Attrition Spikes up
Attrition in the security industry is the measurement of customer dissatisfaction with or need for the system. Overall, in 2013 — the latest year for which data are available in the annual Attrition Measurement Study — both gross and net attrition increased and attrition caused by competition also inched up.
The Attrition Measurement Study, conducted by TRG Associates, accumulates annual attrition results from a growing number of security companies, from small on up to large national firms. The 2013 Attrition Measurement Study is in its 13th year and includes data on more than $289 million of recurring monthly revenue (RMR) from companies in the United States, Canada and Europe. The consistency of the companies reporting continues to enhance the 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 the RMR related to the same base of customers — called net attrition.
In the study, the dollars of RMR are broken down by geographic region, size of company, customer source, and customer type. 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.
Residential net attrition ticked up by 1.5 percentage points in 2013 among study participants — from 8.99 percent in 2012 to 10.51 percent in 2013.
The average residential/commercial gross attrition figure increased from 11.53 percent in 2012 to 12.25 percent in 2013; and the average residential/commercial net attrition figure increased from 9.34 percent in 2012 to 10.37 percent in 2013.
All of the regions covered by the study — including the Northeast/Mid-Atlantic, Southeast, Midwest, Southwest, West, and International — grew as to actual dollars of RMR reported (up by $25.4 million in total dollars reported from 2012). All of the regions experienced increases in gross attrition over the 2012 results, except for the $51,000 to $100,000 RMR group. The study recorded an increase in net attrition across the board as well, except for this same category which fell from 5.92 percent in 2012 to 3.73 percent in 2013.
The smaller companies ($3,000 to $50,000 in RMR) experienced increases in their gross and net attrition for the first time in a while (5.63 percent gross and 3.54 percent net in 2012 compared with 6.82 percent and 5.53 percent, respectively, in 2013), as the overall RMR size of that group decreased ($316,903 in 2012 to $275,858 in 2013).
At the other end of the spectrum, the larger companies ($500,000-plus RMR) experienced an increase in gross attrition (11.7 percent in 2012 compared with 12.48 percent in 2013) and an increase in net attrition from 9.5 percent in 2012 up to 10.57 percent for the 2013 study. The RMR size of this pool grew $25 million.
As the mid-market companies/branches ($201,000 to $500,000 of RMR) grew in size, the study saw an increase in gross attrition and net attrition (gross attrition of 8.77 percent and net attrition of 6.63 percent in 2012, versus 9.27 percent and 7.73 percent, respectively in 2013).
As for reasons for attrition, “moved” decreased from 37 percent in 2012 to 35.6 percent in 2013, but is still higher than in 2010 and 2011. “No longer using the system” decreased from 11.6 percent in 2012 to 10.4 percent in 2013.
However, “lost to competition” increased significantly, from 11.4 percent in 2012 to 14.3 percent in 2013. It remains one of the leading reasons for attrition. The results of the study clearly show that the larger companies in the industry are still losing customers to the mid-sized and smaller security companies as customers seek to maintain their security with another provider.
Of note, the “collection/non-payment” reason for attrition decreased to 16.1 percent in 2013 from 18.6 percent in 2012.
The dealer-sourced segment experienced an increase in gross and net attrition for the first time in five years, while the mass market segment also experienced an increase in net attrition over the 2012 results (10.74 percent in 2013 versus 8.69 percent in 2012). The commercial segment experienced an increase in net attrition and gross attrition for the third consecutive year and fell back below the residential segment after eclipsing it in 2012.
Another sign of the steadying economy in 2013 was that the sold/out-of-business category was reduced to 3.1 percent in 2013, from 5.2 percent in 2012 and 6.8 percent in 2011.
For the fifth year in a row, the study gathered publicly available RMR and attrition data on the two largest publicly held security companies (TLC) in the U.S. to facilitate a broader perspective of the attrition trends in the security industry in 2013. Based upon that information, the study found that the net attrition results jumped from 9.5 percent for the participating $500,000-plus RMR entities up to 12.53 percent inclusive of the TLC entities. Residential net attrition outpaced commercial after factoring in the TLC entities. Inclusive of the TLC companies, commercial net attrition increased from 10.38 percent in 2012 to 11.68 percent in 2013, while residential net attrition increased from 12.02 percent in 2012 to 12.82 percent in 2013.
The Attrition Measurement Study is currently being updated using 2014 data. Participation in the study is free and is open to all companies. The strictest of confidentiality is maintained as to the individual company results.
SIDEBAR: Defining Attrition
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
SIDEBAR: 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.
Note: An Excel Attrition Measurement Template is available on the TRG website with calculation formulas.