How can I tell if a market research firm relies on a few tracking studies?
Break revenue down by client and by study. If a handful of recurring tracking studies produce most of the income, the firm is exposed to a single cancellation. Check contract terms, renewal history and how each client decides to continue.
Tracking studies are attractive because they repeat. They are also risky for the same reason: if a client stops, a large part of the income may stop with it. Ask the seller for revenue by client and by project over the past few years, then see how much comes from the biggest few.
Look at the contract behind each recurring study. Is it a standing agreement, a yearly renewal or a series of one-off orders? Ask who inside the client organization champions it and what would happen if that person left. Read the history of renewals and note any that nearly lapsed.
Then look at the rest of the business. Does the firm win new projects regularly, or does it live off the same few relationships? Review the pipeline, recent proposals and the share of work that came from new clients. Compare it with receivables to see who pays and how promptly. Finally, call a few clients with the seller’s permission. Ask how they view the work and whether they are likely to continue after an ownership change. What they say tells you more than a spreadsheet will. Ask how many tracking studies were sold into new clients, and how many only extended an existing one.
Key takeaways
- Request revenue by client and by study, and note how much the largest few supply.
- Read each tracking contract for term, renewal and cancellation wording.
- Review the pipeline for evidence that new clients are being won.
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Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
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