Most private equity professionals feel at home in a spreadsheet, but the backend of a website can feel like a foreign language. That is understandable. However, ignoring digital infrastructure means leaving money on the table. We have written before about how small tweaks to content can make a significant impact on the EBITDA of your portfolio companies.
Today, we need to discuss site speed. It is a factor most investors overlook, yet it is often the lowest hanging fruit for value creation.
Site speed is exactly what it sounds like. It is simply how fast your website loads for a potential customer.
Here is the reality: Speed directly correlates to the financial health of your portfolio companies. Research indicates that one in four visitors will abandon a site if it takes more than four seconds to load. Customer satisfaction drops by 16% for every single second of delay. Furthermore, 70% of consumers admit that load times influence whether they will buy from an online retailer at all.
You likely don't have the time to get into the weeds of technical SEO. But your portfolio companies need to pull every lever available to maximize their attractiveness as acquisition targets.
At Aux Insights, we specialize in the digital strategies that actually move the needle for private equity firms. If you want to ensure your investments are reaching their full potential, we are here to help. Contact us to schedule a brief consultation. In the meantime, you can forward the following tactics to the marketing teams of your portfolio companies to get the ball rolling.
How Site Speed Affects EBITDA
Let’s look at the math. Here is a hypothetical example of a portfolio company with traditional performance metrics:
- $100,000 media spend
- 200,000 site visitors
- 4% purchase conversion rate (8,000 purchases)
- $100 average order value ($800,000 site revenue)
- 70% gross profit margin ($560,000)
- $100,000 fixed costs
- $460,000 EBITDA
Pay attention to that 4% conversion rate. That number is heavily influenced by how fast the pages load. If the site slows down, conversions drop. If the speed picks up, conversions climb.
For instance, a minor speed improvement that bumps the conversion rate to 4.1% would increase EBITDA by $14,000 to $474,000. If you can get that rate to 5%, EBITDA jumps by $140,000 to $600,000. Conversely, if the site lags and the rate drops to just 3.9%, you lose $14,000 in EBITDA. A drop to 3% slashes EBITDA by $140,000.
What Causes the Lag?
There are plenty of reasons a site might run slowly. The underlying theme might be poorly coded. There could be too many massive image files clogging up the bandwidth. Perhaps the team is using too many plug-ins, or the server location simply cannot handle the traffic volume.
The most important step is identifying the root cause. Tools like Google PageSpeed Insights and Pingdom allow marketing teams to quickly spot the bottleneck and build a plan to fix it.
5 Actions for Accelerating Site Speed
Once you know what is slowing things down, the fixes are often straightforward. Here are five common solutions your portfolio companies can implement right now:
- Image Compression: Giant image files are the usual suspects for slow speeds. Using compression tools to shrink file sizes without losing quality can dramatically boost performance.
- Software Audit: Review the site backend. Eliminate any non-essential apps or software that are running in the background and eating up resources.
- Optimized Theming: Many websites are built on bloated themes. Switching to a streamlined, lightweight theme can yield immediate benefits.
- Streamlining Redirects: Broken links and excessive redirects confuse browsers and slow down the user journey. Regular audits will keep this clean.
- Opting for Hero Images: Rotating "sliders" often weigh down a homepage. Switching to a static hero image provides a faster and more cohesive experience.
For significant issues, it is worth bringing in a developer to refine the code and ensure the site is agile. As the numbers above show, the ROI on an experienced developer is easily justified by the protection of your EBITDA.
The Bottom Line
We operate in a digital age where a fraction of a second can shift revenue and change the valuation of a company. As a custodian of these investments, it is vital to leverage these nuances. Optimizing a website might seem like a small tactical move today, but it creates a massive ripple effect on the balance sheet tomorrow.
You do not have to figure this out alone. At Aux Insights, we partner with private equity firms that see the opportunity to increase value across their portfolio but need outside expertise to execute the vision. Schedule time to meet with us and let’s talk about using digital marketing levers to maximize your returns.