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How to Conduct Data-Driven Marketing Due Diligence

One of the things we see when companies are acquired is that the acquiring company will do all kinds of due diligence. For most companies, that includes technical, financial, and legal due diligence, as well as an assessment of the market and the pipeline. But one area that we see being consistently overlooked is marketing due diligence. 

There is plenty of data, information, and opportunities hidden within the marketing side of every business that aren't analyzed before an acquisition. With all the other kinds of due diligence happening during the LOI-to-close stages, marketing due diligence often isn’t prioritized. 

In this blog post, we’re going to show the types of insights that can be uncovered, the value they can help you capture, and even give you a step by step checklist to follow. We’ll cover:

  • Why marketing due diligence is critical
  • Key questions your marketing due diligence should answer
  • Six areas to consider to get these answers
  • Benefits of data-focused marketing due diligence
  • A comprehensive checklist for you to follow


Why marketing due diligence is critical

When you look at just high-level marketing data, it doesn't give you the whole story. If you don’t analyze marketing performance, you could be at risk of running into a range of common issues. 


You might underestimate the investment needed to hit your sales targets

If the number of MQLs you need to hit sales targets is higher than you have been hitting up to this point, you’re going to need more of a marketing budget to get those MQLs. Without this level of marketing due diligence, you won’t have the information you need to identify this shortfall, so you’re more likely to end up behind targets.

You might be relying on underperforming marketing channels

The current spend on each channel could mean that the company is investing a large portion of the marketing budget into a channel that isn't working. Discovering which channels are delivering and which aren’t during the marketing due diligence stage helps you focus on the channels that are effective.

You might be trying to build a team that won’t be effective

You might be thinking about integrating marketing teams and prioritizing approaches, especially if it's a platform company with multiple product lines that need to be merged. Marketing due diligence helps ensure you’re prioritizing the right areas of expertise, rather than directing resources towards an effort that won’t be as profitable or as effective.

You could miss out on pipeline growth opportunities that are low-hanging fruit

Without a thorough assessment of current marketing activities, you could miss out on capturing these kinds of opportunities. This is where marketing due diligence can be a huge driver. In the first 100 days, you want to hit the ground running, and identifying those low-hanging fruit opportunities helps deliver some quick wins.


Key questions your marketing due diligence should answer

What is our projected cost per MQL based on historical performance? 

Example: If 10% of MQLs get through to closed won and the average deal size is $10,000, the maximum spend on an MQL is $1,000. 

Marketing due diligence should show whether the company is actually on trend to stay within this figure. Are we behind that number at the moment? Or is there room to work with?


How many MQLs does marketing need to generate to hit those sales targets? 

Example: If the bookings target for Q1 is $1 million and the conversion rate of MQLs to closed won is 10%, we need 1,000 MQLs to hit that bookings target. If we’re only on track to generate 800 MQLs, that’s an area that needs work.

Knowing how many MQLs you need makes it easy to see whether the company is currently running behind, and how many extra leads the channels need to generate.


How much additional budget is needed to hit that MQL target? 

Example: If the company is currently generating 800 MQLs, they need to generate an extra 200 to hit the 1,000 MQL target. If each MQL costs $1,000, there needs to be an additional $200,000 in marketing spend to generate the extra MQLs. 

MQLs aren’t free, so if the marketing budget doesn’t allow enough for each MQL, it’s going to be nearly impossible to hit targets.


To get these answers, there are six areas to consider

  1. Review current marketing budget and channel breakdown. 
  2. Analyze the ROI of each channel to understand which channels are performing better than others. 
  3. Identify opportunities to scale, to increase pipeline, and to maximize ROI from the marketing spend. 
  4. Assess the marketing team and the resources and expertise needed to capture the potential value. 
  5. Track pipeline conversion rates across all stages of the pipeline. 
  6. Calculate the marketing budget needed to hit the sales projections.


1. Current budget and channel breakdown

In the example above, the trade show investment is nearly $600,000, whereas paid media spend is about $50,000. Even content marketing and the website only have a budget of just over $100,000. In fact, the trade show budget makes up more than half of the entire marketing budget.

These kinds of figures tell us a lot about a company. In this case, an important takeaway is that the company focuses mostly on offline channels at the moment. 


2. Channel performance and ROI

By looking at channel performance and ROI, we can see if that spend maps to the return from the channels. 

In this example, the investment of nearly $600,000 into trade shows leads to 390 opportunities. Meanwhile, only a tenth of that spend is going into paid media, but this channel is delivering 806 opportunities. In this case, the balance of the spend is the reverse of what it should be, with trade shows getting much more budget than paid media despite being less effective.

Similarly, content marketing is generating more than double the number of leads and opportunities that the trade shows are generating but is only getting an investment of around $100,000. An obvious opportunity here would be to make adjustments to the spend since paid media and content are heavily underfunded in this business. 


3. Identify opportunities to scale pipeline and maximize ROI

From the analysis of channel performance and spend, you’ll be able to identify opportunities to adjust the marketing investment to generate more MQLs at a lower cost.

Reallocate spend from ineffective channels to more effective channels

For our example company, the cost per opportunity from trade shows is $1,500. If the average deal size for this company is $10,000, spending $1,500 on an opportunity is a good amount if a large proportion of those opportunities are converting to paid customers. For paid media, on the other hand, the cost per opportunity is $61.

In this case, we might look at the breakdown inside those trade shows. It may make more sense to only attend the five most effective trade shows out of the 50 the company is currently attending. The budget that would have been spent on the less effective shows can then be put into paid media or content instead since these are more efficient as channels.

Give more budget to channels that are already delivering lots of MQLs at a low cost 

Figure out the maximum amount it makes sense to spend on the channels that are already working. For example, if the company is currently spending $100,000 per year on paid media and seeing a fairly low cost per opportunity, does it make sense to increase the spend to $1 million instead? Consider the law of diminishing returns: how far are we from the point where there's no more to gain from that specific channel? If there's still more to gain, this is an opportunity to boost those channels.

Identify channels that aren't being utilized yet

Our example company, for instance, may not be investing in Facebook and LinkedIn ads. This would be an opportunity to open up that channel, particularly given the success from paid media this company is getting already. The company could open up additional paid media channels, find the ideal customer there, and then can ramp up the spend to get more of a return.

Include opportunities for existing customers

As well as running campaigns to get new customers, there are opportunities to upsell and cross-sell to the existing base. By finding inefficiencies in the budget we’re spending to acquire new customers, we can direct those efforts and budget towards upselling and cross-selling instead. This is particularly important if those initiatives are a key part of the investment thesis going into the acquisition, and are likely part of the growth valuation model that has been put in place.

4. Identify gaps in the marketing team

Identifying the opportunities is important, but so is investing in the right resources to capture the value from those opportunities. For example, if we identify opportunities in the area of paid media or SEO, but the company doesn’t have an SEO manager or a demand-gen specialist on the marketing team, we want to add that expertise to the team as soon as possible. 


Identifying gaps on the team also allows us to reallocate some of the resources to find the additional people and expertise we need. In our example above, if the company is running 50 trade shows, they might have three event managers on the team. However, if we discover that only five of those shows are effective, we might only need one event manager instead to run the key trade shows. That then frees up some budget to hire a demand-gen manager who can now run the paid media campaigns. 


5. Track conversion rates at every stage of the pipeline

We've identified opportunities to generate MQLs based on channels, but we also want to know how many MQLs are needed to generate one closed won deal. To track conversion rates effectively, it helps to work backward. 


This is important because it lets us know if our marketing budget is drastically underfunded. If the budget is nowhere near where it needs to be, whether or not we have a place to put it today is almost irrelevant. Identifying which channels are working and giving them more budget builds a bottom-up approach; working back from conversion rates gives you a top-down view as well.


6. Projected budget

Let's say you need 15,000 MQLs to hit your target for 2020, and the budget needed is about $2.3 million. If your current marketing budget is $1.8 million, this top-down exercise shows that you have a shortfall of $500,000 in your budget. 

When you review the channel and campaign spend and plan for the ramp-up and reallocation, check whether the total budget comes to $2.3 million. If you're stuck at $1.95 million, you know that you're not going to hit your sales targets when you factor in the conversion rates from MQL all the way through to close.  

If that’s the case, repeat this exercise and think about how to reach that number of $2.3 million to hit your bookings target. Think about which additional channels you can open up and which of your existing winners could get more budget.


Benefits of data-focused marketing due diligence

Ambitious targets are a part of any acquisition, but all too often, a year out, the company has missed those targets. That's not the result anyone wants. There's a lot at stake, and missing targets comes at a high cost to the company and the investor. 

One way to improve your chances of avoiding this is to get a comprehensive assessment of the investment needed to hit targets, not just from a sales standpoint, but from a marketing standpoint too. This analysis should inform how you structure the team and what resources you need to get to those targets. It helps you find efficiencies in the marketing spend, and when the first 100 days come around, it helps you to hit the ground running.



This kind of analysis needs to be happening more often during the diligence cycles. We’re starting to see more private equity firms than ever before taking marketing due diligence seriously during the LOI-to-close phase. 

Even if you don't carry out your marketing due diligence during that stage of the process, it needs to be one of the first initiatives that get taken on after the acquisition. We've seen so many companies fire chief revenue officers, VPs of sales, or VPs of marketing because this work was not done. This process is the only way to guarantee you’ll get close to or surpass the sales targets that have been set. To help with this process, download our marketing due diligence checklist by clicking this link.

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