Can Website Traffic Predict Cash Flow?

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Hello Founders & Funders,

Let’s face it, in the M&A world, we live and breathe cash flow.

We can calculate it, forecast it, and use it to assess the health of a business without breaking a sweat. But when it comes to online growth, many of us find ourselves in unfamiliar territory.

Website traffic? Click-through rates? It all sounds a bit abstract compared to good old-fashioned financial statements.

But here’s the kicker… online metrics like traffic and sales data can actually give you powerful insights into predicting future revenue, making it an invaluable tool in assessing cash flow for businesses with an online presence.

Let’s break it down.

1. Website Traffic: The Foot Traffic of the Digital World

Think of website traffic as the digital version of foot traffic in a brick-and-mortar store. Just like more people walking through the door can lead to more sales, more people visiting a website can lead to more conversions.

But it’s not just about how many people visit; it's about who’s visiting.

If you’re assessing a business for acquisition or investment, website traffic can show you the volume of potential customers engaging with the brand.

The key metric here is Website Traffic Growth — is the business attracting more visitors over time? If yes, it’s a good sign that there’s growing demand. And we all know what that means: more demand = more cash flow.

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2. Conversion Rate: How Many Clicks Turn into Cash?

Alright, so people are visiting the site, but are they buying anything?

This is where Conversion Rate comes in. The conversion rate measures how many website visitors actually take a desired action (making a purchase, filling out a form, etc).

It’s the online equivalent of how many people pick something off the shelf and head to the checkout.

Imagine if every person who walked into a store just looked around, didn’t buy anything, and walked out. That’s bad for business… and for cash flow. The same goes for website visitors who don’t convert!

A high conversion rate means the business is doing a good job turning visitors into paying customers, which, as you guessed it, contributes to predictable cash flow. If the business you’re evaluating has a solid conversion rate, that’s a green light for future revenue potential.

3. Sales Funnel Drop-off Rate: Where’s the Leak?

Here’s an interesting one - Sales Funnel Drop-off Rate.

Every business has a sales funnel, from attracting visitors to converting them into paying customers. But some potential buyers get lost along the way. Maybe they clicked on the product page but didn’t make it to checkout. Tracking where people “drop off” in the funnel gives you a clear picture of missed revenue opportunities.

Picture a sales funnel as a waterslide. If too many people are jumping off halfway, you’ve got a problem. Fix the funnel, and more people will slide all the way to purchase!

If you’re analyzing a company’s growth potential, understanding where they lose customers in the funnel can help you gauge how much potential cash flow is being left on the table.

Fixing these leaks can directly lead to more revenue, and who doesn’t want that?

Think About This

Understanding online metrics like website traffic, conversion rates, and sales funnel drop-off can transform how you assess a business’s cash flow potential. It’s like having a Rosetta Stone for deals, unlocking hidden insights that help you close smarter, not harder.

How can you start incorporating these online metrics into your next acquisition assessment?

Whether it’s setting up a basic analytics dashboard or partnering with a digital marketing expert, taking the first step towards understanding these metrics could be the difference between a good deal and a great one.

Let’s embrace the digital side of acquisitions and watch your cash flow predictions become as robust as your financial statements.

David

P.S. – If you are interested in this, feel free to reply to this email and I’ll connect you with Chris. You may have read some of the insights he has shared in this newsletter.  He is an expert in web analytics, teaches it to the MBAs at FAU, with a long background in accounting / finance / M&A and ops.