Annual churn under 5% is excellent. 5–10% is normal for a residential route. Above 12% is a red flag worth investigating, though not always a deal-breaker if the cause is identifiable and addressable.
Computing churn correctly. Buyer-friendly definition: number of accounts cancelled in the trailing 12 months ÷ average active accounts during that period. Some sellers will quote "net churn" (cancellations minus new accounts gained) which makes a stagnant route look healthier than it is. Always ask for gross churn separately.
The patterns to look for in a 12–24 month cancellation log:
- Seasonal cancellation spikes. Snowbird routes (Florida, Arizona) and college-town routes legitimately spike in May and September. That's seasonal, not chronic.
- Specific months with abnormal churn. A spike in one month often means a service-quality event, the tech got sick, a chemical issue, a weather problem. Ask the seller what happened.
- Concentrated cancellations in one zip code. Often a competitor moved in, a route got priced too high, or a single negative review went around an HOA.
- Concentration by stated reason. "Selling the house" is the most benign reason, uncontrollable. "Switched to another service" or "price" requires deeper questions about competitive pressure and pricing power.
- Cancellations clustered at a specific tenure. If most cancellations happen at the 6-month mark, the onboarding or first-impression process has a problem you'll inherit.
The cancellation walk-through. Ask the seller to talk you through every cancellation in the last 12 months. Their answer reveals whether they were paying attention. A seller who says "no clue, they just left" is telling you they don't run a tight operation. A seller who can recall the customer, the reason, and what they tried to save the account is a seller worth a premium.
Upcoming churn risk. Beyond historical churn, identify forward risk:
- Accounts within 60 days of a contract renewal (especially HOA and commercial)
- Accounts that have complained recently
- Accounts that have downgraded service in the last 6 months
- Customers who are themselves selling their home (drive-by check, public records)
Build a "watch list" and price the deal assuming the watch list cancels in year one. If retention surprises to the upside, that's your bonus.
Modeling future churn into the offer. A reasonable underwriting model: assume reported churn + 2 percentage points in year one (transition risk), reverting to baseline in years 2–3. If the route can still hit your hurdle rate under that assumption, you have a margin of safety.
What unusually low churn means. Sub-2% churn is rare and worth interrogating, sometimes it means the seller forgets to remove cancelled accounts from the list, or carries former customers who pay sporadically. Verify by checking that every account on the list has a payment in the last 60 days.