Attrition is one of the most misunderstood concepts in the alarm industry. Many security company owners are shocked to learn their actual attrition rate is much higher than they thought. Unfortunately, this bad news often comes at the worst time, in the middle of the sale of their accounts or entire company. By that time, it’s too late for them to do anything about it, and their higher-than-estimated attrition rate means they take away less cash from the deal.
View Amy Kothari's, President and CEO of Alarm Capital Alliance, presentation from the 2014 Electronic Security Technology Summit.
Attrition: The Silent Killer of Security Alarm Companies
1. ATTRITION
THE SILENT KILLER
Amy Kothari
President and CEO
Alarm Capital Alliance
October 23, 2014
2. 2
KEY INDUSTRY METRIC
Attrition directly impacts
Health
Profitability
Ultimate value of your security alarm company
3. 3
KEY INDUSTRY METRIC
Attrition
Will be a primary focus of potential
buyers and will directly influence the
price they are willing to pay for your
company
*But one of the most misunderstood
concepts in the industry
4. 4
QUICK OVERVIEW
Attrition
What it means
How to calculate
Why it’s important to maintain a rate at or below industry standards
5. 5
WHAT IT MEANS
Definition
Attrition simply means losing
customers you once had
6. 6
WHAT IT MEANS
Definition
But to understand how to define it within the context of our industry, we need
to look at attrition RATES...that is, how many customers do you lose over a
PARTICULAR time period and how does that compare to the total number as
a percentage
7. 7
WHAT IT MEANS
Attrition Rates
There are two ways to look at ATTRITION RATES:
1. Gross Attrition
2. Net Attrition
8. 8
WHAT IT MEANS
Gross vs. Net
Lost Accts + Past Due
Total Accts
Lost Accts + Past Due – Gained Accts*
Total Accts
*Incorporates the accounts that a company has gained which directly replace those that have canceled. For example, a new
customer that moves into the home of a canceled customer would offset the cancellation.
10. 10
OK, NOW WHAT?
Three Key Strategies
Track it
Deal with it proactively and constructively
Prevent it from the start
11. 11
TRACK IT
Why bother?
Regularly monitor short and long term attrition rates because:
It costs more money to get a new customer than to keep one
If you want to sell, you’ll get more for your accounts
You can spot small problems before they become HUGE
12. 12
TRACK IT
Ordinary vs. Extraordinary
LIFE EVENTS
“Ordinary” results from issues
outside of your company’s control
13. 13
TRACK IT
Ordinary vs. Extraordinary
“Extraordinary” occurs either
when customers cancel
accounts for reasons related to
your company’s performance or
a competitor wins over an
account
14. 14
TRACK IT
Best Practices
To get a clear picture of attrition and how to address it:
Create a script of questions for employees to uncover reasons
Establish standardized cancel codes for tracking purposes
Keep detailed account records for each customer throughout lifecycle
of the relationship
Reconcile cancelled accounts in billing and central station on a timely
basis
15. 15
DEAL WITH IT
Develop tactics to combat each cause
Competition
Moves
Non-Use
Non-Paying
Customer Experience
16. 16
DEAL WITH IT
Customer experience is paramount
Implement the highest standards
View employees as brand ambassadors
Add value for FREE
Get Feedback (NPS Survey)
Check in on a regular basis
If necessary, let go with grace
17. 17
PREVENT IT
Sales practices are critical
Ensure sales program is aligned with business objectives
Implement SOPs
Build a great sales team
Focus on qualified leads/referrals
Focus on the CUSTOMER, not the SALE
18. 18
OWN IT
Summary
Understand It
Track It
Manage It
Prevent It
And you’re well on your way to creating a high-value business!
19. THANK YOU
From your friends at
Alarm Capital Alliance
888-885-8656
alarmcapital.com
Notes de l'éditeur
SLIDE 1
Welcome to everyone to ESTS Conference and thank you for attending. We are happy to be the Diamond Sponsor the for Second Annual conference.
SLIDE 2
Set context why attrition is a key metric and why it’s important to track.
SLIDE 3
If/when you decide to sell accounts, this will directly affect the terms of the deal.
You want to be sure you know the ins/outs of this metric.
SLIDE 4
Outline what your attrition rate can tell you.
Benefits of accurately calculating attrition.
State a benchmark industry standard, and why you should be under. Rather than viewing attrition negatively, embrace it and use it to your advantage.
Use story if you have one.
SLIDE 5
Give standard definition of attrition
SLIDE 6
Talk about how to properly analyze your attrition figures.
(Use an example of how we analyze attrition internally, or how a dealer analyzes their attrition)
SLIDE 7
Define gross and net attrition, and the importance of both figures
(Next slide has equations for calculation)
SLIDE 8
Talk through equations to calculate both gross and net attrition.
Discuss what “Gained Accounts” means
(Go into more detail on next slide)
SLIDE 9
Go through examples.
Share a positive story about attrition (if you have one).
Highlight which is more important to a buyer and why.
Then share a story about a deal that couldn’t happen b/c attrition was too high
SLIDE 10
Highlight three strategies.
Attrition needs to be managed through all stages of the customer lifecycle.
(Use a high-level example from My Alarm Center how we combat attrition)
SLIDE 11
Highlight the value of knowing your attrition rate (short- and long-term)
Tell story about a problem being identified through short/long-term attrition rates?
SLIDE 12
Define ordinary attrition and what can be done to prevent it.
Use examples here: move programs, accommodating financial hardships, etc.
SLIDE 13
Define extraordinary attrition and what can be done to prevent it.
Emphasize proper attrition tracking can help get in front of these cancellations
Use examples here: change internal processes, increase marketing efforts, fighting system non-use, etc.
SLIDE 14
Talk through best practices.
Tracking cancellation reasons helps you fight both ordinary and extraordinary attrition.
Tell a story for each best practice, if applicable.
SLIDE 15
Highlight each tactic.
Use an example for each
Tactic: (Hawk, AMSA, My Alarm
Center attrition messaging
project)
Use marketing to your advantage.
SLIDE 16
Positive customer touches, prompt service, every employee’s interaction matters, survey to collect feedback (NPS). You can mention our Lightswitch project.
Emphasize both positive and negative feedback is good. Treat the negative feedback as a “gift” and view it as an opportunity to improve.
As always, let go with good grace and leave the door open to come back.
Share a story about any of these topics.
SLIDE 17
Prevent attrition from the start.
Listen to the customer, inform them, and tailor a system to their needs.
Ensure you are targeting prospects that fit your brand proposition – they fit your products and services.
Possibly share story about the development of My Alarm Center organic sales – relate these topics to that process.
SLIDE 18
Recap strategies and wrap-up.
Show video – it is not embedded in the presentation, will have to switch programs to view it.
Announcements:
Copy of presentation, whitepaper and video will be provided to you for your convenience in your rooms this evening.