The question I am most frequently asked by alarm dealers is, "What is the true cost of customer attrition?"
What's your guess? How much does it actually cost an alarm company to replace $1 -- one single dollar of lost recurring revenue? Do you think $5, $10, or $20 dollars is a good answer?
Based on all current available data, the average cost of acquiring a new monitoring account is approximately 30 times what your new account pays you. That means $30 for every single dollar they would otherwise bring in.
Let's do the math! If this figure is accurate, an average residential monitored account that pays $25 per month will cost your company approximately $750 to replace. To go a step further, if you lose just two of these accounts per month, we're talking about $1500 or the equivalent of $18,000 per year to replace. We're not talking about revenue you could have; we're talking about revenue you already had! Now do I have your attention?
Many people tell me that most of their attrition is unavoidable, or that they have almost no attrition and are not terribly worried about it. Moves, non-payment, no longer uses/needs, business closing, and death are among the top contributors, and most alarm dealers are going to mark these as unavoidable account closures.
But I disagree. I believe that, in many circumstances, the "unhappy with service", "switching to a competitor", "lower price", "no longer needs/uses", and moves are not unavoidable account losses. Rather I see these as cancellations which can clearly be retainable. Yes, even moves are in this list! While tracking various reasons for cancellations, how many of you add the category of "satisfied" to your reason codes list?
Let's look at this realistically. Assume for a moment that an alarm company with around 3,000 monitored accounts loses 20 accounts in a given month. For the purpose of this article let's break down how those 20 were lost. Three were cancelled for non-payment, 11 have moved, 1 left because they were unhappy, 1 no longer needs/uses, 2 went to a competitor, and 2 businesses have closed. Out of all these accounts, how many do you realistically believe could have been saved by your team if they were mentored and trained on ways to better communicate with customers and if they had maintained any reasonable relationship with these subscribers since the contract was first signed?
Based on my experience, I am of the firm opinion that over half of them could be recovered. Remember, many people tell me there is nothing they can do about non-payment, moves, and no longer needs/uses. This is all unavoidable attrition, right?
The Merely Satisfied Customer
I say "Wrong!" The true reason many of these customers will never again be monitored by your company is because they were merely satisfied. Satisfied customers are not good for your company. Perhaps the only time they ever hear from you is when the bill comes. They have never needed service; they have never had any reason to call in, and they really don't even know anyone at your company. Do you believe this is a recipe for loyalty?
Let's take a look at a non-payment customer to start. Do you simply ship out non-payments to a collection agency or do you try to work with these customers? How do you handle your collections process? Does it cost too much to work on collections in house? In this example the three non-payment cancellations cost you at least $2,250 to get back. How well are your collection letters really written? How willing are you to work with the customer on payment arrangements? How well does your collections person empathize with the customer and come from a position of power, while being perceived as fair and reasonable? Let's say at least two of these accounts are not in financial ruin or just complete flakes. With a little bit of effort, finesse and skill you work things out with two of them. How many could you save, and how much easier might that be if some kind of relationship was in place? Do you really believe this is unavoidable attrition?