Many firms are looking to build standardized set of plays and benchmarking across their portfolio. When implemented properly, this can provide the companies and the PE firm tremendous value.

Today many private equity firms are looking to improve the operating efficiency of their portfolio companies.  Driving consistent organic revenue growth is a necessity given the high multiples that are being paid.   It creates the most value but is also very difficult to do.  Many firms are looking to build standardized set of plays and benchmarking across their portfolio.  When implemented properly, this can provide the companies and the PE firm tremendous value.

 

Download the 10 PE Metrics for Portfolio Optimization Tool to leverage 10 metrics you should incorporate into your portfolio dashboard to ensure you have visibility into how they are performing compared to their peers, and to gain an operational advantage over your peers.

 

Don’t Settle for Poor Visibility

 

In addition to the individual company benefits from increased operational visibility there are a number of benefits at the firm level. Firms can gauge the overall strength/weakness of the portfolio. They can identify common challenges or trends that might be impacting multiple portfolio companies and take corrective action. It enables deal teams and operating teams to spot warning signs early on. Finally, it allows PE firms to evaluate and compare talent across the portfolio.

 

The 10

 

Here are 10 metrics you should incorporate into your portfolio dashboard to ensure you have visibility into how they are performing compared to their peers:

 

  

  1. Sales & Marketing Spend at % of Revenue: Are you over or under investing compared to your competitors and peers. Is the percentage trending up or down and how is that correlated with performance?

     

  2. Customer Acquisition Cost(CAC): How much does it cost to acquire a customer. Are you doing so efficiently. Is the cost trending up or down.

     

  3. Customer Lifetime Value (LTV): Understand how much revenue a customer can generate for a business.  It is also often looked at in conjunction with Customer Acquisition Cost. Organizations want to have customer LTV be at least 3x what it costs to acquire them. Sales initiatives undertaken are often tied to improving the average LTV of the client base.

     

  4. Average Sales Price:  How is your ASP trending over time. How does it differ across markets and segments.

     

  5. Sales Cycle Length: Ideally this is trending down as your sales and marketing organization becomes more effective. If it is flat or trending up there may be a problem.

     

  6. Win/Loss/No Decision data: A critical piece of market feedback that many companies fail to capture effectively. How is win rate trending.

     

  7. Productivity per Rep: How productive are your reps compared to your competitors and your peers. Increasing productivity is one of the two ways to increase organic revenue growth. The other is to hire more reps. If this trends down you have a problem.

     

  8. Sales Forecast Accuracy:  A companies forecast accuracy is a leading barometer of its sales organization health. The inability to hit forecasts reliably is a anchor on growth.

     

  9. Return on Marketing Investment: As marketing automation and technology increases so do the marketing budgets to afford them. Buying technology doesn’t ensure you’ll get a return. Ensure your Marketing leader has an attribution model built to capture marketing contribution to revenue and it’s ROI.

     

  10. Rep Turnover: Understand the talent plan of your company. High rep churn is a productivity killer. Too high and you are either hiring the wrong people or have serious performance condition issues. Too low and you might not be pushing your team enough. Drastic changes in this number point to potential trouble.

     

Create an Investment Edge

 

These 10 transcend industry and vertical and can be applied across the portfolio and aside from the Return on Marketing Investment should be fairly straightforward for your management teams to capture and report on.

 

There are many more metrics and KPI’s that can be tracked. Here are some SAAS specific metrics.

 

These metrics should be benchmarked against companies of similar industry and stage.   More importantly they should be monitored to determine how business decisions are impacting these metrics.  Sudden increases or decreases in these metrics should be flagged for further investigation by the deal or operating team.

 

By adding this capability to your tool box you’ll be gaining an operational advantage over your peers.

 

Download the 10 PE Metrics for Portfolio Optimization Tool to leverage 10 metrics you should incorporate into your portfolio dashboard to ensure you have visibility into how they are performing compared to their peers, and to gain an operational advantage over your peers.

 

 

Additional Resources

 

Schedule a working session at SBI’s Studio.

 

Located in Dallas, TX, our facility offers state-of-the-art meeting rooms, lounge, full-service bar, and a studio used to tape our TV shows. SBI provides the location and facilitators, all at a compelling price point.

 

As a guest of The Studio, you’ll get unlimited access to SBI’s CEO, Partners, and a handpicked team of experts. Together we’ll focus on developing an action plan for your needs by getting a month of work done in just eight hours. It’s an amplified experience that you can only get in one place: The Studio. I hope you join us.

 

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ABOUT THE AUTHOR

Tim Foster

Tim empowers private equity firms and their portfolio companies to leverage emerging best practices across the investment life cycle. Tim works clients from early stage due diligence, 100 day plans, post close value creation and exits.

Prior to joining SBI Tim spent the past decade in Private Equity working with B2B companies across various industries.   Earlier in his career he held various account executive and sales management roles in technology and services businesses including Lanier, SAP, and GS1.    Because of this, Tim can assess a situation through the eyes of an investor and a practitioner. Tim leverages this unique combination of experience to help private equity firms and their portfolio companies outperform their peers.

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