Home services and trades
Alarm account attrition: how buyers calculate it and which records prove it
By SourceX Editorial · Updated
Short answer
Buyers usually calculate alarm attrition as the RMR lost to cancellations over the trailing twelve months, divided by the average RMR held during those months. Gross attrition counts every loss; net attrition subtracts RMR regained at the same sites. Expect a buyer to rebuild your figure from billing, cancellation and central station records rather than accept a summary.
Key takeaways
- Gross attrition counts every cancelled dollar of RMR; net attrition offsets RMR regained from re-signs and new occupants at the same sites.
- Buyers calculate attrition on both RMR and account count, because small and large accounts cancel differently.
- Past-due and non-signaling accounts are often treated as lost even when nobody formally cancelled them.
- A monthly RMR roll-forward that ties to billing is the single most persuasive attrition record.
- Agree on attrition definitions in writing before a buyer starts verifying accounts.
How do buyers calculate alarm attrition?#
Buyers calculate alarm attrition by dividing the RMR lost over a period, usually the trailing twelve months, by the average RMR held over the same period. Using the average rather than the opening balance keeps a fast-growing or shrinking dealer from distorting the result.
Buyers run all three versions below because each answers a different question. RMR attrition shows lost revenue. Account attrition shows customer behavior, and a gap between the two tells a buyer whether larger or smaller accounts are the ones leaving.
- Gross RMR attrition: RMR cancelled during the period, divided by average monthly RMR for the period.
- Net RMR attrition: RMR cancelled, minus RMR regained at the same premises through re-signs or new occupants, divided by average monthly RMR.
- Account attrition: accounts cancelled during the period, divided by the average number of accounts held.
- Average monthly RMR: the sum of each month's closing RMR in the period, divided by the number of months.
What counts as a lost account?#
A lost account, for attrition purposes, is any account that stops producing collectible RMR, whether or not anyone filed a cancellation. That definition is wider than the one most billing systems apply, which is why seller and buyer figures so often differ.
| Event | Usually counted as a loss? | What to document |
|---|---|---|
| Customer cancels over price or for a competitor | Yes, in gross and net | Cancellation date, reason code and final invoice |
| Customer moves and the new occupant signs up | Yes in gross; offset in net | Link between the old and new account at the same site |
| Account past due beyond the agreed cutoff | Usually yes, even if still active | Aged receivables by account and collection notes |
| Account stops signaling the central station | Often treated as at risk or lost | Last signal date from the central station |
| Customer downgrades service | RMR loss, not an account loss | Billing change history |
| Accounts sold to another company | Excluded from attrition, removed from RMR | Sale agreement and transfer list |
| Seasonal suspension | Depends on the agreed definition | Suspension and reactivation dates |
Gross versus net: why buyers want both#
Gross attrition shows how often customers leave; net attrition shows how much of that loss a dealer wins back. Buyers want both because net figures can hide churn: a dealer that loses many accounts but re-signs most homes after a sale may report low net attrition while depending on a re-sign program the buyer may not keep.
Price increases deserve their own line. Some sellers net RMR increases on existing accounts against cancellations, which flatters the result. Show increases separately so the buyer can see cancellations before and after each increase and decide whether the higher rate held.
Cohort views help too. Breaking attrition out by the year an account was created, or by whether it was self-generated or purchased, shows whether recent accounts behave like older ones. Purchased blocks often behave differently from accounts your own team installed.
Which records prove the attrition number?#
The records that prove attrition sit in three places: the billing system, the central station and the contract file. A buyer matches all three for a sample of accounts, so they need to agree with each other before the buyer arrives.
Product names vary from dealer to dealer. Some bill from a security industry accounting package, others from general accounting software and a spreadsheet, and central station records come from whichever automation platform the monitoring center runs. What matters is that every export carries an account number that ties to the others.
| Record | Where it usually lives | What the buyer checks |
|---|---|---|
| Monthly RMR roll-forward | Billing or accounting system | Opening RMR plus additions minus losses equals closing RMR each month |
| Cancellation log with reason codes | Billing system or CRM | Dates, reasons and whether cancellations were recorded promptly |
| Signed monitoring agreements | Document storage or scanned files | Term, auto-renewal, assignment and the customer named |
| Central station account list | Central station automation software | Account status, communicator type and last signal date |
| Interactive services roster | The interactive platform's dealer portal | Active services matched to billed RMR |
| Aged receivables and credit memos | Accounting system | Non-paying accounts and credits that disguise losses |
How buyers test your numbers during diligence#
Buyers test attrition by rebuilding it from raw records, then sampling accounts to confirm the records reflect reality. Verifying a full account base takes time, so hand over clean exports early rather than answering questions one at a time.
Late-recorded cancellations are the most common finding. If a dealer codes a cancellation only when the final invoice goes out, or keeps non-paying accounts active to protect RMR, the buyer's rebuilt attrition will be higher than the seller's, and the gap becomes a price or holdback discussion.
- Recompute monthly RMR from billing detail and compare it with the reported roll-forward.
- Pull a sample of accounts and match each to a signed contract, a billing history and a recent central station signal.
- Check cancellation dates against final invoices to see whether losses were recorded late.
- Review accounts flagged as suspended, on hold or in collections to see whether they are really lost.
- Compare the interactive services roster with billed RMR to find services delivered without billing, or billing without service.
Illustrative: a dealer whose attrition looked better than it was#
Illustrative: a fictional regional alarm dealer reports steady attrition to a prospective buyer. Its billing system records a cancellation only when a customer returns a signed form, and its collections team keeps non-paying accounts active while it works them.
The buyer's rebuild treats long-unpaid accounts and accounts that stopped signaling as lost, and its figure comes out noticeably higher. Rather than argue account by account, the dealer pauses the process, sets a written non-pay cutoff with its accountant, adds reason codes, and builds a monthly roll-forward that ties to billing and to the central station list.
When talks resume, both sides work from the same definitions. The discussion moves from whether the numbers can be trusted to how the holdback should treat accounts that cancel after closing.
Attrition records after the sale, and how SourceX views them#
Attrition records show why customers leave, which makes them useful beyond a valuation. Cancellation reasons linked to service tickets, false alarm history and billing disputes are operational records, the kind some AI developers license to study how service businesses keep customers, once names, addresses and account details are removed.
SourceX handles any license through the SourceX five-step transaction, starting with a metadata-only fit check: which systems, how many years, which record types. The rights review checks subscriber agreements and central station terms, and the SourceX Evidence Packet records what was approved for release. If the accounts themselves are being sold, decide first which records go with them.
Frequently asked questions
Should I calculate attrition monthly or annually?
Do both. Buyers usually quote an annual figure based on the trailing twelve months, but they want to see each month to spot spikes after price increases, communicator changes or billing system moves. A monthly roll-forward lets you produce any period a buyer asks for without rebuilding the data.
How do I treat accounts I bought from another dealer?
Show them as a separate cohort. Purchased accounts often cancel at a different rate than accounts your team installed, especially soon after transfer. Keep the purchase agreement, the transfer list and any holdback replacements so a buyer can see how each block performed over time.
What if my billing system changed during the period?
Reconcile across the change. Export the last months from the old system and the first months from the new one, and show that closing RMR in the old system equals opening RMR in the new one. List and explain any accounts that did not convert cleanly.
Is a very low attrition rate always good news?
Not always. A very low figure can mean cancellations are recorded late, non-paying accounts are left active, or suspended accounts are never closed. Buyers know these patterns, so an unusually low figure invites closer testing. Clear definitions are what make a good number believable.
Who should own the attrition calculation inside the company?
Usually the CFO, controller or office manager who owns billing, with the operations lead confirming central station status. One person should keep the definitions document, run the monthly roll-forward and answer buyer questions, so the figure does not change depending on who is asked.
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