Private equity firms often excel in boosting EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) through expense optimization within their acquisitions. These swift adjustments can slash costs and elevate EBITDA, effectively enhancing the platform’s long-term value.
However, most PE firms miss or underestimate the opportunity to simultaneously accelerate top-line revenue without increasing Ad Costs. The key is using a rigorous topline due diligence process to identify strategies for improved marketing efficiencies. You can bolster top-line revenue and bottom-line EBITDA by following these three steps.
Step one: Identify and then Increase ad spend on your most profitable target customers
Most businesses understand their average customer. However, they don’t have a good handle on their most profitable customers. Identifying your best, most profitable customers is where the real growth lies. You can leverage customer data segmentation to pinpoint your top spenders, repeat buyers, and those with high lifetime value.
Once you’ve identified these high-value target customers, you can redirect your ad spend. This targeted approach yields:
- Improved conversion rates
- Increased average transaction size
- Higher repeat purchase rates
- Maximize customer lifetime value
Step two: Strategic allocation based on seasonality
Each week within your peak season offers a unique potential return on ad spend (ROAS). Thoroughly analyze customer data to identify weeks with historically high ROAS and low advertising costs. Plan ahead to maximize revenue, and increase your ad spend during these peak periods.
Conversely, pinpoint weeks with diminishing returns, and adapt your strategy accordingly. A simple shift of funds can substantially enhance ROI without increasing your total ad spend.
It’s also important to “set the market” before your busy season. While that may seem counterintuitive, given the tactics above, building awareness doesn’t happen overnight. It takes time for your messaging to resonate with the marketplace.
Utilize your 1st party data and work closely with your marketing agency to identify the right ramp-up window. This will ensure you hit your busy season at full throttle, already at the top of mind with customers.
Step three: Revamp ad costs for acquired businesses
Acquired businesses often suffer from marketing inefficiencies, sometimes by as much as 25%. Tackle this inefficiency head-on by working with your agency to renegotiate your media contracts. Skilled negotiations based on an economic outcome will guarantee you get the best returns in the shortest amount of time.
You can partner with experienced media procurement specialists to reach ideal economics and control your ad costs effectively. This quick fix immediately infuses more media weight into the marketplace. Without increasing your spend, you will increase your leads, sales, and ultimately revenue.
Conclusion
Increasing spend on your most profitable customers, data based seasonal planning, and the renegotiation of media contracts will boost the value of your portfolio within the first year of your hold. Done right, it is not uncommon to see a 20%-30% lift in topline revenue in the first 12-18 months.
Remember that the PE firm and marketing agency partnership is a valuable asset. Use that relationship to constantly seek opportunities for efficiency and innovation in your marketing strategies.
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