2011 Attrition Measurement Study
The economic recovery proved to be a mixed bag in 2011, the latest attrition study shows, with net attrition increases in all U.S. regions and internationally.
Attrition is the measurement of customer dissatisfaction, which, for the most part, is company-caused. However, some attrition of recurring monthly revenue (RMR) in recent years can be related to the effects of the recession on the security channel. Overall, in 2011 — the latest year for which data are available in the annual Attrition Measurement Study — the industry experienced mixed results depending on the size of a company and its location.
Attrition percentages increased in 2011 in most categories. With the U.S. and international economies in 2011 still struggling to rebound from the recession of 2008 and early 2009, the average residential/commercial gross attrition figure decreased slightly from 11.20 percent to 11.18 percent, but the average residential/commercial net attrition figure increased from 8.57 percent in 2010 to 9.08 percent in 2011.
TRG Associates, in conjunction with the Central Station Alarm Association (CSAA), continues to accumulate annual attrition results from a growing number of security companies, from small on up to large national firms. The 2011 report publishes the results of this study for the 11th straight year and includes data on more than $178 million of RMR from companies in the United States, Canada and Europe. The consistency of the companies reporting continues to enhance the researcher’s insight into the attrition trends within the security industry. The study seeks to provide a measurement of the attrition results across the marketplace as to the level of customer RMR losses — called gross attrition — and the offsets to those losses through re-signing of like customers/locations and other increases in RMR related to the same base of customers — called net attrition.
In the attrition study, the dollars of RMR are broken down by geographic region, size of company, customer source, and customer type. The number of participating companies continues to grow, although the study did lose some international participation due to investment changes in some entities. On a national scale, the results continue to be broken down by respective branches as to geography, size, etc., which helps to identify the actual results of varied branch sizes in different geographies within larger organizations.
All of the U.S. regions grew as to RMR reported. The majority of the growth in the RMR emanated from the mass market customer source for the second year in a row (including some of the I-15 Utah corridor companies from their branches around the United States). Also, more large companies (in excess of $500,000 in RMR) were added to the study. In the U.S. regions, the study found a mix of increases/decreases in the gross attrition figures over the 2010 results. More importantly, it recorded an increase in net attrition in every U.S. region and the international segment in 2011.
The smaller companies (3 to 50 RMR) experienced a decrease in the gross and net attrition to the lowest level in five years, while the overall RMR size of that group also increased. At the other end of the spectrum, the larger companies (501+ RMR) experienced a slight increase in gross attrition and a more significant increase in net attrition, from 8.68 percent in 2010 to 9.02 percent for this 2011 study. The mid-market companies/branches (101 to 200 of RMR) saw the most dramatic increase in both gross attrition and net attrition (gross attrition of 9.30 percent and net attrition of 7.10 percent in 2011, compared with 8.67 percent and 6.00 percent, respectively, in 2010).
The most significant factors that contributed to the increase in net attrition figures were the impact of continued RMR reductions and lost to competition. A number of participating companies in 2011 continued to be more proactive to reduce their RMR per customer to “save” a customer from cancellation as the average household income in the United States continued to fall.
The dealer-sourced segment experienced a decrease in gross and net attrition, which continued the downward trend for that category for the last four years. The traditional and mass-market segments experienced an increase in both gross and net attrition over the 2010 results.
Commercial customers experienced an increase in net attrition and gross attrition. Correspondingly, there was a small increase over 2010 in the commercially driven cancellation reason of “sold/out of business,” as it edged up from 6.3 percent in 2010 to 6.8 percent in 2011. The commercial base also continued, for the fourth year in a row, to outperform the residential base as to net attrition.
Of note, the “collection/non-payment” reason for attrition decreased slightly to 19.1 percent versus 21.6 percent in 2010 and “moves” increased from 31.3 percent in 2010 to 33.9 percent in 2011. The “lost to competition” category jumped up to 13.5 percent from 7.9 percent in 2010, which confirms that the industry is not losing the security customer; rather the security customers are just changing providers.
The “no longer using the system” reason declined for the second year in row from a high of 14.1 percent in 2009 down to 7.6 percent in 2011. This decline, in part, is attributable to the continued extension of residential security beyond the home via the increased adoption of interactive technologies that allow homeowners to manage their security and home via the Internet, iPhone and other portable devices.
For the third year in a row, the study gathered publicly available RMR and attrition data on the largest publicly held security company (PHC) in the United States to facilitate a broader perspective of the attrition trends in the security industry. Based upon that information, the study found that the net attrition results still jumped from 9.02 percent for the independent 501+ RMR entities up to 11.73 percent for all companies inclusive of the PHC — though this was still under 2009’s results of 12.29 percent. The study also found that there was a swap in positions as commercial net attrition outpaced residential after factoring in the PHC entity results. Commercial net attrition jumped from 11.41 percent in 2010 to 11.83 percent in 2011, while residential only increased from 11.06 percent to 11.44 percent.
This study is currently being updated using 2012 data, with the assistance of the existing participants and any new companies that would like to join. Participation in the study is open to all companies and participation is free. The strictest of confidentiality is maintained as to the individual company results.
Gross Attrition — The loss of existing customers and their associated recurring monthly revenue (RMR) for contracted services during a particular customer/calendar cycle
Net Attrition — Gross attrition plus the add-back of “like customer” gains through re-signs of the existing locations.
• The home/business location is your ultimate customer
• Price increases for inflation
• Price increases for additional services or technology
Attrition Measurement Methodology
Security dealer executives should manage the attrition-tracking process to identify, focus on, and rectify those causes within each organization. The Weighted Ending RMR Attrition Method should be used for this purpose.
Step 1: Cancelled RMR for the Reporting Period = Monthly Attrition Sum of Ending RMR for Each Month
Step 2: Monthly Attrition (from Step 1)* 12 = Annualized Attrition
The benefits of the Weighted Ending RMR Method are that it accounts for and weights RMR acquisitions; it accounts for timing of the acquired RMR; it accounts for rapid internal growth and the timing thereof; and it is similar to many lending/equity institutions’ preferred calculation.