Attrition: The Silent Killer presented by Amy Kothari
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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.
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Attrition: The Silent Killer presented by Amy Kothari
- 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.
- 9. 9 EXAMPLES Gross vs. Net If: L=10; P=2; T=100 Gross Attrition = 12% If: L=10; P=2; G=10; T=100 Net Attrition = 2% 10 + 2 100 10 + 2 - 10 100 = 12% = 2%
- 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
Editor's Notes
- 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.
- SLIDE 19 Thank you and questions?