1. What investors are missing

As addressed previously, conventional due diligence often overlooks critical digital bottlenecks, leading to missed insights for investors. These hidden issues are often invisible in financial or legal due diligence alone, reducing the investment’s value. This can cause:

• Digital marketing inefficiencies (e.g., ineffective digital campaigns that can reduce conversion rates)
• Customer acquisition cost (CAC) and retention challenges (factors affecting long-term growth and ROI)
• Data privacy and regulatory risks (customer data management and digital advertising regulations)
• Technology integration gaps (limitations in scalability and operational efficiency due to outdated or poorly integrated digital systems)
• Missed opportunities for digital growth, personalisation, and customer experience enhancement

Let’s look at the math behind the following case: a majority stake was planned to be acquired in a fast-growing, science-driven and sustainable skincare company valued at $190 million. The brand demonstrated strong growth with projected 2025 revenues at $85 million and a global distribution network spanning key markets.

Traditional due diligence focuses on financials and legal compliance, which might suggest that $190 million looks like a fair valuation. But let’s explore how digital due diligence (DDD) can shift that perspective.

2. Modelling the DDD Formula in Practice

Step 1: Quantifying Digital Risk

DDD revealed that approximately 10% of online sales experience customer dissatisfaction or complaints related to mismatched expectations (e.g., texture, scent, or efficacy). Although physical product returns are minimal due to hygiene and regulatory constraints.

Here two main aspects merit attention:

• Firstly, there will be increased customer service costs (for handling inquiries, complaints, and refunds). The estimated cost related to complaint handling and customer service expenses can be approximately 1% of sales, or $850,000/year.
• Customer dissatisfaction leads to a $20.4M unrealised revenue, calculated by estimating 17 000 lost customers (from 850 000 annual customers × 10% dissatisfaction × 20% churn) multiplied by a customer lifetime value (CLV) of $1200 (average order value is $100, annual purchase frequency is 3, average customer lifetime is 4 years). This loss reflects missed opportunities for growth, which results in a lower customer lifetime value (CLV), negatively impacting customer retention. Negative online reviews and missed customers influence long-term revenue and can draw additional marketing spend to acquire new customers to offset churn.

Digital Risk Adjustment = Operational Costs + Unrealised Revenue = $850 000 (operational) + $20.4 million (unrealised) = $21.2 million

​​Step 2: Digital Opportunity Assessment

DDD identified that enhancing digital product education and implementing AI-powered virtual try-on technology with integrated skin analysis and personalized product recommendations could reduce customer dissatisfaction and related operational costs by 30%.

• Projected annual savings can be the 30% of the estimated complaint handling and customer service cost, specifically $255 000 from lower complaint handling and reduced need for costly customer acquisition.
• Additionally, improving personalization and the overall digital customer experience through advanced recommendation engines and tailored content is expected to increase repeat purchase rates by 2.5%, resulting in an estimated $2.1 million in incremental annual revenue.

Digital Opportunity Uplift = Cost Savings + Revenue Uplift = $255 000 (savings) + $2.1 million (revenue) = $2.3 million

‍Step 3: Renegotiation and Value Creation

The ultimate calculation of the Adjusted Investment Value is as follows.

Adjusted Investment Value = Initial Valuation − Digital Risk Adjustment + Digital Opportunity Uplift = $190 million - $21.2 million + $2.3 million = $171.1 million

Based on these insights and following implementation, investors negotiated a $850,000 reduction in the purchase price to account for the immediate digital risks related to returns and operational inefficiencies. They allocated $600,000 from the projected savings toward implementing the recommended digital upgrades.

The brand achieved:

• An annual reduction of $255 000 in complaint handling and operational costs.
• An additional $2.1 million in revenue growth from increased repeat purchases.
• Furthermore, by addressing the underlying causes of customer dissatisfaction, the company mitigated a potential $20.4 million unrealized revenue loss tied to lost customers, thereby supporting a significantly higher future valuation.

3. Why DDD Matters: The Better Formula

Traditional DD (Legal + Financial + Commercial) + DDD (Digital) = Optimised Investment Value

• Without DDD: Investors miss hidden operational risks and digital growth levers, risking overpayment or undervaluation.
• With DDD: Investors quantify digital risks, unlock hidden value, and negotiate smarter, turning digital insight into millions saved or earned.