Comments On Attrition From March 1, 2016 Article
    There are many formulas to calculate attrition.  An easy way for a dealer to get a great approximation is to take the RMR lost during a year divided by the RMR at the beginning of the year.  Thus, if you lost $8,000 in RMR during the year and started with $100,000 in RMR, you have 8% attrition.  What is important when we work with sellers is what does the answer mean?  Generally, sellers with less than 10% gross attrition are strong companies that buyers want to buy.  Dealers in the 10%-12% range get sold but are more closely scrutinized to see what the reasons are for the attrition.   From 12%-15%, the holdback is sometime increased to compensate for the risk.  Finally, dealers with greater than 15% gross attrition are difficult to sell, even at a lower multiple.  The reason is because they are losing accounts at such a pace that the buyer generally would rather skip the triage and go to work on a healthier patient.  There are other attrition factors that can sometimes explain the reason for the percentage and buyers may adjust based on that information.  I am available to discuss this factor and other hot buttons buyers look at when sizing up an acquisition. 
Barry Epstein, President
Vertex Capital
        Is there a standard formula to calculate attrition rates?
    I'm sure you will be commenting that the true measure isn't number of accounts lost, but dollars of RMR lost, right?
name withheld

    I read with interest your March 1, 2016 circulation of Kelly Bond’s piece on the importance of RMR.  We of course agree it is perhaps the most important metric in valuing an alarm company.  I was however, surprised the method stated for calculation of the gross attrition rate.  Specifically, the article made it seem like they use starting number of accounts versus number of accounts lost whereas we (and I think the rest of the industry) believe the correct method is to compare starting RMR dollars with RMR dollars lost during the period.  There is a world of difference, as you can see from the following two hypothetical scenarios

Scenario #1
Total number of accounts- 1,000
RMR represented by those accounts-  $35,000
Number of accounts lost-  70
Actual RMR lost- $5,000

Scenario #2
Total number of accounts- 1,000
RMR represented by those accounts-   $35,000
Number of accounts lost- 120
Actual RMR lost- $3,000

    In scenario #1,  looking strictly at number of accounts, there is a 7% gross attrition rate.  (70 out of 1000)  However, based on RMR lost, there is a 14.2% gross attrition rate. ($5,000 out of $35,000)
In scenario #2, based strictly on number of accounts, there is a 12% gross attrition rate. (120 out of 1000)  But based on RMR lost, the gross attrition rate is 8.5%
I submit that the more meaningful number is the amount of dollars lost…not the pure number of accounts.  Now, if every single customer was charged exactly the same amount, then the attrition rates would be the same for both calculations, but in the real world that is not the case. 
Personally, I would be primarily looking at the RMR attrition rate, not the account attrition rate.  Therefore, I believe scenario #2 is the preferable one.  Maybe that is how ACA actually views this in practice, but that is not what that article represents.  Based on the article it would appear that they would favor scenario #1.  Would ACA please care to elaborate on its definition of the attrition rate?
Robert Kleinman, Chief Executive Officer General Counsel
AFA Protective Systems, Inc