Whether you are acquiring a website, eCommerce business, or SaaS, you will want to do digital marketing due diligence. Doing this research before you purchase will give you a clear picture of what the outcome of acquisition will be and how to ensure it’s successful.
In a way, good digital marketing due diligence allows you to see into the future. This also could help prevent negative returns which can plague acquisitions.
The specifics of digital due diligence will vary depending on the type of business you are acquiring. Generally, you want to analyze the market including any competitors, analyze the company’s internal and external data, and interview the seller and team. In this post, we explain each of these steps in detail. Plus we talk about specific things to look for when acquiring an eCommerce website or SaaS.
- What Is Due Diligence?
- Digital Due Diligence
- SaaS Due Diligence
- eCommerce Due Diligence
- Digital Due Diligence Professionals
what is due diligence?
Just about everyone knows what due diligence is. You use it anytime you buy a new car, house, or other large purchase. Whether you are buying used or new, you will want to do your due diligence to make sure you know exactly what you are buying. Otherwise, you could end up with a lemon.
The same idea applies to purchasing a business. You want to do your due diligence whenever you are thinking about acquiring a new business. You don’t want to end up with a very pricey lemon of a company.
An effective acquisition is one that is a good fit for all parties. You will obviously want to think about how acquiring this new company is going to benefit you financially. However, you also want to think about what you can bring to the new acquisition. What can you add to the company? How will your additions affect the bottom line?
These are the first of many questions you should ask yourself when doing your due diligence. For most investors and private equity firms, this thought process is second nature. Where these business acquisition professionals often struggle is doing their marketing due diligence.
Don’t worry though. Our Augurs at Augurian have got your back. This digital marketing due diligence post will cover everything you need to know to fully understand a company’s digital marketing plan, how it has been implemented, and what the results have been.
Looking for more personalized help? Reach out to one of our Augurs today to talk about your potential business acquisition.
Digital Due Diligence
If you are acquiring a business that has both online and offline sales, then you will need to perform separate due diligence checks. The digital due diligence will focus specifically on the company’s online presence. This includes all aspects of online presence from the website to social media accounts and third-party marketplaces like Amazon and eBay.
A complete digital due diligence includes:
- Digital marketing due diligence
- Website due diligence
- Data analysis
- Understanding the market and competitors
- Interviewing the seller and team
Marketing Due Diligence
You will do a deep dive into the seller’s marketing campaigns to see what’s working and what isn’t. This allows you to save money and potentially find gaps in their marketing strategy.
Part of the marketing due diligence process is auditing the collection of marketing technology the company uses. This collection is also known as a marketing tech stack or MarTech. The MarTech audit should analyze how the technology is being utilized.
- Is all the technology in the stack compatible for integration?
- What personalization is being offered through technology?
- Is automation being used efficiently?
- Are there unnecessary or overlapping tech tools in the stack?
- Are there underutilized tech tools in the stack?
Website Due Diligence
When purchasing a website, there are a number of things that you will want to focus on.
- What type of website is it?
- How old is the website?
- Who owns the website?
- How does it make money?
- How does website traffic correspond with revenue?
- What are the traffic sources?
Look into where the traffic is coming from and continue your due diligence check of those sources. Many websites rely mainly on organic search engine traffic which means you will want to do an SEO due diligence check.
Also, don’t make the assumption that the website you are thinking of acquiring is owned by the seller. You can double-check the owner of the domain for free.
Starting a website from scratch can be a lot of work, and it can be expensive. Brand new websites also don’t usually appear on the first page of Google searches for at least six months. For these reasons, it’s often more beneficial to buy an established website rather than start your own. That is, as long as you do thorough website due diligence.
According to digital due diligence expert Simon Hall, a complete data analysis “will not only open up a deeper understanding of the company but the maturity level of data management and how the company is using data to drive sales forward.”
In his 100 digital due diligence questions to ask yourself before an acquisition, Hall puts data analysis first. This implies that data plays an essential role in good digital marketing due diligence.
You want to answer the following basic questions when doing your data analysis:
- How is data being collected?
- How is it being stored?
- In what ways is data being used to make decisions (or not)?
Your answers to these questions may drive further exploration into the company’s data. For example, you may want to know what data is being collected through and used in marketing tech. Even more specifically, you may want to know if they have a single customer view for each customer.
Analyzing the Market
You should also include external data in your digital due diligence. External data analysis compares the company’s data to that of competitors and the target market.
To start, ask yourself:
- What is the target market?
- Who are the competitors?
Now, I know these are big questions, so let’s break them down a bit.
It’s extremely important that the target market is clearly defined by the company. Analyze the company’s data, marketing strategies, and website with that target market in mind. You should also research the current market trends and projections.
Look at how saturated the market is. Estimate how many competitors there are. Compare that to how many there were in previous years to measure market growth. How easy is it for new competitors to enter the target market?
Then, look at the top competitors in the target market.
- What are they doing well?
- What are they doing differently?
- Is the company paying attention to these competitors?
- What are they doing to stand out among competitors?
It may even be helpful to look at the marketing campaigns of competitors. Compare what they are doing with what the seller’s business is doing.
Also, try to find out how much money competitors have invested and who their investors are. This will help you understand how deep their pockets are. A lot of well-funded competitors may be a potential roadblock to the business’s success, and you will want to know that before you buy.
We recommend conducting interviews after you have done both internal and external evaluations of the data. That way you can create targeted, data-driven questions to ask the seller and their team.
Furthermore, interviews can help you understand the reasons behind strategies and decisions. Data alone may not be enough for these kinds of insights. You may want to know why certain marketing tech was used instead of others or why certain data was focused on while others were ignored.
On another level, the interviews are a chance for you to get to know the team. This is especially important if you are going to be working directly with them. Think about whether you like the people you are going to be working with.
Lastly, don’t discount the impact of the workplace and staff culture when making an acquisition. Looking at the retention rate of employees and specifically of the digital marketing team can provide some insight into company culture.
A positive company culture drives innovation and productivity, so set the right tone even before acquisition. You can do this by asking team members what they would change about the company’s current digital marketing strategies if they could.
Saas due diligence
SaaS or software-as-a-service is a unique sector, so SaaS due diligence is also unique from other due diligence processes because it uses a lot of metrics.
Quality metrics measure the company’s past and present performance as well as predict future growth.
When it comes to SaaS, there is a lot of metrics you can use to track and analyze performance and growth. However, not all metrics are equally valuable. Knowing which metrics to use will give you the best data. This, in turn, sets you up for quality analyses.
We recommend using 15 different metrics in your SaaS due diligence. These metrics fall into 3 main categories as shown in the table below:
|Number of Unique Visitors
|Monthly Recurring Revenue
|Customer Acquisition Cost
|Marketing Qualified Leads and Sales Qualified Leads
|Annual Recurring Revenue
|Ratio of Customer Lifetime Value to Customer Acquisition Cost
|Lead Velocity Rate
|Annual Contract Value
|Lead to Subscriber Rate
|SaaS Quick Ratio (New MRR + Expansion MRR) / (Contraction MRR + Churned MRR)
|Total Contract Value
|Free Trials and Demo Requests
|Customer Lifetime Value
|Average Revenue per Account
Some of these metrics such as the number of unique visitors and Monthly Recurring Revenue are self-explanatory. Others, such as the SaaS Quick Ratio and Churn Rate, require more digital marketing knowledge to measure and comprehend.
Augurian specializes in SaaS marketing and management. We can help you throughout the process of acquisition and transition. We do this by analyzing the current digital marketing strategies and adapting them to maximize growth.
eCommerce due diligence
Ecommerce refers to the process of buying and selling goods or services over the Internet. Any company that sells goods and/or services online is engaging in eCommerce. Depending on what type of company you are acquiring, eCommerce due diligence may be part of the process or it may be the primary focus on your pre-acquisition research.
You can use the digital marketing due diligence questions from the first part of this post when purchasing an eCommerce business. Many of the metrics that we use to measure SaaS models apply to eCommerce as well. For example, you want to analyze the company’s growth and its ability to handle future sales growth. You will also want to know what channels the company is using to funnel traffic and how each of those channels is performing.
So, where does eCommerce differ? While there is no one right way to do eCommerce due diligence, it is often beneficial to focus on brand building. As the eCommerce industry continues to expand, a strong, recognizable brand can help a company stand out from the sea of online shopping options.
If the company is newer, you want to know whether or not they already have a plan in place to develop the brand. For older companies, think about what brand development strategies have been employed and what the results have been.
Hire a digital due diligence professional
Answering our digital marketing due diligence questions is an excellent way to ensure success with your business acquisition. But digital due diligence isn’t like traditional commercial due diligence. It requires a completely different set of skills and steps. What you thought you knew may not apply anymore.
Additionally, digital business acquisitions can be hectic, drawn-out processes with unpredictable timelines. If you are running another company or have other time-consuming responsibilities, you may not have the time and energy to commit to a thorough due diligence check. And, the last thing you want is to waste precious working hours trying to figure out something that’s relatively new to you. Let us help.
At Augurian, we are experts in digital marketing, so you don’t have to be. We will analyze your potential purchase using the right metrics and trained eyes. We will conduct all the necessary due diligence processes customized to your specific needs. And you will gain the power to make the most informed decision with the greatest possibility of success!