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PE firms are waiting longer before selling their PortCos: the average holding period reached 7 years in 2023 – up from less than 4 in 2000. Traditional value creation strategies like cost cutting are less able to sustain over such long periods, which places a new emphasis on factors that marketing heavily influences:
1. Organic Growth
A recent survey found that organic growth is a primary target for both PE firms and PortCos, with PE leaders citing it as their third priority to generating value – and PortCo leaders citing it as their first. While reducing operational costs and “trimming the fat” may produce immediate value increases, both parties understand that building the business is the only way to actually sustain value creation over the longer term.
This perfectly aligns with the rise of inbound marketing, an approach that foregrounds the customers’ needs and focuses on providing real value through marketing. With several years to drive value, PortCos can invest in this strategy that may have been seen as an unnecessary cost a few decades ago – but today, it is essential for any business that wants to survive more than a year or two.
2. Competitive Positioning
Longer holding periods present PE firms and PortCos with an opportunity to reposition themselves in a more favorable light for future investors. This serves three primary purposes:
- Combat Competition: A PortCo in a thriving market may be a strong investment, but it will also face heavier competition. New companies will constantly enter the market and try to steal customers, making differentiation and brand recognition – two factors that reliably help combat market saturation – more important than ever.
- Move Up Market: Many PortCos have the potential to move into new and more lucrative markets. For example, a B2B SaaS brand could expand from mid-market customers to target large enterprises using the right strategy to build credibility and target the right accounts.
- Increase Prices: Both PE firms and PortCos say increasing prices is their best strategy to combat growing operational costs. A strong, differentiated brand can help justify these costs and avoid excessive customer churn. Research has actually proven that people will pay more for products or services from a recognized and trusted brand.
3. Customer Retention
30% of PE firms are urging their PortCos to adopt new technology to increase customer intimacy, with an eye toward driving higher loyalty, boosting customer lifetime value (CLV) - and ultimately increasing the company’s profitability. However, this tactic will be far more effective if it is done in tandem with a marketing strategy that reinforces customers’ positive perceptions of the brand.
For example, new technology like chatbots can be used to upsell and resell existing customers – boosting both revenue and retention metrics. But if these customers have not heard from the PortCo in 6 months, an automated message will be alienating, not inviting – so regular marketing outreach makes all the difference.
4. Exit Leverage
Marketing is often seen as disposable, but it is actually one of the best ways to create tangible and lasting value. For example, a strong brand is a measurable asset; plenty of companies have been sold profitably purely because the buyer saw value in the brand.
Marketing is, therefore, a powerful tool to increase your potential exit valuation. Entering a merger negotiation or IPO with a track record of successful marketing gives your PortCo a clear bump – and could even be the difference that tips a sale over the line.
PE firms have two fundamental goals when working with a PortCo: to create value and maximize profit – with the end goal of making their exit as valuable as possible. Each of these goals is measured carefully using robust data, but this creates a problem for many PortCo marketing teams: how do you show the value of marketing within the strict, data-driven parameters of PE analysts?
The answer is simply to introduce the right metrics that capture marketing’s impact on the company. This benefits both parties:
- PortCos: Leaders are better able to justify their marketing budgets and invest in the activities they know are foundational to their long-term viability and success.
- PE Firms: Leaders can more accurately assess the performance of PortCo marketing teams, understand how efficiently the budget is being spent, and avoid overlooking marketing’s power to drive value.
Let’s look at a few important metrics for each area PE firms focus on:
1. Create Value
PE firms generate profit by making their PortCos most valuable. They will, therefore, initiate transformative initiatives to drive measurable improvements across key areas of the business, with an emphasis on:
- Operational Efficiency: Streamlining processes, optimizing supply chains, and leveraging technology to enhance productivity and reduce waste.
- Realizing Potential: Unlock value hidden within the company, such as underutilized IP or introducing new leadership.
- Expanding the Business: Entering new markets, launching innovative products, or strengthening customer acquisition strategies.
Key Metrics
PE firms measure value creation through carefully selected key performance indicators (KPIs). These will typically include revenue growth rates, operational cost reductions, and market share expansion.
Marketing Metrics
There are many ways PE firms and PortCos can assess how marketing influences value creation. For example, metrics like customer churn and new customer acquisition both give strong indications as to how marketing is influencing customers’ perception of the company. With the right tracking system, you can even develop metrics like Pipeline and Deals Influence by Marketing to gain a real insight into how marketing affects revenue.
2. Maximize Profit
Once a portfolio company’s potential is unlocked, the focus shifts to maximizing profitability. PE firms emphasize both top-line growth and bottom-line efficiency to ensure the company becomes a well-oiled profit-generating machine:
- Revenue Generation: Implementing targeted marketing strategies, introducing upselling opportunities, and optimizing pricing models to boost sales.
- Cost Reduction: Identifying and eliminating inefficiencies, negotiating supplier contracts, and leveraging economies of scale to minimize expenses.
Common Metrics
PE firms generally use profitability metrics such as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), gross margin improvement, and operating income to assess their PortCos’ profit performance.
Marketing Metrics
PE firms and PortCos should agree on metrics that help assess marketing’s impact on profitability. For example, by comparing the average customer acquisition cost (CAC) and customer lifetime value (LTV) and tracking how they change over time, you gain a reasonable indication of marketing’s effect on overall profitability.
You might be reading this in a panic, thinking, “But we barely use any of those metrics!” In fact, a recent study found that a third of companies rarely or never measure marketing ROI, which probably explains why PE firms often overlook marketing. Worse still, a lack of accurate data means you are missing not just proving marketing’s value – you are probably generating far less value than you should be.
Tracking your marketing funnel in granular detail helps to:
1. Adjust Your Strategy
Data can quickly reveal patterns in buyer behaviors and help you to understand what buyers really want from your marketing. You can see how buyers interact with your content, as well as which channels and even individual assets move them through the funnel. This allows you to adjust your messaging and content strategy to cater to the audience better.
PE firms should see this as no different from analyzing and overhauling a manufacturing supply chain: the principle is fundamentally to take a more objective and systematic approach to PortCo’s operations. But just as you wouldn’t replace machinery if you couldn’t see the results it produces, you shouldn’t make bold decisions about marketing without the requisite data.
2. Avoid Waste
Most PE firms want to make marketing more efficient by reallocating budget to channels that perform well – and stop wasting money on those that don’t. But this is a delicate balancing act: many channels that don’t appear to influence deals are actually essential to build buyer trust and ultimately push a sale through.
Granular revenue and conversion attribution data help avoid cutting spend that is really vital to your marketing success. You can see how each channel actually influences a deal, which allows you to simultaneously reduce waste while avoiding “wasteful” cost-cutting exercises that may actually do more harm than good.
3. Drive More Profit
The cumulative effect of reducing waste and optimizing your marketing campaigns is higher ROI: you can drive down the cost of new leads and customer acquisitions, accelerate deals to generate more revenue faster, and ultimately put a more profitable marketing program in place for your future buyer.
But given these clear benefits, it’s worth asking: why would any PortCo not track and analyze their marketing performance?
The following steps will help PE firms and PortCos get exactly what they need from marketing data:
1. Establish Your Metrics
Your first step is to establish exactly which marketing metrics you want to measure. There is a huge array of data points you could collect, but it’s important to pinpoint a handful of key metrics that can be properly focused on.
Our experience suggests two factors are crucial here:
- Co-Creation: Metrics should be created with input from both PE firms and PortCo leaders. Either party fully dictating the terms risks miscommunication and resentment, especially if the data is going to be used to guide important strategic decisions.
- Alignment: Your metrics should be tied to your strategic objectives and existing campaigns. There is no point in measuring how marketing influences total revenue if your efforts are not geared toward generating revenue – and revenue is not the primary factor you wish to optimize.
This creates the foundation for everything that comes after. For example, if a PE firm’s goal is to increase marketing efficiency, it might select cost per acquisition (CPA) as a core metric. This will then guide them to:
- Which data needs to be collected
- How to analyze and present the data
- What to do with the data
2. Create a Tracking System
You now need to ensure the right marketing data is being collected and stored. There are four basic steps to set up a strong tracking system:
- Generate Tracking Codes: Tracking codes are appended to a website URL to collect data about user interactions. You will need codes for every channel and campaign you run, which can create a huge technical lift without the support of expert developers.
- Setup Google Tag Manager: Use Google Tag Manager (GTM) to keep all your tracking codes in one place. Not only does this make it easier to access real-time data and compare different areas of the business, but it also ensures your website is not “weighed down” by tracking codes – and, therefore, protects your site speed.
- Integrate Google Analytics: Leverage Google Analytics to integrate data from your Google Ads and Google Search Console tools.
- Connect Your CRM: Feed all your data into a central customer relationship management (CRM) system. This will help turn your raw data into clear, actionable insights that can guide marketing decisions, optimize campaigns and help PE leaders evaluate the effectiveness of your marketing.
PortCos with pre-existing tracking systems should use this as a guide to optimize their current setup – and potentially replace aspects of the system. For example, the CRM you use may not just be poorly used – it may actually not be the best option for your business.
3. Optimize Your CRM
The next step is to ensure your CRM generates the maximum possible value: Is data easily accessible for all relevant parties? Are you able to automate repetitive processes and scale campaigns such as email marketing? Does your team know how to use all relevant aspects of the platform?
We recommend every PortCo uses HubSpot: not only does it offer a powerful CRM that can easily centralize all marketing data, it allows you to leverage that data across Marketing, Sales and Service Hubs to enhance internal collaboration and optimize all areas of revenue generation. This is the basis for revenue operations (RevOps) - a strategic approach that helps fulfill all the demands of PE firms:
- Enhancing efficiency across sales and marketing
- Maximizing the value generated by both departments
- Developing automated processes that will make it easier to deliver results in the long term
The net result? A streamlined and well-calibrated system for driving growth that future investors of all kinds will see as a lasting source of value.
4. Build Dashboards
Turning your marketing data into action requires clear analytics that showcase only the information that matters.
Your final step is to build a centralized dashboard that ensures PE leaders can quickly and accurately assess the effectiveness of marketing. PortCo leaders can avoid data overload and make informed marketing decisions in real-time.
Our expert analytics team argues that most PortCo dashboards should follow three principles:
- Simplicity: Limit the number of metrics used, as this makes it easier to share during meetings with PE firms. We've all had the experience of wasting half a meeting trying to make sure everyone is looking at the same data.
- Diversity: Include a mix of metrics from each part of the funnel, as this will help create a more accurate view of the entire marketing program.
- Cadence: Set a regular meeting (either weekly or monthly) to look through the data with key stakeholders and create action items to enhance your marketing efforts.
However, this can be a massive undertaking for PortCos – especially when they have 100 other tasks to focus on. Marketing analytics can easily become one of those things both parties keep putting off and never quite find the time or resources to tackle.
That’s why ProperExpression exists: to help PE firms and their PortCos stop leaving money on the table and make marketing analytics a key source of value maximization. We combine proven frameworks with tailored services to help you collect, analyze and leverage data to optimize marketing performance – and hit your most challenging KPIs.
