The Cost of Cancellations for Alarm Dealers

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?

Moves are my favorite challenge. To me, a move meant a terrific opportunity to get two accounts where I only had one. If my moving customer was delighted with the relationship and the service he received from my company, why on earth wouldn't he take me at his new location?

If he has never needed any service from me, and he has never heard from anyone in my company, then why wouldn't he simply go with whoever was already at his new location, or simply open the Yellow Pages and find a new company to install and monitor his new place? I guess he was merely satisfied!

How hard do you try to get the new owner moving into the old location? Do you send a card and wait for them to call you? Maybe you leave a sticker in the hopes that they will get in touch? Some people have taken this issue so seriously, they actually program the alarm control to report daily test signals once they find out a subscriber is moving. This way when the new owner moves in and turns on his phone lines, the central gets a test and know the new people are in. A salesman can stop by to introduce himself and ask if he can teach them about the alarm. If the alarm is programmed to report in on an 800 line, you will actually have the new phone number and can call the new owner to say hello and offer to meet and show him the features of his alarm.

These are not off-the-wall, untested ideas. Those who have actually tried this "move retention" technique (along with a host of other creative techniques) say that it has helped them significantly. Ok, so of the 11 that have moved, we sign 5 old customers at their new location, and 4 new subscribers at the old location for a total of 9. Are these numbers completely unrealistic? Do you think so? Between non-payment and moves we're now up to 11 recoveries. This is already over half of our cancellations for this month.

What about our unhappy customer? Why is he unhappy? Is he simply unreasonable or did we do something to make him unhappy? Could we have offered this customer options and alternatives, or some degree of empathy when he complained to prevent this? Perhaps he was merely satisfied and any little thing set him off. Maybe we refused to waive a late fee? Maybe someone offered him a cheaper price? If our company or any single person in our organization nurtured any kind of relationship with him could we have more success at avoiding this cancellation? Well, no one did, and He's gone! No save here.

Perhaps the same is true with the one cancelled account that no longer needs or uses his alarm. Is that one also "unavoidable"? How do you train and mentor your team to save this account? I would love to hear what you might have tried. Again, no save here. No one knew what to do or really tried very hard at all; $1500 down the drain.

Then we come to those lost to our competitors. Ouch! It happens to the best of us. In 1996 Frederick Reichheld, president of Bain and Company in Boston, said, "The customers you lose hold the information you need to succeed." Do you still think customer satisfaction is good enough? Did you know that the majority of customers who are less than delighted will never say a word unless they are specifically asked? What are you doing to manifest the perception of added value in doing business with your company? When you lose a customer to a competitor, do you actively try to learn why he really switched? What do you do with that information once you have it? What can we do to get a phone call from a customer contemplating switching as opposed to receiving a fax telling us they have already cancelled?

How crucial to the lifeblood of your company is your willingness to maintain a relationship in some meaningful way with every single customer? Some say it costs too much. Others tell me it's impossible.

I'm sorry to disagree. I don't care how large or small your company is, it's anything but impossible, and it costs little if anything to do. We found ways to do it very well, and so have many others (and maybe your biggest competitor is able to nurture this relationship). There are many creative ways to establish and nurture a relationship with your customers that bond them emotionally to your company.

"But we're too busy". I hear this all the time. Humor me for a moment with another math exercise. How many people inside your office are too busy to make 5 two-minute phone calls per day? Let's see: 15 minutes per day socializing with co-workers at their desks, 2 minutes at the water cooler for more socializing, another few minutes chatting at the coffee machine, and as much as 20-minutes per day going out for a smoke, and, oh yes let's not forget personal business.

Imagine every single inside employee getting a list of five customers to simply call up and say, "My name is so and so, and I just wanted to introduce myself and let you know how grateful I am for the trust you placed in our company to provide your security. ... Please test your alarm system once a month. ... Do you know how to send us a test?"

This is just a simple example of one tangible way to establish some kind of meaningful contact with a customer who may otherwise never hear from you at all. If you have 10 inside employees all making 5 two-minute calls a day, you would touch 250 customers a week, or 1,000 of them a month.

How clever could you be at getting useful information from them during the course of these calls? Could you add that information into a data base and use it to your advantage? Birthdays, children's names, and anniversaries are all extremely beneficial to the relationship. What you do with that information could make it extremely difficult for any competitor to ever steal one of your customers. It could also benefit sales people and future business. Information obtained could also help you in your marketing efforts when it comes to new services and technology. I can tell you that we did all of this at my company and it paid off big!

Do you still think it costs too much? It cost me almost nothing! How much is it costing you not to try this? I have many clients who will tell you the same thing, or maybe they won't? Creativity and conscientiousness just helped you save one of the two customers who were switching to a competitor. We're now up to 12 out of 20. Not counting all the referrals we received from customers who we have delighted along the way and not merely satisfied.

What about the commercial customers who have closed their doors and gone out of business. This month, we have two of them. After reading this article, what things would you try to get at least one new tenant at a location that has previously closed its doors? If you can pull it off, we're up to 13 saves out of 20 cancellations. Thirteen customers at $25 per month equal $325 in RMR that we already had. To replace them would have cost us approximately $9,750 for this month. How much does that add up to in a year? Break out your calculator and find out! Is it worth the effort and training? I promise you, more and more of your competitors are beginning to learn that it is absolutely worth the effort, and that many cancellations are avoidable.

I would love to hear your thoughts after reading this article. What kinds of things are you doing to recover cancellations? You can email me using the link below. Best wishes for continued success in your business! See you in July with another column.

About the author: Bob Harris is managing director for The Attrition Busters. With over 30 years in the alarm industry, he provides seminars, business consulting, and workshops to help great companies become even better. Bob can be reached at (818) 730-4690 or by email at bobh@attritionbusters.com. Learn more about The Attrition Busters at www.attritionbusters.com.

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