Attrition - how much is yours / what is industry standard
June 4, 2012
**************
comment
*************
Ken,
Think you need to check attrition % in the new normal we are working in every day. Normal now would be between 8-12 %. This is gross without resigns.
Wayne BeckCEO
A-com Protection Services, Inc.
*************
Response
*************
My comment that attrition was approximately 5% with margin of 2% either way, leaving the norm between 3 to 7 %, is below. Since Wayne was the only one to respond I don't know if his company experience of 8 to 12 % is more in line with what everyone is experiencing. How about some feedback? I am sticking with the 5%.
***************
Here was the prior response
*******
Likely the single most important component used to value an alarm company is the Recurring Monthly Revenue under contract. I suppose there are more than one way to do an evaluation. You can get a quick evaluation of your alarm company at WhatsMyAlarmCompanyWorth.com.
High attrition outside the norm would of course have a negative impact on valuation. It signifies an unstable subscriber base and that could have multiple reasons, from poor service to subscriber economics. Attrition should be around 5%. If you permit a margin of error of 2% you get a spread of 3 to 7%. Under 3%, you're doing great. Over 7% you should find out why.
Lost accounts can be defined by a contract of sale of alarm subscriber accounts. I new contract at an existing location my be cause for not considering the former subscriber at that location a lost account. I agree that a new sub at an existing account means no lost account. However, if the new subscriber demanded an upgrade to the system, at no charge, then I would consider the former sub a lost account and the new sub a new account.
A buyer of alarm accounts knows it's going to take at least the number of months that went into the multiple, plus cost of operation. Figuring in attrition factors in to insure that the acquisition cost can be recouped before the loss of accounts reduces the RMR to an operating loss scenario.
A buyer doing due diligence will look into your attrition rate by checking your monthly deposits, invoiced RMR, subscriber count and lost accounts. Even without due diligence a buyer may require you as seller to warrant that your attrition rate is not greater than a particular percentage. If it turns out to be more later then you've breached your warranty.
By the way, certain accounts are known to have greater attrition rates. PERS for example. That's why PERS account sell for a lower multiple [compared to intrusion or fire monitoring].