The buy-side Quality of Earnings team is scrutinizing our customer churn rates over the last three years to justify a lower multiple, but our client retention has dramatically improved since we systematized our operations. How do we present our historical operational data to defend our run-rate EBITDA?

Question

Tyler Smith · Accepted Answer

During a Quality of Earnings audit, the buy-side analysts will analyze your historical client retention over a multi-year period. If you experienced high churn two or three years ago, they will try to use that historical data to argue that your current revenue is unstable and apply a lower valuation multiple.

To defend your run-rate EBITDA, you must prove that your historical churn was a legacy issue that has been permanently resolved by your operational upgrades.

Present your client retention data using a clear cohort analysis that separates your legacy clients from those acquired after you implemented your structured operational systems. Show how your customer onboarding and service delivery became standardized once you defined your core processes and aligned your team under the EOS® framework.

Use your weekly Scorecard history to demonstrate that your customer satisfaction scores and service delivery metrics have stabilized and remained high.

By proving that your improved retention is the direct result of institutionalized processes, rather than random luck or individual effort, you show the buyer that your current performance is predictable and highly repeatable.

This shifts the focus from your past volatility to your stable, forward-looking earnings, forcing the Quality of Earnings auditors to accept your adjusted EBITDA calculations without a multiple discount.