Abstract

The valuation of customer relationships relies in large part on the analysis of historical customer attrition rate behavior—a key factor in forecasting the economic benefits attributable to such relationships. A variety of methods are available to an appraiser in analyzing customer attrition rate behavior, including constant rate attrition analysis that focuses on customer, or revenue, attrition and actuarial attrition analysis that focuses on the attrition of customers or revenues. In considering which of these methodologies to apply in regard to a particular engagement, the appraiser is often limited by the detail and magnitude of the historical customer purchase information that is available. However, when significant and detailed historical data are available, the appraiser must be aware of the implications inherent in applying one attrition methodology over another. The attrition rate behavior indicated by the various attrition analysis methodologies can vary significantly, resulting in widely divergent indications of value.