Retention

Share of customers and revenue that stays from one year to the next.

Family: Earnings
Position: C4
Scored: Against a target

1:21

Whiteboard session

Nick on retention

Nick works through this element as in an FNDRS workshop: what a buyer is really asking, how the score moves, and the first thing to fix.

In this session

01The numberPicture your customer list from one year ago. How many of those customers are still with you today, and how much of the revenue came from them? Most owners have a feeling about the answer; very few have the number. Retention is the share of your customers, and of their revenue, that stays with you from one year to the next.
02What a buyer asksHow much of the business I am buying will still be with me in twelve months? Retention also makes growth cheaper: a customer acquired once and kept year after year carries a margin that keeps rising. When customers leave, sales has to replace what was lost.
03What is scoredGross and net revenue retention over the last twelve months, read by cohort: customers grouped by when they actually started with you. Gross is how much revenue you kept from the customers you already had; net adds in the growth on top of it.
04The first fixKnow why your customers leave. Ask them, write the reasons down, pick the top three, and start fixing them. Winning a customer and keeping a customer are two entirely different things. Retention pairs with Recurring Revenue to make what FNDRS calls quality of revenue.

Nick LongCEO and co-founder

Table 1. Entry 10 in the Exit Elements specification, version 1.4.
Symbol	Rt	Number	10	Family	Rt Earnings	Position	C4
Scored as	Against a target	Compounds	QoR	Worked in	Scale	Pillar	Customer and revenue quality

§1 Definition

What retention is

Share of customers and revenue that stays from one year to the next.

Retention is the share of customers, and of their revenue, that stays with you from one year to the next. It tells a buyer how much of the business they are buying will still be there in twelve months. High Retention makes growth cheaper because new sales add to the base instead of replacing losses.

A managed IT provider that keeps 95% of its clients each year has a business that compounds. A marketing agency that loses a third of its accounts annually has to sell hard just to stay level.

Use cases

Measuring revenue retention by customer cohort, learning why customers leave and fixing the top reason, and building account management as a function separate from sales.

The earnings family

The economic engine. Earnings elements determine the size of the number a multiple is applied to.

Earnings. The engine. Pricing, margin, growth, overhead, recurring revenue, and retention set the number a buyer multiplies.

Meet the family

§2 Measurement

What the assay measures

Gross and net revenue retention by customer cohort over the trailing twelve months.

Critical gapLeaking valueDevelopingStrong53Today100Target

Critical gap: 0 to 24
Leaking value: 25 to 49
Developing: 50 to 74
Strong: 75 to 100

Figure 1. Sample assay for Acme Industrial: retention scores 74 today (developing) against a target of 82 (strong). Sample scores, not a client. Your own assay comes from the exit score and the valuation.

How the scale reads

Every element is scored from 0 to 100 against what a sophisticated buyer expects at close.
Risk elements are scored as control: higher is safer.
Inputs are recorded, not targeted.
Outcomes are derived from their feeding families.

Figure 2. Quality of Revenue (QoR) is the overlap of Retention and Recurring Revenue: each set is one element, drawn in its family color; the compound is what a buyer finds where they meet.

§3 Venn

How retention bonds into quality of revenue

A compound is two elements a buyer reads as one property. The compound buyers underwrite first. Recurring Revenue proves income repeats; Retention proves it stays. Each circle is one element, scored on its own; the overlap is quality of revenue, read from the parts together rather than from any one of them.

Retention is one of the circles. Its own score comes from the assay; the compound's comes from all 2.
Where one circle is weak the overlap shrinks, and with it the price a buyer puts on the whole. Strong recurring revenue without retention is still not quality of revenue.
Hover a circle to read what that element measures, or the centre for the compound itself.

Tm Tl Cp Dm Pr Gm Rv Oe Rr Rt Cf Pd Md Se Ip Br Ta Sy Od Dd Cc Kp Lc Td Sp Ac Dr Sc Tx Es In Ap Ev Op Fr Lg

Figure 3. Retention at C4 in the standard table: column C, row 4. Columns group the families; the wealth series runs beneath.

§4 Position

The earnings series

6 elements share the family. Read them together: a buyer prices them as a group.

§5 Compounds

What retention forms

Compounds are the properties buyers actually price: several elements bonded into one. Each is scored from its parts.

Rr+Rt→QoR

Quality of Revenue

The compound buyers underwrite first. Recurring Revenue proves income repeats; Retention proves it stays.

Recurring Revenue · Retention

Bonds withRr Recurring Revenue

§6 In the FNDRS journey

Where retention gets worked

The assay scores it. The process, the pillars, and the platform move it. Table 2 lists every place this element is on the agenda.

Table 2. Where element 10 appears in the FNDRS journey.
Where	What happens	Alongside	Go
StageScale	Scale with intention. Grow revenue, profit, capacity, and capability without adding fragility or owner dependence. The earnings engine and the multiple, worked in order of dollar impact.	Pr Gm Rv Oe Rr Md Se Ip Br Ta Sp	The process
Pillar of valueCustomer and revenue quality	Buyers underwrite this compound before anything else: revenue that repeats without being re-sold, customers who stay, and no single account that can sink the deal.	Rr Cc	The pillar

Figure 4. Retention against the neutral pivot (Acme Industrial sample): above 50 adds premium to the market base multiple, below 50 subtracts. The hollow mark is the target.

§7 In the valuation

What the FNDRS valuation reads for retention

Measured Low to medium leverage

The FNDRS valuation reads this element directly. Its assay score derives from the same answers the engine scores, so the assay and the valuation can never disagree.

What FNDRS reads

Customer churn rate and customer-count diagnostics.

How the table meets the number

Find out where your retention stands

The exit score is the first assay: fifteen minutes, six pillars, and a first read on the elements that matter most.

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