Financial due diligence tells you what the numbers are. It does not tell you whether the customers behind those numbers will still be there in three years, whether the growth plan rests on a market that exists, or whether the brand can carry the price increases in the model.
That is the job of marketing due diligence. It is the part of a deal review, or a board's review of its own strategy, that tests the commercial assumptions rather than the accounts. This post sets out a practical checklist, in the order that usually gives the fastest view of the risk.
Why the commercial assumptions deserve their own review
Most investment cases rest on a handful of assumptions about customers and markets: retention will hold, prices can rise, a new segment will buy, a competitor will not respond. They are usually written by the seller or the management team, and they are usually optimistic.
A revenue plan built on a churn rate two points too low, or on a "large addressable market" that turns out to be three big customers and a long tail, is expensive to unwind after completion.
Marketing due diligence exists to avoid those mistakes. It does not need to be long. It needs to be pointed at the assumptions that carry the most value.
The checklist
1. Customer concentration and quality
- What share of revenue comes from the top five and top twenty customers?
- How long have they been customers, and what does the contract and renewal history look like?
- Are the biggest customers growing, flat or declining with the business?
2. Retention and churn
- What is the churn rate by segment, cohort and year, on a consistent definition?
- What predicts churn in the data: usage, support contacts, price changes, contract type?
- What do lost customers say about why they left?
- Is the retention in the plan consistent with the retention in the history?
Churn is where most commercial plans are optimistic. Ask for the cohort data, not the blended rate.
3. Customer satisfaction and advocacy
- What does the customer base say about the product, the service and the relationship?
- Would customers recommend the company, and have they?
- How does satisfaction differ between the customers that drive revenue and the rest?
Existing satisfaction surveys are useful but often flattering. Ten to twenty independent customer interviews give a sharper picture in under two weeks.
4. Proposition and differentiation
- What does the company offer that customers cannot get elsewhere, in the customer's words?
- Which features and services do customers value, and which are cost without value?
- Is the differentiation durable, or could a competitor copy it in a year?
5. Pricing power
- When did prices last rise, by how much, and what happened to retention and volume?
- How do prices compare with alternatives, and how do customers perceive value for money?
- Does the plan assume price increases the history does not support?
6. Market size and growth
- What is the addressable market, defined by who can actually buy at this price, not by a headline industry number?
- Is the market growing, and is the company growing with it, ahead of it or behind it?
- What structural changes could move the market in the plan period?
7. Competition
- Who does the company lose to, and why? Win/loss data from the last year is the best evidence.
- Who is entering, and what are they offering?
- How do customers rank the company against alternatives on the things that matter to them?
8. Brand and awareness
- Among target customers, how many know the company, consider it and prefer it?
- Is the brand an asset that supports pricing and new customer acquisition, or simply a name?
- Does the marketing spend in the plan match the awareness gap it has to close?
9. Sales and marketing effectiveness
- What is the cost of acquiring a customer by channel, and how has it moved?
- How dependent is growth on a few salespeople or one channel?
- What is the pipeline conversion by stage, and is the plan's pipeline realistic against it?
10. The growth plan itself
- Which assumptions carry the most value, and what evidence supports each one?
- Which have been tested with customers, and which are management belief?
- What would have to be true for the plan to work, and how would you know within six months?
How to run it in a deal timetable
The sequence that fits a three-to-five-week window:
- Week one: data request, management interviews, agree the assumptions to test and set up customer interviews.
- Weeks two and three: analyse customer data, interview current and lost customers, run desk research on the market and competitors.
- Week four: compare findings with the plan, quantify the gap, and report the risks with a view on what would close them.
The output is not a description of the market. It is a short list of the assumptions that hold, the ones that do not, and what that means for the price and the plan.
For boards, not only for buyers
The same checklist works for a board reviewing its own strategy. Management plans carry the same optimism as seller plans, and testing the assumptions before the money is committed is cheaper than finding the gap in year two.