RMR--Should You Cancel a Customer?

April 5, 2013
Let them go or stay? You can make the difference

A better question might be—how well do you really know your customers? When working with various security and integration dealers on ways to increase their customer retention and recurring profits, I like to ask employees to tell me exactly how many different kinds of customers they have. As you might imagine, the responses I hear are all over the place. Some tell me they have 50 different kinds of customers. Others tell me they have two; those who pay and those who don’t.

I believe you actually have three kinds: 1. Customers who make you money; 2. Customers who help you break even; and 3. Customers who cost you money.

So let me ask you this: How well do you really know your customers? With very few exceptions, every single company has 2s and 3s and may not even realize it. Many in our industry have been so beaten up by low price; they have dropped margins beyond their ability to generate a fair and reasonable profit in a reasonable amount of time.

Of course we all know that price is always the most important thing to someone. Until value is substantiated that is! When value exceeds price, price is no longer the issue. Still, far too many owners place no value and make absolutely no investment in any sales or customer service training whatsoever. In many cases fear of selling at higher margins has become thoroughly integrated into our business plan. As a result of this fact, consumer’s perception of our industry has overwhelmingly become one with a low price mentality. This has greatly contributed to devaluing our industry and our professionalism in the minds of consumers. “Why should I pay you when I can get the same thing for free?” So, we simply subsidize the installation and drop the monthly in exchange for a contract as we continue to embrace lowered expectations of loyalty, customer service and cash flow.

What does it take to make money today?

While you may feel the recurring revenue will make up for the installation and in time create profit, the simple fact is that revenue doesn’t equal profit. Profit equals profit. What are some of the things that can happen while we work for one or two years for free as our initial investment in a particular customer amortizes? Customers we invest in typically place less value in us and in our service than do those who invest in us. As a result loyalty goes out the window. Next, how often do you get calls from one of these customers telling you they have been offered a better deal from someone else? Often times our employee will simply tell the customer that they’re under contract and will have to wait until the term ends before they can cancel service. When the customer pushes it and say’s he’s going to cancel anyway, more often than not the employee agrees to lower or even match a price to save the customer. At the end of the day, your employee has no idea where the profit margin is for this customer let alone whether or not you have even reached the break even point on a subsidized installation.

Why not teach every employee and sales person how to identify your customers, compete on value not on price and overcome the profit hemorrhaging issues that undermine the potential of your business? Is it possible that certain owners don’t even know it themselves? It is unbelievable to me, that a sales driven, service-based, recurring revenue model industry still invests absolutely nothing in sales, customer service, marketing or collections training. Those who do make the investment and earnestly apply the most productive strategies in these four fundamental areas have learned how to create their own economy and continue to thrive in every economic condition. How else will you stimulate your team with energetic ways to increase profits from those customers who are already profitable as well as boost your number 2s from break even to profitable customers? Those who bring in critical training have become the market leaders in this industry. The small and mid-size companies who invest in this fundamental training for their team have excelled far beyond the expectations set forth by the bigger players. The smaller local or regional alarm dealers who takes this kind of training seriously have discovered opportunity while others who continue to procrastinate walk right over and leave money on the table every day.

Today, there are many opportunities to help ease customers that make you little to nothing into customers that contribute to your profit and cash flow. Here’s the script: “Dear customer, I’m calling from your alarm company and I want to introduce myself and to thank you for your trust and loyalty. I was looking over your file this morning and I noticed that you might really benefit from our new super saver loyalty gratitude program. This month in exchange for a new agreement and less than $1 additional per day, we can offer you a GSM radio which can save you the cost of a monthly phone bill should you elect to cancel your home phone service. For just a little more, we can even provide you with the ability to arm and disarm your system right from your cell phone as well as receive text messages the minute your child comes home safely after school. As I said, in exchange for a new monitoring agreement, we can install this upgrade at our lowest discounted price of $X plus $X per month. If this particular program doesn’t work for you we have several different loyalty bundles available which we created to increase your security and give you even more peace of mind for less than $1 per day. May I have your representative get in touch to discuss some of the other package specials we’re offering right now?” Service techs and central station operators who often maintain solid relationships with customers can mention various added-value options in a benign and non-threatening way. If you ask me, any service tech who goes to a service call where no radio or cellular transmission equipment is in place and fails to mention this to the customer or the sales rep is leaving money on the table every single day. You can multiply that by the number of techs and service calls they do per month.

Offer real training to your personnel

While this kind of approach may not be comfortable for everyone, there are dozens of other ways to pick up much more of the profit you’re currently leaving on the table but you may never find it until you stir the pot with some real training. Incidentally, service bundles aren’t only for your number 3. Numbers 1 and 2 are far more likely to jump on a bundle. The fact is though, none of them will if you’re not stimulating your team to get in the game and bring it. When it comes to canceling a customer, unless your company is a charitable organization you are in business to make a fair and reasonable profit. Moving your number 2s from breaking you even and your number 3s from costing you money is imperative. Once you have identified them and made every reasonable effort to bring them into the fold of contributing to your bottom line, there comes a time to draw the line. Informing these customers that the level of service they currently have falls below the company’s minimum security standard. As a result you have one of three options: agree to a modest rate increase; select any one of the Super Saver Service Bundles; or discontinue service and have them find another provider. For those non-payers and late-payers that cause you so much trouble, do you invest in any training aimed at helping your collections people become better at getting these delinquents to pull the trigger and pay you instead of someone else? If not, there is only one guarantee—none of this is ever going to happen by itself.