How to value a subscription business: recurring revenue and churn

Monthly recurring revenue (MRR) is the revenue subscribers are currently paying each month. It describes the present. A buyer is paying for the future, and the future depends on how many of today's subscribers keep paying — and how many new ones the business can win without the seller.

That is why two listings with the same MRR can deserve very different prices. The figure that separates them is churn: the share of subscribers (or of revenue) lost in a month. The glossary covers MRR, ARR and the other terms used on this page.

Real businesses do win new subscribers, so neither path is a forecast. But it shows what the new buyer has to replace every month just to stand still, and that cost — in ads, content, outreach or your own time — comes out of the profit you are paying a multiple for.

• Subscriber counts month by month. Starting count, new, cancelled, ending count — for every month the business has existed. A single trailing total hides when churn started.
• Revenue churn as well as subscriber churn. If the subscribers who leave are the ones on the most expensive plan, revenue falls faster than the head count suggests.
• Cohorts. Of those who joined in a given month, how many were still paying three, six and twelve months later? This separates a loyal base from a stream of trials that never stick.
• Annual plans, separately. Annual subscribers have not had a chance to churn until renewal comes round. Ask when renewals fall due, and how the last round went.
• Failed payments and refunds. Cards that expire, payments that bounce, refunds and chargebacks are churn by another name.
• Read-only access to the billing system. A dashboard screenshot is the seller's account of the numbers; the payment processor is the record. See how to verify a seller's revenue and profit.

• A launch spike. Many subscribers joined in the first few weeks and few since. MRR is at its peak and the trend is down; see valuing a declining online business.
• One month, annualized. "$12,000 a year" may mean "$1,000 last month". Ask for the months; see monthly vs annual multiples.
• A few large accounts. Ten subscribers paying most of the revenue is a concentration problem wearing a subscription label; see valuing a business with concentrated revenue.
• Subscribers who follow the seller. A paid newsletter or community built around a person may not renew for a new owner; see valuing an owner-dependent online business.
• Billing that does not transfer. Subscriptions held in a payment account in the seller's name may not move with the business, and subscribers may have to sign up again. Find out how billing will move before you price the revenue as continuing — see transferring an online business after the sale.

Each sale in our database carries one stated annual revenue figure and one stated annual profit figure, as the listing reported them, alongside the sold price. We do not record subscriber counts, churn, cohorts or whether the revenue was recurring at all, so we publish no "churn-adjusted multiple" and no premium for recurring revenue. The SaaS row below is the closest our data comes to subscription businesses, and it includes products that were not sold on subscriptions. Where we hold too few sales of a type — as with newsletters and communities, if the table shows dashes for them — we publish nothing.

"Sold deals tracked" counts every non-demo sold deal of that type. The last three columns are measured over the paid report's window — the most recent 200 priced sales of that type — on the revenue basis, so they rest on a smaller sample. A dash means we hold fewer than five comparables on that basis and publish nothing.