Every day your employees have the opportunity to touch customers in ways that impact whether that customer decides to call you again, buy from you again, or cancel and run away with your competitor. The state of today's economy has caused many financial institutions to significantly tighten lending policies. Although many financial institutions are still eager to loan money to the alarm industry, there are a number of us who may not fully comprehend the cost and consequences associated with customer attrition.
TRG Associates, in conjunction with the Central Station Alarm Association (CSAA) continues to accumulate attrition results in their annual report from a growing number of small to large national security companies. The study seeks to provide a measurement of the attrition results across the marketplace as to the level of customer recurring monthly revenue (RMR) losses (gross attrition) and the offsets to those losses through resigns of like customers/locations and other increases in the RMR related to the same base of customers (net attrition). The 2008 report includes results for over $123 million of RMR from companies across the U.S., Canada and Europe.
The decreasing trend in gross attrition over the last three years through 2007 was reversed in 2008 as a result of the economic downturn. According to the study, which provided an overview of 2008 results, the average residential/commercial gross attrition figure increased to 11.29 percent from 10.83 percent in 2007 while the average net attrition figure increased from 8.15 percent to 8.59 percent.
"I think the industry experienced the worst of the impact of the recession late in 2008 and early into 2009," said John Brady, president of TRG Associates. "Based on the results we've seen, attrition stabilized, especially on the residential side. I expect that we will see attrition go down, or hold steady, but certainly not increase."
Two areas most impacted by the recession are the residential and commercial communities, according to Brady.
"On the residential side, the foreclosures and lack of building dramatically impacted everybody," continued Brady. "On the commercial side, it's more so the empty space and increase in open leases and open leased space that impacted the security industry."
Still, Brady predicted that based on the many companies TRG Associates works with, the worst is behind them regarding the negative impact the recession has left of their businesses. "For most of the guys we work with, they're seeing that the backlog of installation volume is beginning to pick up, which would suggest that they're going to have more to work on the books this year than they did in 2009," he explained. "Certainly, the fourth quarter did not see a decrease in their backlog as they experienced in the first, second and third quarter of 2009. The backlog is beginning to strengthen, at least on the residential side. On the commercial side, it is also strengthening but that's because it never declined as badly as the residential side of the business."
For systems integrator Security Networks, it is about using the right measures on a daily basis to keep attrition as low as possible.
"For us, attrition has held steady and has not gone up as we had feared it might," said Rich Perry, president and chief executive officer of Security Networks, based in West Palm Beach, Fla. "If a customer has a financial hardship, we'll lower their monthly rate before we lose them as a customer, and that can sometimes help because a lot of these folks don't really want to lose security unless they're moving out of their house. In some cases, we will do that to help them."
The financial community is well aware that the median cost of replacing just one dollar of lost RMR is approximately $33 or more in our industry. In other words, every customer lost costs about a 33 times multiple to replace. Money lending institutions are also well aware of the fact that with very few exceptions, revenue does not equal profit. When we look at RMR as the end-all beat-all gauge of our company's financial health, we are often forgetting to take a hard look at the direct out-of-pocket cost associated with acquiring that revenue.
It used to be that if your company revenue decreases by a certain percentage in a given amount of time, the bank will give you from 30 to 60 days to rectify the situation. Many financial institutions have somewhat covertly replaced the word "revenue" with the words "earnings to debt ratio." Today, money lending institutions are under a great amount of pressure to hedge their bets and have broadened the scope of these protections by intentionally making many of them considerably less specific. Some examples of the new generation of adverse change clauses can include changes to your company's percentage of gross attrition, changes to your management team or in your operating costs and any number of changes that would pose a potential threat to a business's ability to remain gainful. A negative change to a company's debt to Earnings Before Interest Tax Appreciation and Amortization (EBITAA) raises a lenders eyebrows when reviewing business loans. Another clause more commonly found in loan covenants today is if the company debt goes beyond the threshold of X times the earnings to debt ratios you might have a problem.
Sales professionals have to become enthusiastic and empowered to differentiate their company outside of the normal criteria of price, technology and products. All of those elements are what everyone is competing on and it is the responsibility of the sales professional to be able to grow and separate their company from the competition in terms of an added-value benefit. And it's largely not happening. A lot of the training occurring right now is generic-there are a few people who are doing it well but there's not a lot going on specifically geared for our industry that really works. By providing training only on product and technology and investing nothing at all on sales, retention and customer service training, you are merely helping your team maintain a lack of energy, passion and competitive advantage needed to grow-and are most likely taking out nearly as many systems as you install each month.
Training is a value-add
Bringing an industry trainer in from the outside to work with your team not only can help add some much-needed enthusiasm, but also brings in fresh ways to eliminate more cancellations. When it comes to your seasoned sales people, most of them may feel they do not need any training. Some may get angry at the mention of it. No matter how good you already are, today is perhaps the best time to train your team to take full advantage of every growth opportunity you have. Sadly, too many security dealers still provide little more than product and technical training for their employees. But it only takes one person bringing forward some real tangible specifics, or even a new program full of effective tools with specifics and not syrupy generics, that can rejuvenate a sales professional who feels beat up, tired or unenthusiastic. It's all about generating new ideas that can make someone who has been in the security industry for 30 years say, 'Oh! I didn't think of that!' And it works. Just like any good team, amateurs need training so they get it right. Professionals need training so they do not get it wrong!
For many in the industry, it is about staying positive and looking forward to better times ahead, and perhaps that is the 'mantra' that has helped those, like Security Networks, work through today's hard economic times.
"Our industry has typically been fairly solid in recessions," said Perry. "I've been in the industry for 25 years and have been through a few recessions and one of the pluses of our business is it does seem to be fairly resilient in recessions and I don't think this one is any different."
Harris' Tips and Tricks
Here are three helpful tips in staving off attrition. If done properly, they will help put you and your whole organization on the right track.
1. Create a list of the most common reasons people want to cancel and ask your entire team to come up with as many ways to save that customer as they can for each reason. Continue to modify it and find the ones that work best for you.
2. Come up with as many "value-added" services that would both excite and entice your customers to bundle these services with you.
3. Put a think tank of your top people together and identify the most attractive unmet needs you'll address to exceed your customer's expectations.
Bob Harris is president of The Attrition Busters seminars, consulting, and workshops. He can be reached at