Investor Cheat Sheet: Questions to Ask About the Marketing Strategies of Your Portfolio Companies
For private equity firms, effectively connecting digital marketing levers to EBTIDA starts with asking the right questions.
The ability to critically assess and optimize the marketing strategies of portfolio companies is a huge advantage for private equity firms.
Gaining that advantage starts with asking the right questions.
We recently published a white paper that shares how private equity firms can connect digital marketing levers to business financials like EBITDA. Part of this white paper is an investor cheat sheet that outlines a curated set of questions that investors can ask to quickly probe and evaluate the marketing strategies of their portfolio companies.
Without asking the right questions, it’s impossible to understand how digital marketing performance is impacting the bottom line.
Download the white paper for a step-by-step guide to building a financial model that directly connects digital marketing to EBITDA — and see below for the list of questions to ask the marketing teams at your portfolio companies.
Questions on Acquisition
Identifying and understanding the most effective touchpoints for new customer acquisition is vital. The obvious question to ask is this: What touchpoints drive the most incremental benefit for new customer acquisition? This question is foundational, helping investors pinpoint where marketing efforts are most effectively attracting new customers.
Just don’t let that be the only question you ask. Follow-up questions should include:
What are the tactical priorities of these touchpoints for acquisition?
What input metrics (spend, click-through rate, conversion rate, etc.) impact these priorities?
Why do we think this impact is possible?
How confident are we in these tactics working? (And why?)
What tests can we conduct, or what data can we collect, to build confidence?
These questions can help private equity executives understand what marketing tactics are deployed for customer acquisition, the rationale behind them, and their ultimate effectiveness. Ultimately, the answers to these questions can lead to the optimization of marketing strategies so that they positively impact EBITDA and other business financials.
Questions on Retention
Retention of existing customers is a crucial aspect of any business model, especially in the context of portfolio companies in private equity. The first question to ask regarding retention will be similar to the first asked about acquisition: What touchpoints drive the most incremental benefit for customer retention?
This initial question aims to identify the customer interaction points that are most effective in retaining customers, a key aspect of sustainable growth and profitability. Follow-up questions should include:
What are the tactical priorities of these touchpoints for retention?
What input metrics (customer retention, order frequency, average order value, etc.) impact these priorities?
Why do we think this impact is possible?
How confident are we in these tactics working? (And why?)
What tests can we conduct, or what data can we collect, to build confidence?
By posing these questions, private equity investors can thoroughly evaluate the retention strategies of their portfolio companies. This allows for a better understanding of how these strategies are developed, their expected impact, and their actual effectiveness. With answers to these questions, private equity executives can make more informed investment decisions and provide better strategic guidance.
Questions on Discount Strategy
If a portfolio company is discounting, the first question should be specific to the discounting strategy. These follow-up questions can help you better understand how the discount strategy may influence EBITDA:
How is the discount strategy impacting acquisition and retention metrics?
To what extent has the effectiveness of the discount strategy changed over time?
Do we envision changes in the discount strategy over time?
How is discounting affecting the team’s ability to test in non-discount environments?
That final question is particularly important. Many companies offer discounts once a month. A sale may last for a week, and few people make purchases the following three weeks because they bought during the sale. Then, the following month, the company offers a new discount.
In this type of cycle, the team’s ability to run non-discount tests erodes. So, the real question becomes: How can the team gain learnings outside of sale periods?
Ask Questions That Empower Informed Decisions
The questions listed above give you a head start in connecting digital marketing performance to EBITDA. To take the next step, it’s important to build a financial model that includes a tactical layer. With this layer in place, a single toggle at the tactical level flows directly to the enterprise value of a company.
For more on asking the right questions and building a tactical layer into your models, download our white paper. The white paper can serve as your roadmap to connecting digital marketing levers to EBITDA — and to maximizing your investments.
If you have any questions, or if you need support with digital marketing at your portfolio companies, the Aux Insights team is always here to help. Contact us to schedule a brief consultation.
