Customer acquisition due diligence helps brands evaluate how effectively they attract, convert, and retain customers. It helps brands review their acquisition efforts and discuss how to uncover hidden inefficiencies.
However, it can be a challenge for brands to account for acquisition costs.
This blog covers how to conduct acquisition due diligence. It also explores why it matters and the mistakes brands should avoid during the process.
TL;DR: Customer Acquisition Due Diligence Checklist
Here’s a quick checklist on how to conduct the acquisition due diligence:
- Define the goal for the due diligence.
- Collect and audit the data.
- Compare ICP against customer acquisition data.
- Audit customer acquisition channels.
- Evaluate funnel performance.
- Assess sales and marketing efforts.
- Implement necessary changes.
Details will be discussed in a later section.
What is Customer Acquisition Due Diligence?
It is a multifaceted process that analyzes how a business attracts, converts, and retains customers. This process ensures every new customer acquired adds value and stability, driving long-term success for the business.
When conducting due diligence, businesses should evaluate different metrics categories, including:
- Customer Metrics: Reveals the type of customers a business is acquiring and the value they bring over time.
- Acquisition Channel Metrics: Helps identify customer concentration and reliance on specific channels.
- Finance Metrics: Validates whether the business’s acquisition efforts are financially sustainable.
- Attribution Metrics: Demonstrates activities that drive a high conversion rate.
- Customer Experience Metrics: The customer experience KPIs show customer satisfaction and loyalty levels after acquisition.
Why Customer Acquisition Due Diligence Matters
Acquisition due diligence helps brands to identify risks and opportunities that could affect their business success.
It helps:
- Assess the Customer Acquisition Cost (CAC): Brands can understand who their actual customers are and how much it costs to acquire and retain them.
- Evaluate Acquisition Effectiveness: Businesses can map the customer acquisition funnel with real data to establish the effectiveness of their acquisition strategies.
- Uncover Channel Effectiveness: Brands can audit traffic quality by source to identify the most effective channels.
- Evaluate the Customer Lifetime Value (CLV): It’s crucial to uncover the value customers bring to the business over time.
- Assess Churn: Brands should identify where prospects drop off and systematically fix leaks to improve conversion rates.
Key Components of Customer Acquisition Due Diligence
The scope of the due diligence varies by sector, business model, and marketing approach.
However, it will typically include these elements:
- Customer Acquisition Cost: The total expense required to acquire a new customer, including all marketing, sales, and advertising investments. It is calculated by dividing the sales and marketing spend by the number of new customers gained over a specific period. Reviewing this metric helps assess whether the marketing campaigns are financially sustainable and scalable.
- Conversion Rate: Is a representation of the potential customers (in percentage) who take a desired action following a sales pitch or an offer. It could be making a purchase, signing up, or any other tracked goals. It helps businesses gauge the effectiveness of their funnel across channels.
- Acquisition Channel Efficiency: Measures the effectiveness of the different acquisition channels that a business relies on to acquire paying customers. It helps identify how each channel contributes to the specific business goals regarding customer acquisition.
- Customer Retention Rate: The percentage of customers who remain loyal to a business over a given period. Evaluating it helps identify the number of customers who find a business’s offering valuable, as well as those who stopped purchasing over time.
- Funnel Analysis: Tracks the prospect’s entire journey, from their first interaction with the brand, all through to conversion. It helps identify where they drop off in the conversion process, which gives a clear picture of what works and what doesn’t.
The Customer Acquisition Due Diligence Process
The due diligence process ties the components together to show a clearer picture of a brand’s acquisition.
Here are the steps to follow:
1. Define the Goal for the Due Diligence
A brand should first outline its core objectives for conducting acquisition due diligence.
Whether it is to establish why CAC is rising or to determine whether the current strategy can be scaled, the goal influences the metrics, channels, and customer segments to be analyzed.
2. Collect Customer Acquisition Data
Once the goal is clear, the business should gather the necessary data from CRM systems such as HubSpot and Salesforce. Web analytics tools, such as Google Analytics, are useful for understanding traffic sources, bounce rates, and conversion paths.
They can also capture customer data through surveys, interviews, and focus groups.
3. Compare ICP Against Customer Acquisition Data
Next, they should verify if their ideal customer profile (ICP) aligns with the actual customers driving revenue, by identifying the most valuable customers based on lifetime value and longevity, and how much they’ve brought into the business.
Brands should also analyze the customer’s purchasing behavior. Then, they can map the data against the business’s ICP to determine whether the acquisition strategy focuses on the most profitable customer segments or needs refinement.
4. Audit Customer Acquisition Channels
After verifying the ICP, a business should examine the effectiveness of each acquisition channel, including search engine optimization (SEO), social media marketing, organic search, referral programs, pay-per-click advertising, or email marketing.
The goal is to identify the channels that attract high-value customers and consume the highest budget with minimal returns.
5. Evaluate Funnel Performance
From the channels identified above, the business needs to evaluate the journey that a potential customer takes across each channel before making a purchase, from the initial brand awareness to the point of purchase.
This helps reveal the points at which prospects disengage before converting.
6. Assess Sales and Marketing Efforts
The effectiveness of a business’s customer acquisition strategy depends on the level of collaboration between the sales and marketing teams.
Assessing potential gaps between these teams can help a business identify inefficiencies that may hinder its ability to convert new customers.
7. Implement Necessary Changes
The business should turn all the insights into an action plan focusing on implementing changes that will have the greatest impact on their customer acquisition process.
The final findings of the due diligence should outline what is working and the specific areas that need improvement.
Not sure how to conduct acquisition due diligence?
I’m Nora Sudduth, a customer acquisition consultant. Together, we can create an acquisition strategy that ties to your goals, whether it’s to minimize CAC, churn rate, or stunted growth.
We also use precise audience targeting and personalized messages at each stage to resonate with your audience, build trust, and drive conversions.
Join me for a discovery call to streamline and optimize the journey towards conversions.
Common Mistakes in Customer Acquisition Due Diligence
Sometimes, brands fall into the common traps that can detract them from their acquisition efforts.
The table below breaks down the areas where red flags are often overlooked:
They ignore the high costs of retaining customers or waste money on the wrong audience. |
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This can lead to missed opportunities for engagement. |
Best Practices for Customer Acquisition Due Diligence
Brands can recognize the common pitfalls and avoid them through these practices:
- Evaluate Acquisition Process Regularly: Businesses should regularly assess how their customer acquisition funnel is performing, treating acquisition due diligence as an ongoing process.
- Verify Metrics Before Making Decisions: Brands should focus on key performance indicators (KPIs) such as CAC and LTV, conversion rates, payback period, and retention rates. These metrics help assess a business’s financial health and the profitability of its marketing spend.
- Assess Risks: While brands tend to focus on opportunities in their acquisition assessments, they should also assess risks, such as using only a single marketing channel.
- Ensure Team Collaboration: The internal team should have clear communication to conduct the acquisition due diligence successfully. There should be alignment among the sales, marketing, and leadership teams to enable continuous improvement of the acquisition engine.
Frequently Asked Questions (FAQs)
Below are questions brands often ask about conducting the acquisition due diligence:
What is the Difference Between Customer Due Diligence and Customer Acquisition Due Diligence?
Customer due diligence is the process by which businesses verify relevant information about a customer to assess potential risks. It helps confirm that the customer is who they claim to be and poses no risk of money laundering or terrorist financing.
Customer acquisition due diligence, on the other hand, is the process of evaluating potential customers’ values to ensure they align with the business’s goals. This helps focus only on customers who contribute to the business’s growth and long-term success.
How Long Does Customer Acquisition Due Diligence Take?
The duration depends on the business complexity, the depth required, and the data quality. Also, when it comes to reporting, every business has unique capabilities, different customer segments, and uses different acquisition channels.
However, businesses with well-organized sales and marketing teams and effective systems tend to take a shorter time than those without.
What Data is Needed to Complete Customer Acquisition Due Diligence?
Acquisition due diligence relies on a wide range of data to provide a comprehensive view of how a business acquires and retains its customers over time.
This includes ideal customer profiles, attribution reports, channel acquisition data, financial data, customer data metrics, and industry benchmarks.
When Should a Business Start Preparing for Customer Acquisition Due Diligence?
A brand should conduct acquisition due diligence annually as part of its operational review process.
Some scenarios require greater due diligence, including rapid growth, expansion into new markets, rising CAC, and slowing revenue growth.
Conclusion
Customer acquisition due diligence is an opportunity for brands to evaluate acquisitions against lifetime value, identify low-performing channels, and optimize high-intent platforms.
However, without the expertise, a brand may have undisclosed risks in its acquisition funnel that could jeopardize its revenue.
As a customer acquisition expert, I can help you audit how your different campaigns and channels interact and identify inefficiencies. Together, we can eliminate wasteful spending on low-performing tactics and reinvest in specific activities that deliver high ROI.
Schedule a 20 min discovery call, and let’s optimize your acquisition spend.
