Red flag explained · Customers and retention
Fewer than 25 paying customers: when one cancellation moves the numbers
Short answer: With fewer than 25 paying customers, each one is about 4% or more of revenue on average, so losing one or two changes the numbers. Small customer bases are also more likely to know the founder personally. Ask for revenue by customer and how each large customer was won.
When the checker raises it
Raised as medium severity when a recurring-revenue listing states fewer than 25 paying customers.
Why it matters
Averages hide spread. Twenty customers can mean twenty roughly equal accounts, or one large account and nineteen small ones.
Early customers are often the founder's contacts. They may stay out of loyalty to the person, and leave when the person does.
A worked example
Composite example, not a real listing
Asking price: $70,000
MRR: $3,000
Average monthly profit: $2,500
14 paying customers
Churn: 2% monthly
Revenue verified via Stripe
Business age: 3 years
Owner hours: 6 hours per week
Traffic or revenue sources typed in: Direct 50%, Referral 50%.
What the red-flag checker returns: payback of 28 months on average monthly profit, and this flag:
Medium Only about 14 paying customers
Each customer is roughly 7.1% of revenue on average, so losing one or two moves the numbers.
Ask: Can you share revenue by customer for the top 10 over the last 12 months?
The same example also raises: Concentration not disclosed.
What to check
- Ask for revenue by customer for the top 10 over the last 12 months.
- Ask how each of the largest customers found the product.
- Ask whether any customer has been told about the sale, and how they reacted.
Questions to send the seller
- Can you share revenue by customer for the top 10 over the last 12 months?
- Are any customers, partners or suppliers personal contacts of yours who may not stay after a sale?
- Can you share revenue by customer or partner for the top 10 over the last 12 months?
- How many paying customers are there, and how many are on discounted, legacy or lifetime plans?
Related flags
Useful next
- Buying a micro-SaaS
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The checker is a set of plain rules, not an AI model, and its flags are prompts for questions, not verdicts. Composite examples are invented. Informational screening only, not investment, legal or tax advice.