12 Core Business Metrics to Monitor During M&A

The merger and acquisition (M&A) process is a complex endeavor that requires careful planning and execution. A symphony of deal points, due diligence, and transfers must occur, which may cause the process to extend for weeks or months. To ensure a smooth M&A process, it’s crucial to maintain a company’s current trajectory until the transition is complete. It’s often a marathon, not a sprint, so keep sight of the finish line. 

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Keep a Pulse on Your Business During the Handoff

M&A can quickly monopolize your time, as the business owner is usually the steward of the deal. Once an entrepreneur decides to part ways with their current business, they can self-sabotage by not minding the store they’re selling. They mentally check out or get distracted by managing the deal itself and become “farsighted.”

When this occurs, the seller inadvertently sends warning signals to the buyer, which may or may not signal real problems with the business. These warning signs can cause friction, extend the transitionary period, and even make a buyer second-guess the deal.

Monitor these 12 Business Metrics

To keep yourself engaged with your business, continue to monitor these 12 principal business metrics during the M&A process to avoid generating alarm bells and ensure a smooth transition. Not all of these metrics are “deal killers,” but changes in some may give your buyer pause or make them rethink their valuation and offer. 

Financial

• Net Profit Margin: This is the ratio of your net income to total revenue. It’s the most trusted metric of a company’s financial health and likely your company’s main valuation driver. Keep a close eye on any unusual or significant one-time expenses. Also, look out for drying income streams that are coming to a close, such as affiliate marketing agreements.
• Total Revenue / Sales: Monitor your gross (total) revenue as well as total sales quantity. If you maintain gross revenue but consolidate from 100 to 10 sales over a short period, this could be a red flag to the buyer. Trying to increase revenue or diversifying income streams during this time could backfire if you fail. It’s usually not worth the risk.
• Operating Cash Flow (OCF): Simply put, this is the cash produced by a company’s core business operations. If you sell subscriptions to an app, the revenue from selling those subscriptions is OCF. It doesn’t include interest from investments you made with that revenue, such as the money earned from keeping your revenue in a high-yield savings account. OCF reflects the company’s ability to generate sufficient and predictable cash to maintain or grow its operations without external financing. It’s often a critical component in a company’s valuation. The better the OCF, the less risk. Any instability in OCF will signal new challenges to the buyer.
• Refunds and Chargebacks: A chargeback is when a customer disputes an unauthorized or fraudulent transaction, and their money is refunded to their credit card. Sometimes, this includes when the customer does not receive a product or service or is not as described on the website. Refunds are more straightforward and end somewhat amicably as the customer usually requests one from the company rather than going through their credit card to file a dispute. A dramatic increase in either of these is a risk indicator for a buyer.

Marketing

• Unique Visitors: This is the distinct number of individuals visiting a website. It is an intensely monitored metric. Any reduction in website traffic will draw attention and questions because it is likely considered a core driving factor for the company’s valuation. The buyer will assume that changes in this number will ultimately ripple down to your monthly revenue.
• Top Pages’ Traffic: Earmark and monitor the traffic to your top converting pages. Monthly unique visitors could remain the same, but you see a drop in monthly revenue because a higher-converting page on your site lost traffic while a lower-converting page gained traffic. The total traffic would be the same, but the conversions would be lower. Without monitoring your top pages, it isn’t easy to troubleshoot the loss of conversions quickly.
• Regional Traffic: If your core traffic originates in North America during your valuation, you should monitor for any changes in that traffic pattern. A sudden and unexplained 50% shift in traffic share coming from other parts of the world may signal fraud and prompt a buyer to look deeper, suspecting the use of click farms. Even if no fraud is apparent, a buyer may not value all regional traffic equally if their product or service focuses on a demographic from a specific part of the world.
• Total Monthly Clicks and Impressions from Google: If Google is a significant source of traffic to your site, monitor its various positions in search results using the Google Search Console. A sudden drop in clicks or impressions could signal an issue and should be dealt with promptly.
• Social Media Engagement: While followers can be substantial, interactions are more valuable. Monitor the ratios of likes, shares, and comments to the number of followers on your social channels. Your company’s social media marketing can be a valuation driver if it’s responsible for pushing valuable traffic to your site. Keep your top channels active and ensure you keep access to them.
• Advertising Cost: Even if you’ve disclosed all paid ad traffic to the buyer, it is important to continue paying for these services during due diligence. A sudden drop in traffic due to suspension of these advertising services will likely be a red flag to the buyer that is not easily untangled. The last thing you want is for your buyer to reconsider your reliance on paid traffic or to wonder if the same quality of traffic will return despite the fact that the “ad tap” was turned off.

Customer Experience

• Customer Retention Rate (CRR): The CRR signals your ability to keep customers over time. Customer retention is a reflection of loyalty and satisfaction. A company with a high CRR has customers who are more likely to continue buying over time and are more open to purchasing new products or services. Retaining a current customer is also cheaper than acquiring a new one. Therefore, CRR can be an important consideration in the buyer’s valuation of the company. Note that subscription-based companies may instead refer to how quickly they lose customers (subscribers) or their  “churn rate” instead of CRR.
• Average Customer Reviews: TrustPilot, BBB, or Google Customer Reviews are typical examples of review platforms. Whichever platform you use to obtain reviews, ensure you continue to collect them at a steady rate during an acquisition. A drop in your average customer review score will signal your buyer to look deeper for two main negative impacts: 1) trickle-down effects to your click-through rate in Google search where your average review rating is displayed, 2) a drop in conversion rate if potential customers interpret this lower score as a less trustworthy product or service.

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Mind Your Specific Valuation Drivers

Each individual deal will have a unique set of these factors that weigh most heavily in the company’s valuation. Not all online businesses are created equal, and M&A deals reflect this variability. There are major differences between an e-commerce store and an affiliate blog or a SaaS platform, and the reasons a buyer makes an offer on these types of companies will differ as well.

Whatever metrics you used to craft a compelling story to convince the buyer to pull the trigger on starting M&A, keep tabs on those the most. If you used a comp (comparable business sale) to leverage the price tag of your company, assess the factors that contributed the most. You may know some of them through Flippa’s free business valuation. Hone in on your deal’s specific valuation levers and keep those steady. 

Here are examples of others that might be specific to your digital company: 

• Shopping Cart Abandonment Rate: percentage of shoppers who entered checkout but didn’t complete purchase.
• Average Order Value (AOV): average amount spent in one transaction.
• Customer Lifetime Value (CLV): the estimated amount of money a customer is expected to produce for a company over the entire length of their relationship.
• Customer Acquisition Cost (CAC): the total cost incurred by a business to acquire a new customer
• Monthly Active Users (MAU): the number of unique users who have performed some action in an app, website, or platform within 30 days.
• Net Promoter Score (NPS): This is calculated from the single common survey question: “On a scale of 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?” NPS is a strong signal of customer loyalty and satisfaction. A drop in NPS may indicate an underlying issue during the transition phase of M&A.
• Monthly Marketing Qualified Leads: prospects identified by marketing who will likely become paying customers. Typically identified through lead magnets, webinars, or visiting specific high-purchase-intent website pages.
• Total New Ticket Requests: Ticket requests, often related to customer support or IT issues, can provide valuable insights into the business’s customer and operational aspects. They are the proverbial canary in the coal mine during M&A. Increasing ticket requests may indicate customer dissatisfaction or confusion, especially if the M&A process involves changes to products, services, or support systems. 
• Email open rate and click rate if you’re selling a newsletter
• Quantity or quality of affiliates 
• Total articles published per month if you’re selling a blog based on content marketing.

Avoid these Rookie Mistakes

Now isn’t the time to get creative or try something new. Here’s a list of common rookie mistakes during an online business’s handoff:

• Switching email or hosting providers
• Installing new plugins on WordPress sites
• Trying a new writer that could be solely relying on AI and may produce accidentally “lifted” content
• Ignoring or delayed email responses to the buyer or Flippa broker
• Skipping routine seasonal promotions if you run an e-commerce shop

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Beware: Time Kills All Deals

Remember that the biggest killer of all deals is time. New financial statements may need auditing if you’re entering the new year. External market factors may arise during the process, such as a worsening economic climate or rapidly rising inflation. These changes cause central banks to raise interest rates, making it more expensive to finance an acquisition. Affiliate commissions could change, and seasonal trends sometimes break. Not to mention, Google routinely updates its algorithm, which could negatively affect your site’s ranking. The sooner you can complete your deal, the better.

In Summary

One of the simplest reasons buyers drop out is failing to meet the expectations set during an initial valuation. These 12 business metrics detailed above provide a comprehensive view of the business’s performance during the M&A process. Regularly monitoring these indicators can help identify potential issues early, allowing for timely interventions and ensuring a successful transition.

FAQ

What’s the difference between a business metric and a KPI?

A business metric is an objective quantitative measurement of a company’s performance in a specific area. A Key Performance Indicator (KPI) is a subjective benchmark used to evaluate progress toward achieving a strategic goal. Understanding the difference between business metrics and Key Performance Indicators (KPIs) is essential. 

For example, let’s say you have a strategic goal for revenue growth. Your Average Order Value (AOV) is $80. This is a business metric. Your KPI could be to “grow your AOV to $100 over one fiscal quarter.” By the following quarter, if you revisit your AOV metric and see it has reached $100, then you’ve met your KPI.

Some people mistakenly conflate them, but they are distinct and serve different purposes. In essence, KPIs are strategic, and metrics are tactical. KPIs are measurable goals intended to keep you focused on achieving a vision for your business, which use business metrics to quantify progress.

What tools can I use to track web analytics?

• Google Analytics 4
• Plausible.io
• Fathom Analytics

What tools can I use to track SEO benchmarks?

• Ahrefs
• SEMRush
• Google Search Console

How do I calculate my Net Profit Margin?

Net Profit Margin = Net Profit / Revenue X 100

How do I calculate my Operating Cash Flow?

OCF = Net Income + Non-Cash Expenses – Changes in Working Capital

How do I calculate my Customer Retention Rate?

CRR = ((Customers at End of Period – New Customers Acquired) / Customers at Start of Period) X 100

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