Customer Attrition: Track It. Measure It. Improve It.
“When you lose a customer it feels like a smack in the face,” said Tim Creenan, Owner and CEO, Amherst Alarm, Inc. Your bottom line suffers, and your pride may suffer as well. Yet tracking and measuring customer attrition are within reach and should become a standard part of your company’s operations. This was the subject of a session at ESX presented by Creenan and Jeff Kahn, Vice President of Wayne Alarm. “To improve attrition, we have to measure it,” Creenan continued, “and to measure it, we have to decide what are the common reasons that people cancel.” The two walked us through common reasons for attrition, how to spot them in advance, and what to do about it.
Attrition affects not only your bottom line, it affects growth as well. In order for the company to grow, lost accounts must be replaced in addition to the new accounts to be added. If you have 1,000 accounts and your attrition rate is 12%, you’ve lost 120 accounts. But you will need 220 new accounts to grow at 10%.
Attrition also impacts the value of your company. Let’s say you have RMR of $30,000 with an attrition loss of 12% ($3,600). Let’s also say the value of RMR is 34x. If you are looking for financing or you are trying to sell the company, your attrition rate means the company value has been decreased by $122,400.
The first step to improving attrition rates is to understand why customers leave. Many of these reasons are preventable. “Be honest: You can control more than you think,” advised Creenan. If the customer moved, for example, find out if they moved locally and see if they will become your customer in their new location. If they don’t have copper phone lines any more, or if they are using VoIP service that isn’t compatible with the security system, use these as opportunities for upsells. Mitigating the attrition number through add-backs is one way to counteract the effects of lost RMR.
Gross attrition is the loss of existing customers and their associated RMR for contracted services during a particular customer calendar cycle. Net attrition is the gross attrition number plus the add-back of “like customer” gains through re-signs of the existing locations. “For example, if someone moves out of a house, it counts toward the gross. Someone moves into the house and reactivates the system, it counts toward the net attrition,” explained Creenan. You should track both gross and net attrition and understand their differences.
Predicting and Tracking Attrition
Tracking attrition can seem like a daunting task, but “the payoff is huge compared to the effort you will put in,” Creenan assured. Kahn added, “The pain is either going to be in tracking and predicting attrition or it’s going to come after the customers leave, when you are looking at the dollars lost.”
“When you work on the reasons for attrition, you start to see big results from what you can control. Some of the controllable things have warning signs,” commented Creenan. Recognizing warning signs and tracking them gives you a leg up on resolving the situation. “When warning signs occur, they are usually noticed on the operations side of the system: false dispatches, a client triggers alarm by mistake, communication issues with alarm signals,” he said. “We make soft phone calls based on helping the client. We ask how they are using the system, if there are any problems or concerns we can assist with, or if they have any questions on operating it. Sometimes we have them run an alarm test signal to the monitoring center.”
Other warning signs – and ways to take action – include:
- False alarm problems: customers may be looking for another vendor rather than waiting for you to fix the issue.
- Non-use or communication changes: if the system hasn’t been armed in a certain number of days, or is not sending test signals, find out why. Get reports from central station or third-party partners to see which customers are not arming their system.
- If a customer asks when their contract is up or if they can get a complete zone list of everything that’s on their system, they may be getting ready to switch vendors.
Poor service is another predictor of whether a customer will cancel their contract, so don’t wait for them to tell you you’re providing poor service – track it yourself. Wayne Alarm uses a Net Promoter Score (NPS) system whereby an automated email gets sent to customers immediately when a job is closed. It has one question: “Did we do well enough that you would recommend us to other people?” Kahn noted, “It gives us the opportunity to reach out immediately and either say thanks or learn more about how we can do better.” Wayne Alarm also does a brief exit interview when customers cancel to uncover areas for improvement.
To measure attrition, choose a tool, whether it be an excel spreadsheet or Customer Relationship Management (CRM) software – or even a whiteboard or a paper and pencil, Creenan said. What’s most important is that you are measuring at all. Amherst Alarm uses the tracking report below, which lets them see if they’re improving on controllable attrition factors. It also allows them to notice trends over time; for example, May, June, and July are big months for moves so they will expect seasonal attrition during this period. They share their attrition rate with everyone in the company each month to stay the same page and work together to improve.
Wayne Alarm has a six-member customer retention team that meets weekly. The group is made up of one team member from the collections department and five members from inside sales and customer retention. They view all cancellations and examine the reasons why, as well as noting the customers the company was able to retain. Every other week, they meet with a four-person team of advisors to share their results. “They are not afraid to tell each other what they’ve done well and what they could do better, and the accountability they’ve created is unbelievable,” Kahn remarked. Since the team started meeting, the attrition rate has gone down, and the re-sign rate has increased by 5%.
Reducing customer attrition takes dedication, but it’s not an insurmountable task. Understanding why cancellations happen and knowing how to spot the signs are the first step; being proactive and opening communication channels with your customers will stop many cancellations from happening. Making attrition a shared focus of your team and analyzing how those numbers are affecting different areas of your business will set you on the right path to bolstering your bottom line and maintaining customer satisfaction for years to come.