How To Do Your Marketing Due Diligence For SaaS Businesses
When investors decide to fund or buy a business, they don’t just base it on their gut. They do their due diligence in determining whether or not the business is worth investing in.
For venture capitalists wanting to invest in SaaS businesses, they follow different SaaS valuation methods and metrics.
But different types of due diligence is also a major part of the decision-making process.
There’s marketing due diligence, financial due diligence, legal due diligence, and more.
In this article, we will zero in on marketing due diligence. We will discuss what it is, its importance, what to consider during marketing due diligence, and some metrics to track for it.
And of course, we will also lay out some steps on doing your own marketing due diligence for your SaaS business.
So let’s dive in.
What Is Marketing Due Diligence
Marketing due diligence is the process of evaluating a marketing strategy and team to determine its health. This helps investors understand the marketing performance and potential of the business before they decide on investing in it.
It looks at marketing key performance indicators (KPIs), the marketing organization structure, marketing assets, customer segmentation and targeting, demand generation strategies, and marketing budgets, among other things.
Why Is Marketing Due Diligence Important?
As we mentioned above, marketing due diligence is mainly important for investors who are evaluating whether or not a business is worth investing in.
But it can also provide useful insights for you as the business owner and your marketing team. Here are some specific benefits you can get from thorough marketing due diligence:
It Gives You An Accurate Idea Of Your Needed Marketing Investment
The marketing due diligence process helps you analyze how much marketing budget you need to allocate for each marketing activity.
It also allows you to compare your current marketing efforts to industry benchmarks in order to understand if there’s room for improvement.
It Helps You Identify Opportunities And Risks
Marketing due diligence also provides useful insights on product potential and market opportunities, as well as potential risks associated with certain marketing strategies.
By having a clear view of these things, you can adjust your marketing plans accordingly and make more informed decisions.
It Helps You Optimize Your Marketing Channels
Marketing due diligence can help you identify the marketing channels that are performing well and those that need improvement or optimization.
It also helps you determine what marketing strategies may be outdated or less effective and could be replaced by better ones.
It Can Help You Improve Your Marketing Team Structure & Processes
Finally, marketing due diligence can help you optimize marketing team structure and process. This allows you to further enhance marketing performance through better alignment of each team member’s roles, duties, and responsibilities.
What Marketing Due Diligence Considers
Now, marketing for SaaS businesses can cover a vast range of marketing activities and strategies.
Therefore, marketing due diligence considers a wide range of marketing factors to assess the health and potential of a SaaS business.
Here are some of them:
Demand generation in itself includes a huge bulk of your marketing processes. After all, this is the part of your SaaS business that creates brand awareness and attracts high-quality leads.
That involves several marketing strategies and processes. Let’s go through them one by one.
Content marketing: Producing and distributing high-quality, relevant content is one of the best ways to attract leads and engage customers.
It pays to check the quality of content marketing material your brand has produced in the past, such as blog posts, case studies, eBooks, infographics, videos and more.
SEO: Search engine optimization (SEO) is an important marketing tactic for SaaS businesses. To assess it thoroughly, marketing due diligence evaluates website rankings, organic traffic sources and various other SEO-related metrics.
Social media marketing: It’s important to take a look at how well you are marketing on social media channels. This includes analyzing the performance of existing campaigns and identifying any potential opportunities for improvement or growth.
Paid Ads: Another marketing channel that can bring a lot to your demand generation strategy is paid marketing. This could include both Google Ads, Facebook Ads and other paid advertising platforms.
Trade shows and live events: Participating in trade shows and live events can be great marketing opportunities for SaaS businesses. It pays to evaluate how well such marketing efforts are performing and what other marketing activities need to be done to increase ROI from these initiatives.
Account-based marketing: Account-based marketing (ABM) is a great marketing strategy for marketing to specific target accounts. When evaluating ABM performance, marketing due diligence examines the effectiveness of marketing campaigns and how well they are driving desired outcomes.
In marketing due diligence, it is also important to take a look at who your target customers are and how they are segmented.
This can help you understand the marketing needs of different customer segments and ensure that marketing campaigns are tailored accordingly.
That’s why investors also look at how well the marketing team is segmenting its customers and using customer data to create more targeted marketing strategies.
Marketing Team Members & Org Structure
It is also important to consider marketing team members and org structure during marketing due diligence.
This can help you identify any potential gaps in marketing staff or processes, so that you can fill the gap with more suitable marketing professionals.
Marketing Budget & Resource Allocation
The marketing budget and resource allocation are also important considerations for marketing due diligence.
This can help you identify any potential areas of overspending or underinvestment, so that marketing resources are used more efficiently and get the most bang for your buck.
Tech Stack & Integrations
The tech stack and marketing integrations are also critical to marketing due diligence.
This is because the marketing technology landscape has changed significantly with the emergence of marketing automation platforms, AI-driven marketing solutions, and other advanced marketing technologies.
It pays to examine how well the current marketing stack is performing, as well as any potential areas for improvement or integration with new marketing tools
Metrics & Benchmarks To Track for Marketing Due Diligence
Finally, it’s important to look at some key metrics during marketing due diligence. Here are a few of them:
The number of unique visitors to your website can be a good indicator of marketing performance. To get an overview of how many people are visiting your website, you can use Google Analytics and other marketing analytics platforms.
Marketing Qualified Leads (MQLs)
MQLs are marketing-qualified leads who have engaged with marketing campaigns and shown an interest in your SaaS product. You can use marketing automation tools to track MQLs, as well as other lead metrics.
Sales Qualified Leads (SQLs)
SQLs are sales-qualified leads who have given their contact information with the intent of talking to your sales team. Tracking the number of SQLs generated by marketing can give you a better idea of marketing performance and how well you are attracting the right people.
Lead Velocity Rate (LVR)
The lead velocity rate (LVR) is a marketing metric that measures the growth of your qualified leads month on month.
To calculate your LVR, get the number of new MQLs and SQLs you generated this month and divide it by the number of MQLs and SQLs you’ve had the previous month.
Visitor-To-Lead Conversion Rate
The visitor-to-lead conversion rate measures the number of website visitors who have converted into leads. This metric can indicate how well marketing campaigns are generating leads, as well as how effectively marketing is driving traffic to your website.
The visitor-to-lead conversion rate benchmark for SaaS businesses can range from 0.7% to 2.3%, depending on the size of your target market.
Customer Acquisition Cost (CAC)
The customer acquisition cost (CAC) is a marketing metric that measures how much it costs to acquire a single new customer.
Knowing your CAC can help you understand how much marketing spend is necessary to acquire new customers, so that you can adjust marketing budget accordingly.
To calculate your CAC, take your total marketing and sales spend for a particular period and divide it by the number of new customers acquired during that same period.
The average CAC for SaaS businesses depending on your marketing channels. For organic marketing channels, it’s at $205. While the average paid customer acquisition cost is $341.
The customer lifetime value (CLV) to CAC ratio is another marketing metric worth monitoring.
This metric measures the relationship between the value of a single customer and the amount it costs to acquire them.
In other words, it indicates how much revenue you are generating for each dollar you spend to acquire customers.
It’s important because it helps you measure marketing ROI, so that you can decide whether or not marketing investments are worthwhile.
To calculate your CLV/CAC ratio, divide your CLV by your CAC.
The ideal CLV/CAC ratio should range from 3:1 — meaning that for every $1 spent on marketing, you get at least $3 in return over the course of a customer’s lifetime with your business.
How To Perform Marketing Due Diligence For Your SaaS Business
Marketing due diligence is an important process to help you understand the marketing performance of any SaaS business.
Here are some step-by-step instructions to help you perform marketing due diligence:
Step 1: Review Your Business Plan
Every SaaS startup should have a SaaS business plan. This document contains all your goals and the means with which to reach those goals.
A standard SaaS business plan contains the following marketing-related sections:
- Competitor analysis
- Target market
- Customer acquisition strategy
- Marketing channels
- Marketing team
Take time to review your business plan and compare your pre-written marketing goals versus your actual performance. See if there are any gaps or discrepancies between what you planned and what was actually achieved.
Step 2: Evaluate Whether Or Not The Business Goals Are Achievable
Once you have reviewed your marketing plan, it’s time to evaluate whether or not the marketing goals are achievable.
Ask yourself questions such as: Are these marketing goals realistic and attainable? Can we realistically hit our marketing targets within a certain timeframe? How much marketing budget do we need to achieve these goals?
There should be a step-by-step pathway towards achieving these goals. Having these specific steps is a clear sign that your goals are realistic and that you know how to get there.
And even if you have these specific steps, you also need to make sure that each of them are achievable.
For instance, if your marketing plan states that you need to generate 500 leads per month within three months, make sure that there are no major roadblocks preventing you from doing so.
If there are, figure out how to address them or reevaluate whether or not that goal is realistic.
Step 3: Analyze Your Current Position In The Market
Understanding your current position in the market is also key to knowing how much your company would be worth to investors.
First, you need to see how your SaaS company stacks against your competitors. A thorough competitive analysis will help you see how different they are from your company in terms of product, pricing, sales, and marketing strategies.
It will also help you view their strengths, weaknesses, opportunities, and threats (SWOT) compared to your own.
Second, you can analyze your marketing performance data and compare it to industry benchmarks. Take a look at metrics such as CAC, CLV/CAC ratio, customer lifetime value (CTV), conversion rates, etc.
Doing this will help you identify any areas where you need to improve or areas that are working well so you can optimize them further.
Step 4: Predict The Future Market & Your Company’s Position In It
Marketing due diligence should also involve forecasting the future market and trying to see your company’s position in it.
Analyze customer data to estimate potential opportunities for growth and identify any points of risk. See which marketing channels are bringing in more customers, and use that data to better inform your marketing strategy.
It’s also important to consider changes in customer behavior such as preferences, interests, needs, etc.
And take into account external factors like changes or trends in the industry or economic conditions that might affect marketing efforts and performance.
With all this information put together, you can make an informed prediction about how your marketing efforts will perform in the future.
Final Thoughts About Marketing Due Diligence
Marketing due diligence is essential in helping you identify potential marketing opportunities, uncover risk areas, and ensure that your marketing strategies are effective.
Even if you’re not an investor looking for businesses to fund or buy, knowing how to do your marketing due diligence is an essential skill to have. You would be able to see the things your investors would see.
What’s more, you would be able to speak their language. And that could go a long way in building a rapport with them and making them feel more confident about investing in your SaaS business.
By reviewing your current marketing performance, analyzing industry trends and customer data, forecasting potential market changes, and evaluating whether marketing goals are achievable, you can make sure that your marketing efforts will be successful.
And most importantly – by performing marketing due diligence regularly, you’ll avoid costly mistakes and maximize ROI on your marketing investment.
Looking for more guides to help you take your SaaS business to the next level? Check out our blog here.