The 5 Things You Are Likely Not Considering or Auditing in Your Marketing Due Diligence for E-Commerce M&A

When evaluating an e-commerce company for acquisition, marketing due diligence is critical to understanding growth potential and identifying risks. While many investors focus on standard metrics like Customer Acquisition Cost (CAC) and Return on Ad Spend (ROAS), there are often overlooked elements that can provide valuable insights. Here are five things you may not be considering in your marketing due diligence, but that could make or break your investment thesis.

1. Poor or Sloppy Marketing May Be a Good Thing

One of the most common misconceptions in marketing due diligence is that poorly executed marketing is always a red flag. In reality, it could be a major opportunity.

If the company is performing well and growing quickly despite its sloppy or inefficient marketing efforts, that’s a sign that there’s massive room for improvement. Imagine what could happen if the marketing strategy was refined and optimized. A company with weak marketing but strong performance could be sitting on untapped potential that can fuel explosive growth once better tactics are implemented.

Key takeaway:

Poor marketing isn't always a sign of trouble. It can be an indication that the company is succeeding despite inefficiencies, meaning there's significant upside potential.

2. Over-Allocation to One Advertising Channel Isn’t Always a Bad Thing

It’s easy to view a company’s over-reliance on a single advertising channel—like Meta (Facebook and Instagram ads)—as a risk. While diversification across platforms is important, heavy investment in Meta ads can actually be a good sign, especially if the company is growing rapidly.

Why? Meta’s vast targeting capabilities help prove product-market fit, showing that there is strong demand for the product in the market. Once this is validated, other channels like TikTok, Pinterest, and Snap may also be viable, but it’s important to proceed cautiously. If the brand has never successfully advertised on these platforms before, it’s not a guarantee that they’ll be profitable overnight.

Expanding to new platforms often requires a large investment of time, money, and resources. Don’t assume that simply replicating success from one ad platform to another will be easy.

Key takeaway:

While over-allocation to one channel like Meta is not ideal, it shows that the product has market fit. Just be aware that moving into new channels like TikTok or Snap requires significant investment and expertise.

3. Success on One Ad Platform Doesn’t Always Translate to Others

A common pitfall for investors is assuming that if a company is successful on one ad platform, it can replicate that success across others. In reality, each ad platform—whether it's Meta, Google, YouTube, or TikTok—is unique in terms of targeting, creative formats, and audience behavior.

Meta ads are highly effective for some companies, but that doesn’t mean the same strategy will work on YouTube or Snap. The creative requirements, audience engagement, and even the way ads are optimized differ greatly from platform to platform.

Expanding across ad networks requires specialized expertise, and assuming that success in one place will guarantee results elsewhere could lead to wasted ad spend and poor returns.

Key takeaway:

Don’t fall into the trap of thinking that a company can easily replicate its success from one ad platform to another. Each platform requires a different strategy and skill set. Without the right expertise, moving to new ad networks can become a costly experiment.

4. Repeat Purchase Rate (RPR) Is the #1 Indicator of LTV Growth

While many investors focus on top-line revenue and acquisition costs, one of the most crucial metrics to evaluate during marketing due diligence is the Repeat Purchase Rate (RPR)—the percentage of customers who make a second purchase. This is sometimes referred to as the Second Order Rate.

Why is this so important? The RPR is the best indicator of whether the company’s Lifetime Value (LTV) will grow. If a high percentage of customers return to make a second purchase, it’s a strong signal that the product has quality and customers are satisfied. A low RPR, particularly under 20%, should raise concerns about the product's quality and customer satisfaction.

A low RPR means the company is relying heavily on customer acquisition without fostering loyalty, which may signal limited long-term potential.

Key takeaway:

A low RPR is a red flag, indicating that customers are not coming back for repeat purchases. High RPR, on the other hand, shows strong customer loyalty and signals the potential for LTV growth.

5. Over-Reliance on Google Search Ads Without Success on Social Media Is a Red Flag

Search ads on platforms like Google are excellent for capturing high-intent traffic—people actively looking for a product or service. However, if a company is over-allocated to search ads and has little success with social media ads, it indicates a potential weakness in their marketing strategy.

Why? Search ads capture existing demand, but social media ads are key for creating demand by reaching potential customers who aren’t actively searching for the product. Companies that only rely on search ads have limited scalability since they aren’t driving awareness among new audiences.

A successful e-commerce company should demonstrate the ability to both capture demand through search and create demand through discovery-based platforms like Meta, TikTok, and Pinterest. If they haven’t cracked social media ads, it’s a sign they might struggle to scale effectively.

Key takeaway:

If the company relies heavily on Google ads but hasn’t successfully scaled on social media, it’s a red flag. Search ads capture intent, but social media ads are necessary to create demand and drive new growth.

Conclusion: Look Beyond the Basics in Marketing Due Diligence

Marketing due diligence goes far beyond traditional metrics like ROAS or CAC. By digging deeper into overlooked areas—such as sloppy marketing execution, platform over-allocation, and the nuances of RPR and LTV—investors can uncover valuable insights that significantly impact an e-commerce brand's long-term growth potential. Avoid common pitfalls and focus on these five critical elements to ensure that your next e-commerce M&A investment is built on a solid marketing foundation.

The 5 Things You Are Likely Not Considering or Auditing in Your Marketing Due Diligence for E-Commerce M&A

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