Using Both Revenue & Customer Health in Business Valuation
While revenue metrics are critical to assess business value, the need to assess customer health is often overlooked. In customer-facing businesses, this is especially dangerous. Without a clear “line of sight” into customer tenure and retention, an acquiring company (family office, VC, or angel investor) may have minimal evidence to indicate if an acquisition will result in incremental revenue or synergy with existing businesses.
For businesses that are sold using a revenue multiplier, a significant miscalculation can result in a lower exit price. Both family offices and business owners do not realize the hidden factors that can negatively impact a sale. Conversely, positive but hidden factors can support a significantly better acquisition or sales story. As part of an acquisition and revenue assessment, looking at the entirety of your customer experience is essential to understand the real value of the business.
Why would a business owner or investor want to conduct a revenue or customer health review?
Business owners sell for many reasons: retirement; a family dispute; or to cash out at a reasonable price. Business owners need to know the true value of the business before contract. In the same way, the acquiring company must understand what they are really buying. For example, is it a company that has artificially propped up profits at the expense of customer satisfaction? Only a thorough investigation can assess customer health – yet few take the time to do this at all.
Who benefits from a revenue and customer health assessment?
There are three beneficiaries of a revenue optimization and customer health assessment when a business is bought or sold. They are:
- The business owner who wants to maximize his or her exit value.
- The potential buyer (family office, angel investor, or VC) who wants to minimize the price paid.
- A family member, partner, or another party who may be in dispute with the owner, and who wants to minimize the price that they pay (or conversely, maximize their ownership share of the business).
These are conflicting interests, but can be addressed through a well-executed revenue and customer health assessment. Our approach evaluates revenue potential and customer health in a systematic and independent manner.
- We employ a variety of tools to estimate prospects for growth, forecast volume, share, and satisfaction.
- We profile relevant products, brands, and services to assess your competitive position.
- We combine our findings to provide an unbiased estimate of revenue potential. We can combine this with financial professionals who have the tools to assess performance in the absolute and relative to a peer group.
- We can work with you on a per project or ongoing retainer basis to provide guidance and market intelligence for the business.
How much might a revenue and customer health assessment be worth in the context of the final business value?
Everything! Getting these estimates wrong can be disastrous!
Will an independent revenue and customer health assessment improve your chances of getting the price you deserve for your business or, alternatively, reduce your risk of exploitation by the seller? Yes! We absolutely think so!
Let’s have a conversation about how we can solve this problem together.