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ATTRITION RATE MATTERS WHEN SELLING
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This is the second article I am circulating from Kelly Bond. I appreciate her participation on this forum.
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In the electronic security industry, acquisition value is most often measured as a multiple of recurring monthly revenue (RMR) from “qualified” accounts. Attrition is a key value driver – or detractor – that directly impacts how much potential buyers are willing to pay for your accounts. A high-value company will take consistent steps to maintain attrition rates at or below industry standards (about 12 percent gross attrition).
Gross attrition is simply defined as the total number of subscriber accounts your company loses over a period of time, typically measured in losses over the trailing year, divided by the average number of accounts your company owned over the same period. An accurate attrition calculation also reflects account aging. Any account more than 90 days past due is, by industry standards, canceled, regardless of whether the subscriber has given notice. Ordinary attrition results from issues outside of your company’s control: customer moves, deaths, financial issues such as job loss or bankruptcy, and other customer life issues affecting demand for alarm services. Extraordinary attrition occurs either when customers cancel accounts for reasons related to your company’s performance, or when a competitor is able to win over your accounts with its marketing promotions or sales strategies. An accurate attrition rate provides a buyer with both significant comfort in your record keeping and a general picture of the economic health of your company. Apart from attracting potential buyers, monitoring attrition on a regular basis also helps your company identify and react to problems; both internal factors such as customer service issues and external factors such as competition or economic conditions. Armed with accurate information about attrition, you can develop procedures to minimize account aging and loss.
Kelly Bond | SR VP Business Development
Alarm Capital Alliance
Newtown Square, PA 19073
561.308.5199
kbond@alarmcapital.com
www.alarmcapital.com
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