resources, employee training to address customer service issues, developing equipment standards to alleviate system issues, and implementing better procedures for your back-office functions.
You can also take steps to combat the drivers of attrition that seem out of your company’s control (such as economic factors, relocation, and competitor-driven cancellations) by making sure you know and understand the threats to your customer base and by providing your employees with the tools – and the authority – to address different cancellation reasons before the they occur.
Focusing On Customer Experience: It’s a fact: keeping your existing customers costs your company less than getting new ones to replace ones that you’ve lost. Furthermore, the longer a customer stays with your company, the more profitable the relationship becomes. A good customer retention program not only protects your customer base and your RMR, it directly and positively impacts your net revenue.While it seems obvious that providing an excellent customer experience can help minimize attrition, attaining this goal is challenging. It requires management buy-in, implementing good policies and procedures, and continual employee training. LEARN MORE DETAILS ABOUT ATTRITION AND HOW YOU CAN COMBAT IT.