Red flag explained · Customers and retention
No churn figure for a subscription business
Short answer: Churn is the share of customers or revenue lost each month. For a subscription business it decides how much of today's revenue is still there in a year, so a price without it is a guess. Ask for monthly customer and revenue churn for each of the last 12 months.
When the checker raises it
Raised as medium severity when the listing looks like recurring revenue (SaaS, subscription, membership, newsletter or MRR) and gives no churn figure.
Why it matters
At 3% a month, about 69% of today's customers are still paying after a year. At 8% a month, about 37% are. Those two businesses can show the same MRR today and be worth very different amounts.
Sellers who know their churn is low tend to say so. A missing figure is worth a direct question.
A worked example
Composite example, not a real listing
Asking price: $55,000
MRR: $2,400
Average monthly profit: $2,000
120 paying customers
Revenue verified via Stripe
Business age: 3 years
Owner hours: 5 hours per week
Traffic or revenue sources typed in: Organic search 35%, Direct 40%, Referral 25%.
What the red-flag checker returns: payback of 27.5 months on average monthly profit, and this flag:
Medium No churn figure for a recurring-revenue business
Churn decides how much of today's revenue will still be there in a year. Without it, the price is a guess.
Ask: What were monthly customer churn and revenue churn for each of the last 12 months?
The same example also raises: Concentration not disclosed.
What to check
- Ask for monthly customer churn and revenue churn for each of the last 12 months, and how each is calculated.
- Ask how many new customers arrive each month, and from where.
- Run the SaaS churn stress test with a range of churn rates.
Questions to send the seller
- What were monthly customer churn and revenue churn for each of the last 12 months?
- How is churn calculated: by customers or by revenue, and are annual plans included?
- How many clients left in the last 12 months, and why did the last three leave?
- How many subscribers are on annual plans, and when do they renew?
Related flags
Useful next
- SaaS churn stress test
- Buying a micro-SaaS
- Free red-flag checker: paste a listing and see which flags it raises.
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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.