It’s been well-documented through various guides on the key areas that are required to highlight and have in order when it comes to selling a business or looking to get acquired.
However, as acquirers, investors, and organisations are getting savvier when it comes to growth and marketing, just sharing high-level marketing metrics isn’t going to cut it – certainly not for smart (and serious) buyers or larger organisations.
In this guide, I’m going to share some of the main ‘marketing metric areas’ that I know smart and sophisticated buyers would want to know when it comes to a potential acquisition.
For context in writing and sharing this guide, I’ve been through the due diligence process around acquisitions myself, and these were some of the metric areas for marketing that relevant parties wanted to know.
The more you know your numbers and metrics, the better your decision-making is going to be. The more detail you share about your numbers and reasons as to why in regards to performance (and sharing strategy around improving them over time), the better your negotiation position will be when it comes to discussions around valuation.
Before diving in, each of these metric areas are applicable for SaaS and eCommerce businesses primarily. However, there’s a lot of overlap with other types of digital businesses as well.
Key Area 1: Knowing Your Primary Growth Marketing Metrics Back to Front
We all know the importance of tracking your main financial metrics when it comes to operating and running a business, such as your Profit & Loss (P&L), Balance Sheets, revenue growth & more.
Whilst your overall business metrics and having them tracked is absolutely pivotal for growing a successful business and having them readily available for potential acquirers, buyers are now paying even more attention to important marketing metrics which can dictate the future success of a business.
Knowing your marketing metrics in detail, and displaying them, is a positive sign for those looking to invest and acquire. This is regardless of whether you’re a marketer or a founder with no marketing background.
After all, if you don’t know or track your marketing metrics often, then you’re most likely flying blind.
So, what are the primary marketing metrics that matter in conversations with acquirers for either SaaS or eCommerce?
Okay, so there are a lot (and lots) of marketing metrics that exist – in fact, every single channel and marketing initiative has got its own dedicated metrics, which can get pretty detailed. Some channels even have a minimum 10+ metrics alone that marketers like myself have to remember.
However, what’s important to state is that you definitely don’t need to know all of them unless growth/digital marketing is what you focus on day-to-day.
Having said that, you’ve got to know these key metrics below that potential acquirers want to know that you’re on top of.
SaaS & eCommerce Metrics (that Apply to Both)
- CAC & LTV (and LTV:CAC) – these are absolutely crucial to know in-depth for your company. I have a dedicated section on why these two metrics and the ratio calculation matters when it comes to growth.
- Traffic Quality and Sources – whilst you may generate a lot of traffic, this by no means guarantees the quality of the audience. Smart potential buyers will ask where you get traffic from, and giving a high-level general number may sound impressive, but it won’t be enough.
- ROAS (and) – Most businesses do paid advertising, and a typical measurement used is called ‘Return on Advertising Spend’ (a.k.a ROAS). Measuring this metric is important to share and measure if you have a paid ads strategy in place, but it’s not the ultimate metric that determines success. That metric is the one I’m about to mention below – ROI.
- Marketing (actual) ROI – ROI simply means the ‘Return on Investment’ from your overall marketing (either digital or offline) campaigns and activities. I’ll use paid ads as an example here – many contractors and agencies report on ROAS as a success metric, but it doesn’t provide the full picture. ROI in the case of paid ads takes into account salaries/management fees, money spent on creative, landing pages (or time spent on website updates for campaigns), and of course, ads budget. On top of that, for eCommerce, you’ve got to also consider COGS and Shipping. To learn more about measuring actual ROI, I enjoyed this particular guide on measuring ROI for startups.
- Conversion rates – Many of us know this metric, and luckily enough, there are many tools and solutions out there that can provide conversion rate insights, such as Shopify for eCommerce and Google Analytics for SaaS. I share more of my favourite tools just below that can provide great insights into conversion rates.
- Monthly Burn Rate – simply means how much you’re spending per month on marketing in total.
- Monthly Recurring Revenue (MRR) – this in many ways, speaks for itself, but how much revenue you generate per month is critical to measure. However, it’s not just the total MRR you need to understand, you also need to understand your net MRR. So, you also need to track the following:
- New MRR – new revenue gained within a given month
- Add-on MRR (Expansion) – when an existing customer upgrades
- Monthly Churn Rate – the amount of revenue you are losing per month due to cancellations or downgrades
- Activation Rate – activation means measuring users who make a desired action (or completed a particular stage) through the onboarding process that you consider to be a key milestone. A higher activation rate means users/customers are seeing value faster once they sign up. Implementing activation strategies to help increase your activation rate can help lead to better customer retention over time.
- Product-related active metrics (DAU, WAU, MAU) – depending on your platform adoption and user activity, measuring how users interact with your solution over a specific period helps determine how ‘sticky’ your product is.
- Qualified marketing traffic – ensure you setup up event tracking to view how specific segments of audiences interact with your site. Naturally, many sites generate lots of traffic, but it doesn’t mean anything unless they’re doing specific actions you ideally want them to be making.
- Leads by lifecycle stage – a typical high-level lifecycle consists of – Lead > MQL > SQL > Opportunity > Customers. Measuring how leads and users interact with your business over a lifecycle is crucial for targeted campaigns to help nurture them into paying customers.
- Lead to customer rate – this metric helps determine the quality of the leads you’re generating.
- ARPU/ARPA – both the acronyms respectively mean ‘Average Revenue Per User’ and ‘Average Revenue Per Account’. Both help paint a picture on the quality of customers being acquired and its impact on the bottom line. Identifying segments of higher ARPU/ARPA customers within your customer base means you can learn the key attributes about them, which can help formulate messaging and campaigns to go after more of them.
- Viral coefficient rate – this isn’t crucial to measure compared to some of the above metrics I’ve spoken about, but absolutely worth highlighting if you get a lot of referral signups from existing users. It’s a good indication of organic growth and how many existing users are inviting new users. It’s a great sign if many users are inviting new users (and certainly worth pointing out to those evaluating your company). This is a great guide to learn more about calculating viral coefficient.
- Referral rate – this is somewhat related to the viral coefficient rate, but this does need to be measured separately. Measuring where your referrals come from, for example, through a post-purchase pop-up (i.e. “where did you hear about us”) or through a survey, can help companies determine more accurately which source is contributing to new referrals.
- Average Order Value (AOV) – the amount that customers spend during a transaction on average.
- Cart Abandonment Rate – this is calculated through the number of shoppers who completed their purchases / number of people who started a cart. Here’s an awesome (and quick) guide on how to calculate cart abandonment rate on Shopify.
- Returning Customer Rate – this is calculated through the number of returns from customers / total number of customers.
- Store sessions by traffic source, location & device – knowing where your visitors and customers coming from helps with targeted messaging and user experience with your store.
- Email Revenue rates – how much revenue are you generating from your emails over other sources? Most email marketing platforms do a great job when it comes to revenue reporting from your email campaigns.
- Average Inventory sold per day (also by week and month) – view which products are being sold and their variants by day, week and month. This helps to identify which are top sellers that you scale up and view other lower-performing products that you can then push with special promotions.
- Referral Revenue – another good opportunity and sign that customers are loving your brand is the amount of referral revenue you generate from customers inviting their friends.
Whilst I’ve mentioned a lot of metrics here, funnily enough, this isn’t even an exhaustive list.
Having said that, these are some of the main metrics you need to keep on top of depending on the business you run.
What’s the Best Display and Reporting Process for All These Metrics?
So now it’s about ensuring you can communicate and keep on top of these metrics effortlessly, as well as have the ability to easily share them with potential buyers.
Here are some of my favourite reporting tools and dashboards that I recommend checking out (if you’re not using them already).
SaaS & eCommerce
- Google Sheets/Excel – spreadsheets will always be a staple for custom reporting. My recommendation is using charts to effectively communicate key metrics to help visualise information faster.
- Sueprmetrics – a good platform I use for reporting is Supermetrics, which has an awesome integration with Google Sheets (and keeps data fresh).
- Google Analytics – great for highlighting many of the above metrics for both SaaS and eCommerce. Great for seeing key sources across paid, organic and referral. Plus, any campaigns that you run (use UTMs for tracking).
- Google Data Studio – the custom dashboard features in Google Analytics are good, but to go that extra mile and include other in-depth channels and their metrics, Google Data Studio is a good solution to look into.
What about SaaS-specific tools?
These tools report more on business and financial metrics but are very important tools for making marketing decisions based on data:
- Baremetrics – great UI and reporting functions.
- ProfitWell – feature-rich suite of tools for SaaS businesses. Goes into awesome detail for metrics that matter, as well as intelligent benchmarketing reports.
- Churn Free – a platform for insights to help reduce churn.
What about eCommerce-specific tools?
Here are some of my personal favourites that highlight some important marketing metrics:
- Shopify Analytics – great summary dashboard of overall performance.
- Triple Whale – in-depth eCommerce marketing solution, which includes attribution reporting, creative insights, and more.
- Polar Analytics – integrate all the primary ad channels and analytics platforms into one reporting dashboard.
The key takeaways to remember & action
Here are some action items to action:
- Learn and make sure you’re across some of these metrics, even if marketing isn’t your primary function.
- Plan and work out consistent reporting dashboards that you can visit and also share with those who are interested in buying your company.
Key Area 2: LTV:CAC Ratio – Pathway & Strategy to lowering CAC & increasing LTV
(Image credit: Unsplash)
In relation to the above marketing metrics, the other major areas around marketing numbers (which also relate to your financials) that you have to have confidence in understanding for those interested in acquiring your business is CAC and LTV.
Not only that, you need to have confidence in the strategy (strong detailed answers) in how the business will lower CAC and increase LTV over time.
Ultimately, the best metric and formulation you should be measuring to understand the effectiveness of CAC and LTV on your business is through – the ‘LTV:CAC Ratio’.
I’ll talk about what this ratio means and how to calculate it in a bit more detail below.
Knowing these calculations is certainly an area that many founders and business owners don’t do the best job of tracking effectively and have access to on the fly.
If you’re serious about being acquired and you don’t track CAC or LTV properly, then keep reading on.
Understanding These Key Metrics
What is important to know when it comes to calculating the LTV:CAC Ratio is why, what, and how both ‘CAC’ and ‘LTV’ are measured in the first place (and why they absolutely matter for you to keep on top of).
This acronym stands for Customer Acquisition Cost, and it’s calculated by the total amount of sales and marketing expenses/costs required to acquire new paying customers.
When it comes to expenses, to help formulate an accurate CAC, you have to include all expenses related to marketing initiatives and activities, not just ‘ad spend’. So that can include salaries, commissions for salespeople, ad spend, and any resources related to acquisition for customers.
So does CAC apply to all businesses, from SaaS, eCommerce, app businesses and even blogs with info products?
The short answer is yes – it applies to all types of businesses. It’s absolutely pivotal for SaaS and eCommerce businesses, especially.
The ultimate goal is to get your CAC to be as low as you can possibly make it. A better CAC means better profit margins and is a sign that your overall marketing initiatives and activities are working efficiently.
Recommended readings: Two good guides I recommend checking out include CAC for SaaS businesses (includes a great video tutorial) and CAC for eCommerce.
So, now we know what CAC is at a high level, how do you know what a good CAC is? And a CAC number which makes sense and is feasible for your business?
Well, there are a few variables, and it does depend on your type of business and business model.
In order to understand what an ideal CAC is for your specific business, that’s where the LTV:CAC comes into play.
However, just before we get into understanding the ratio, we need to understand the other key metric that makes up the ratio calculation – LTV.
LTV stands for ‘Lifetime Value’. It’s calculated by the total spend of a customer over a 12-month period (typically done in 12-month periods).
When it comes to the calculation for LTV, it does vary depending on your business model. For example:
- SaaS – fairly straightforward to measure as you take into account the subscription plan and divide it by 12 months. ARPU (Average Revenue Per Month) is important to know also to take into account when users may upgrade or increase their plans over a specified period (3 or 12 months).
- eCommerce/DTC – for eCommerce, there’s a little bit more involved, and I recommend reading this guide on how to calculate LTV in eCommerce.
The reality is LTV can be a somewhat complex topic depending on your category of business and business model.
I recommended checking out these readings on metrics for selling SaaS businesses and LTV for eCommerce, which go into a lot more detail on calculations and why it’s important to measure.
So, what’s a good LTV to have and aim for your particular business?
Well, the best way to find this out is through the LTV:CAC ratio.
What is LTV:CAC Ratio, and Why Does it Matter for SaaS and eCommerce Businesses?
Now that we know what the metrics LTV and CAC mean and how to measure them, it’s now important to understand what a good LTV and CAC mean in relation (and context) to your business.
That’s where the LTV:CAC ratio comes into play.
To calculate this ratio, simply divide your average customer value (LTV) by the customer acquisition cost (CAC).
For example, your average customer value could be $300, and your customer acquisition cost may be $75, which means your LTV:CAC ratio is 4 (i.e. 4:1).
Okay, so what is a good and bad LTV:CAC ratio?
The standard answer that most businesses should be aiming for is 3:1.
Here is some context around LTV:CAC ratios (the good and bad):
- LTV margin is below 1 – this is not a good position to be in and means your product is struggling to make money.
- Below (< 3:1) – let’s say you’re close towards ‘1’. Well, this isn’t ideal either and means you need to find a way to get closer to ‘3’ in the not-to-distant future. You’re at a stage that means it’s going to take longer to get to a positive cashflow position for you to fuel more growth. If you’re closer to 3 but haven’t hit it yet, that’s more of a positive sign.
- Higher (> 3:1) – If you’re higher than 3:1 and sitting around the 4-5 mark (or potentially higher), you’re in a good cashflow position, and probably means you’re preserving cash in case of market shifts (like now as I write this), holding onto cash for a big growth campaign, considering international growth expansion, or you’re looking to invest/acquire a business for growth. Either way, you’re in a good financial cash position as a growing business.
The main takeaway to remember here is that you don’t have to have a ‘healthy’ LTV:CAC as of right now when a buyer is looking to acquire, but you need to show a positive trend towards a healthy ratio number, or at the very least, a detailed, clear plan for the future. Ultimately, this metric and where it is for the business will have an impact when it comes to business valuation and negotiation.
Strategies & Tactics to Help Improve LTV, CAC, and Your LTV:CAC Ratio
For those in SaaS and eCommerce, here are some strategies that have worked well for clients and startups I’ve worked with and advised over the years (also applicable for other business types too).
Naturally, there are plenty of other strategies that could work for you, but I’ve found these to consistently work for many.
- Improve your sales funnel – utilise the likes of automation, data and personalisation. Build out specific landing pages based on user intent. Most SaaS funnels require a multi-touch funnel/customer journey approach, so use the likes of remarketing ads and pop-ups to collect emails and run nurture email sequences.
- Reduce the need and reliance on paid media channels – this is actually a big one for many SaaS companies.
- Cold Email outreach – this is one of the best channels to reach the right audience faster without having to outlay or invest huge amounts of budget. The absolute key here is to not go for a ‘spray and pray’ approach. Each email needs to be personalised. Otherwise, you risk losing the prospect/lead forever.
- 1-click upsells – this works a treat as it provides a frictionless experience for customers to simply press “add to cart” when they’ve already made a purchase. It helps increase AOV but also offsets your CAC (particularly from the likes of paid ads).
- Affiliate programs – as we know with paid media, it can be expensive, so a good channel to explore where you can control the CAC you want to allow is through affiliates.
- Retargeting via ads and email based on certain behaviours – retargeting audiences can help reduce CAC, where you can allocate budget and resources on going after those who have interacted with your brand or have shown some sort of intent (e.g. cart abandonment, email subscriber, etc.).
Read this eCommerce strategies guide for more ideas.
- Product upgrades – one of the best ways to increase LTV for SaaS is through offering product upgrades. Run prompts via the dashboard when a user is signed in, and remind users of the value of upgrading to unlock more features through email marketing and social media channels.
- Reduce churn and increase retention – this speaks for itself, but reducing churn and increasing retention will ensure you maintain a healthy LTV percentage. A clever tactic I’ve seen SaaS companies try out is utilising ‘downgrades’ before someone cancels.
- Have great support & documentation (and even video tutorials) – you can’t beat awesome customer service, so make sure it’s obvious for users to contact you if they run into trouble. Additionally, build out documentation through content and videos that can help with users learn more about the value of the platform faster. Investing in creating good documentation and videos can also help with prospects who haven’t converted.
- Run a loyalty and rewards program – when you get it right, they work incredibly well for repeat purchases and even referrals. There is a lot you can learn from these ecommerce loyalty program examples.
- Upsell and Cross-Sell strategies – I touched on ‘1-click upsells’ above, but any type of upsell helps with LTV. Additionally, cross-selling related or recommended items based on purchasing behaviour can lead to customers buying more in a certain time frame, which helps increase LTV.
- Automated email marketing – email marketing pushing the above strategies and targeted promotions is a timeless strategy that pays off dividends time and time again for brands. The key takeaway to remember is to properly segment customers and ensure emails feel personalised based on their customer journey stage.
- Great customer service – the last one that always works well is great customer service. You can’t beat it. When customers know you provide a good service and are helpful based on any queries/questions they have, there’s an increased likelihood that they’ll come back.
The key takeaways to remember & action
Here are some action items to action:
- Ensure you are accurately measuring and keeping an eye on your CAC and LTV – make sure this is easily communicated through a spreadsheet and/or one of the reporting tools/dashboards I’ve mentioned.
- Measure and maintain a ‘healthy’ LTV:CAC ratio that makes contextual sense based on the goals and growth stage of your business.
- Have a plan and strategy in place to strive for lower CAC and increasing LTV over time – ensure this can be effectively communicated to potential buyers.
Key Area 3: Brand Equity & Reputation Metrics
The last key area that acquirers look for when it comes to purchasing a business is the offline and online reputation of the business.
Regardless of how competitive your niche is (although every niche is competitive nowadays), brand equity and reputation really do matter.
Whilst it may not necessarily be a ‘tangible’ asset, and it can be quite hard to truly measure accurately, it’s still incredibly important for the core success of the business to have a good reputation and proving it.
Why are Brand Equity and Reputation so Important, and What are the Factors that have an Effect on Business Valuation?
There are a few key reasons why it matters, and I can say this plays a role when it comes to due diligence with acquirers.
Here are the factors on why brand reputation is so important and the benefits.
- Trust and credibility – Better trust and credibility means a greater competitive advantage. Both trust and credibility play major roles in the decision-making process for customers. Everyone knows this, and there are plenty of statistics out there to prove it.
- Advocacy – Naturally, the more customers love you, they’ll advocate your brand to their friends, colleagues, and their network, which in turn leads to referrals of new customers (that in most cases, you don’t have to ‘pay’ for).
- Loyalty – those who trust your brand and have had a good experience means there’s a good chance they’ll come back and keep coming back (increased LTV).
- Talent – whilst customer reputation is important, do you have a good reputation internally when it comes to talent advocacy? Hiring the right talent as you grow matters, and having a healthy culture with low turnover shows a great signal for strategic buyers.
Ultimately, all these factors play a major role in a company’s growth trajectory.
A lack of reputation or damaged reputation for one of these factors can play a role when it comes to negotiation and the vision for the company’s next growth stage.
The Brand Metrics that Matter
How do you effectively measure brand equity and reputation?
A few years ago, it was quite tough to effectively measure brand reputation. In some areas, it’s still quite tough (particularly offline channels), but with the rise of new technology platforms and AI, it’s become easier to track and measure.
Here are some ways you can track/measure, as well as prove, brand reputation to potential acquirers.
- Customer reviews/testimonials – these are quite easy to find as there are plenty of review platforms, both general and niche-specific.
- Customer feedback/NPS scores – this is more internal data collection but is crucially important for analysis.
- Search impressions – you can highlight and prove through SEO tools such as Ahrefs, Semrush, and even Google Search Console. You can show the growing trend of people looking up your brand name (and variations) that are related to your brand.
- ‘Share of Voice’ – Organic search results (rankings) and organic social shares – in relation to the above, having people find your brand across social networks and search engines is a good indication of your reach (brand awareness). It’s harder to measure this accurately, but it’s a good thing to highlight.
- ‘Share of Voice’ – Publication features & reviews – it’s always a good sign if you’ve been reviewed by top publications and influencer blogs.
- Social media monitoring – how many times has your brand been mentioned? You can easily track and see your brand mentions through brand monitoring tools such as Brand24 and Mention.
- Referral traffic/backlinks – related to brand mentions and publications/review sites, seeing how many people are coming to the site from various referral sources is a good signal.
There are a few other ways, but the above is certainly applicable to all growth stages of a business, regardless of the type of business you run.
As mentioned, there are some awesome technology solutions available that can help you measure and show the data points to back up your brand reputation.
Just showing some of the ‘good signals’ related to your brand (and proving the data) will go a long way when it comes to negotiation with acquirers.
The key takeaways to remember & action
Here are some action items to action:
- Set up a tracking system to cross-check your primary review platforms often to see customer feedback.
- Ensure you have set up a customer feedback tool, such as an NPS system, to collect important feedback.
- Depending on your budget, consider investing in a social media listening platform to track brand mentions across social networks and websites.
The Round Out
As you’ve read, there’s a lot to take into account when it comes to knowing your numbers and ensuring you’re on top of important marketing metrics. Whilst you don’t need to be a marketing expert, being on top of your marketing performance will go a long way when it comes to valuation discussions with potential buyers/acquirers.
Read Flippa CEO, Blake Hutchison’s top tips for succeeding in Ecommerce here.
Ready to sell your business? Take the first step to exiting your business with Flippa >