Attrition is a fact of life in the alarm business, but very few companies measure and manage attrition as a key metric in running day-to-day operations.
More than having a direct effect on the value of an alarm business at the time of sale, a company’s attrition rate can be an important indicator of critical issues that may be hidden otherwise.
Beyond just measuring, it is important to evaluate how to manage attrition – and to do that, you must start with a deceptively simple question: Why are you really losing accounts?
There will always be factors that are beyond your control, such as cases of death, financial issues or out-of-market moves. These are “ordinary” attrition factors; however, there are several “extraordinary” attrition factors that, if left unchecked, can ruin an entire business. Here are four of them:
1. Poor sales: I am not talking about lack of sales, instead, this is about making too many of the wrong type of sales. This happens when a sales team signs up customers without qualifying them first, misleads a potential customer, or pressures a sale without giving the customer enough time or information to make a decision.
The result is a higher percentage of customers lost in a shorter than normal period of time. The dangerous part is not the lost sale as much as the hidden costs. The lost time and expense of acquiring and activating that account, as well as the lost opportunity cost that could have been focused on a customer that is a better fit – these are costs that can never be regained.
Squandering time and money on low-quality sales is a poor use of your limited resources.
2. Demographic issues: You may not be in control of changes in your market area – such as an aging population, decreases in job opportunities or a shift in economic development – but you are in full control of how to react to it.
Increasing attrition rates can be a signal to look closer at the trends, patterns and threats emerging in your own backyard. Do you need to shift your target market? Perhaps you need to adjust your offering to meet the needs of the changing attitudes in your current area. Maybe it is a geographic answer or it involves serving a different income level.
The important thing to do is ask: “What is it costing us NOT to change?”
3. Competition: Having a competitive offering is not just for new sales, it can also be pivotal to keeping existing customers. Are you including the most advanced technology in your marketing? Whether you are or not, rest assured that your competition is. Automation services, including text notification and remote arm/disarm are commonplace today, so you should be prepared to offer them.
A lot of companies were hit hard with higher attrition numbers this past year when they were forced to upgrade their customers from 2G. The decision to make an investment in updating an existing customer’s old panel vs. letting them go was a tough one; and in many cases, competition made it tougher by offering a free system with all of the bells and whistles. That is pretty enticing to a customer whose alternative was to pay several hundred dollars for an upgrade to stay with you.
Making sure the services and equipment you offer are competitive, and then staying in touch with customers often so they know it, will help create loyal, “sticky” customers.
4. Service challenges: Assuming you are making a good sale to the right customer, a high or increasing attrition rate can serve as an indicator of issues with customer service and delivery.
Look closely at your operational procedures. How consistent are they? How many surprises, customer complaints or miscommunication problems crop up? Improving your service processes is not just an exercise in efficiency, it can slow and in some cases, reverse your attrition rate.
Good processes can create long-term fans in place of disgruntled “former” customers.
Return on Investment
It is time to look at the value of managing attrition in another way. How hard are you working to replace the lost revenue due to attrition? If you only focus on the front-end sale, that is an expensive proposition. If that sale is lost to attrition, you get no more value out of the effort you put in.
By turning your attention toward some of these four root causes, you can reduce your attrition rate, and thereby keep a customer far longer. The return for your effort grows throughout that customer’s lifecycle, and multiplies with each new customer retained – that’s leverage!
Kelly Bond is SVP of Business Development for Alarm Capital Alliance. For a more in-depth look at the essentials of attrition – how to calculate attrition rate, the important difference between gross and net attrition, and what these rates really mean in terms of revenue and account value – download the company’s whitepaper, “Attrition, the Silent Killer” at www.alarmcapital.com/resource-center/whitepapers. Request more info about the company at www.securityinfowatch.com/10746349.
