A quick check for quality of revenue during initial conversations

A simple yet powerful way to assess enduring revenue is to start with a basic retention check early in your conversations: How many customers did the company have in 2023? And how many of them purchased again in 2024? I like to ask this question to business owners as a quick check, instead of just asking what % of revenue is recurring, which can be vague.

With this, you get a practical snapshot of customer retention and churn, based on real numbers.

To deepen the analysis, I recommend looking at churn not just in customer count but also in dollar terms. Also know as revenue churn. Sometimes, even if the customer count looks stable, you might find that your larger accounts are shrinking, which can be an early warning sign.

To go even further, beyond binary outcomes (retained vs. lost) you can break down your cohort analysis further:

Which customers increased their spend? Which ones decreased? What share of revenue is growing vs. at risk?

This layered approach helps you understand not just the stickiness of the base but also the momentum inside the revenue streams. In other words whether the company is deepening relationships or slowly losing ground.