With the security industry continuing to grow and attract outside debt and equity based primarily on the industry’s solid operating margins, predictable cash flows and market value liquidity, the key depleting operating dynamic — customer attrition — continues to require a measurement standard and substantial management attention.

Within the framework of the TRG Annual Attrition Study, the recent 2006 results that are due to be released this month will show that attrition for the reporting companies continues to improve as the average residential/commercial gross attrition declined to 11.58 percent, and net attrition declined to 8.08 percent.

Across the industry, management teams of companies of all sizes have begun to focus in earnest on measuring their customer cancellations. One’s ability to control and minimize customer attrition begins with recording and measuring customer losses on a monthly basis. A general manager of one of our clients recently said that the first step his firm took to control attrition was developing a record-keeping system to record and track each customer loss in a cohesive management report, which allowed them to understand the magnitude of the problem in definable and consistent terms.

The first step in controlling attrition is to measure it in a consistent fashion and make it an integral part of each employee’s job to observe and react when they encounter an unhappy customer. Beyond tracking the sheer number of customers lost and associated recurring monthly revenue (RMR) that is lost each month, it is as important that the management team try to understand and codify the reasons that customers are leaving.

Establish a defined set of cancellation reasons that all employees are aware of and make certain to obtain from the customer. Obtaining the exact reason for a customer’s decision to leave your company is critical in helping your management team understand what portion of the cancellations are controllable. Monitoring the reasons for cancellations can help to identify what is causing the cancellations — and there have been many management teams that have learned the real enemy is “looking at themselves in the mirror.”

There are proactive steps that can be taken by management teams to control and minimize collection issues and moves, which are leading causes of cancellations.

“No longer using the system” continues to gather a growing percentage within the reasons for cancellation. While a well-informed customer can reduce the incidence of problems with the system, the bigger problem is where a customer never sends any signals because they simply aren’t arming the system. Your automation systems can help you identify these prospects. You need to find a means to get in front of these customers and remind them of the capabilities of their protection system. If their system doesn’t include smoke protection, then look at the opportunity to extend their system to 24/7 protection even though they are not arming the intrusion segment of their system.

A number of security firms are now closely tracking the loss of customers and gathering information to feed to the resign department which is part of the sales or customer service effort within many companies. As we, at TRG Associates, have expressed very often to our clients, “The ultimate security customer is actually the home or business where your company has installed the protection system.” Wherever your yard sign and equipment are already installed but inactive, you have the most inexpensive prospect to generate a new customer. There certainly are segments of your customer attrition that you did not cause and could not control; however, developing a serious, focused program to remember and pursue your equipped-but-inactive locations is critical to reducing your gross attrition and truly managing your customer losses down to a lower net attrition figure.

Managing to reduce your net attrition by even 1 percent point per annum can dramatically increase your cash flow and influence the ultimate value of your business.