ADT 2014 Annual Report Download - page 70

FORM 10-K
make monthly payments for the remainder of the initial contract term. The standard agreement term is three years
(two years in California), with automatic renewals for successive 30-day periods unless canceled by either party.
If a customer cancels or is otherwise in default under the contract prior to the end of the initial contract term, we
have the right under the contract to receive a termination charge from the customer in an amount equal to a
percentage of all remaining monthly payments. Monitoring services are generally billed monthly or quarterly in
advance. More than half of our customers pay us through automated payment methods, with a significantly
higher percentage of new customers opting for these payment methods. We periodically adjust the standard
monthly monitoring rate charged to new and existing customers.
Customers and Marketing
We serve approximately 6.7 million residential and small business customers throughout the United States
and Canada. Our residential customers are typically owners of single-family homes, while our small business
customers include, among others, retail businesses, food and beverage service providers, medical offices and
clinics, mechanical and auto-body shops, professional service providers and small-scale commercial facilities.
We manage our existing customer base to maximize customer lifetime value, which includes continually
evaluating our product offerings, pricing and service strategies, managing our costs to provide service to
customers, upgrading existing customers to ADT Pulse®and achieving long customer tenure. Our ability to
increase average revenue per customer is derived from, and largely dependent on, our continued introduction of
additional features and services that increase the value of our offerings to customers. Additionally, on
September 29, 2014 the non-competition and non-solicitation provisions associated with the Separation expired
and, as a result, we are no longer prohibited from competing in the commercial security market and therefore
intend to expand into the mid-sized commercial market.
To support the growth of our customer base and to improve awareness of our brands, we market our
monitored security and home/business automation systems and services through national television
advertisements, Internet advertising, including national search engine marketing, email, online video, local
search, direct mail and social media. We continually work to optimize our marketing spend through a lead
modeling process whereby we flex and shift our spending based on lead flow and measured marketing channel
effectiveness. We utilize a variety of third-party referral providers who generate leads and sales referrals for both
our direct sales team and our authorized dealers. Our partner lead generation methods include agreements with
affinity organizations such as United Services Automobile Association (USAA), AARP and third-party referral
companies.
We are constantly trialing new customer lead methods and channels in an effort to increase our customer
base and drive greater penetration within homes and businesses without sacrificing customer quality. We
continually explore opportunities to provide ADT-branded solutions through additional third parties, including
telecommunications companies, broadband and cable companies, retailers, public and private utilities and
software service providers.
Sales and Distribution Channels
We utilize a network of complementary distribution channels that includes a mix of direct and indirect. In
fiscal year 2014, we generated approximately 60% of our new customers through our internal sales force,
including our phone and field teams, supported by our direct response marketing efforts. We generated our
remaining new customers in fiscal year 2014 through our authorized dealer program, acquisitions and, to a small
extent, through agreements with leading homebuilders and related partners. As opportunities arise, we may also
engage in selective bulk account purchases, which typically involve the purchase of a set of customer accounts
from other security service providers, sometimes including competitors.
Our national sales call centers (inbound and outbound) close sales from prospective customers generated
through national marketing efforts and lead generation channel partners. Our telephone sales associates work to
understand customer needs and then direct customers to the most suitable sales approach. We close a sale over
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