Private equity might sound like a world filled with jargon, billion-dollar deals, and intense boardroom discussions. But behind all the complexity, there’s one simple truth:
Private Equity Firms succeed when they know exactly what to measure, and why.
If you’re a founder, CEO, or investor trying to understand how Private Equity Firms decide whether to buy, hold, or sell a business, this article will walk you through it in plain English.
Whether you’re preparing for a pitch or trying to grow your business in the right direction, understanding these key metrics for private equity will help you speak their language and earn their trust.
Let’s discuss.
Why Metrics Matter So Much in Private Equity
Unlike traditional investors, Private Equity Firms don’t just buy shares and sit back. They get involved. Deeply. They care about growth, operational performance, and most importantly , returns.
But how do they know if a portfolio company is on track?
That’s where the right portfolio company KPIs come in. These are the numbers that show whether the business is creating value, underperforming, or ready to scale.
The best Private Equity Firms evaluation criteria are consistent across industries, but they’re always used alongside due diligence metrics PE professionals depend on when assessing risk.
1. Revenue Growth & EBITDA: The Non-Negotiables
Let’s start with the basics. Every Private Equity Firms look at two numbers first:
- Revenue Growth
- EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization)
These aren’t just accounting terms. They’re the lifeblood of any business.
Why They Matter:
Revenue Growth shows that customers want what you’re selling.
EBITDA shows that you’re making money doing it, efficiently.
A company with 10% revenue growth and expanding margins signals strong value potential. PE investors love that. It tells them the company isn’t just busy, it’s profitable.
These two also set the stage for exit multiple analysis, which helps Private Equity Firms decide what a company could sell for in the future.
2. Customer Metrics: Lifetime Value, Churn, and Acquisition Cost
Here’s the truth: if you can’t keep your customers, you can’t scale your business.
That’s why modern Private Equity Firms dig deep into customer performance. The key Private equity valuation metrics here include:
- Customer Lifetime Value (LTV)
- Customer Acquisition Cost (CAC)
- Churn Rate
A company with high LTV and low CAC is like gold. It means customers stay, spend more, and don’t cost much to acquire , a dream combo.
If churn is high? That’s a red flag, one that shows up early in AI-driven performance analytics used by many top firms.
3. Operational Efficiency Metrics
Operational performance is where many businesses lose value, or create it.
Here, Private Equity Firms watch these indicators closely:
- Gross Margin %
- Inventory Turnover
- Days Sales Outstanding (DSO)
- Fixed Cost vs. Variable Cost Ratio
These metrics tell you if the business is lean and scalable, or bloated and risky. For example, poor DSO might mean you’re not collecting cash fast enough. That’s a cash flow nightmare for PE investors.
Smart portfolio benchmarking helps compare these metrics to similar businesses in the same sector, making underperformance obvious.
4. ESG Metrics in Private Equity: The New Must-Have
It’s not just about profit anymore.
More Private Equity Firms are now integrating ESG metrics in private equity evaluations, which cover:
- Environmental: Are you reducing emissions or waste?
- Social: Are you taking care of employees and communities?
- Governance: Are you ethical, compliant, and diverse?
Why? Because ESG isn’t just “nice.” It drives performance, attracts investors, and lowers long-term risks. For PE-backed companies heading for IPO or large exits, ESG compliance is no longer optional.
5. Return on Invested Capital (ROIC) & Exit Strategy Metrics
At the end of the day, PE firms want ROI.
That’s why investment performance metrics like ROIC, IRR (Internal Rate of Return), and MOIC (Multiple on Invested Capital) are the final scorecard.
These numbers determine how successful the investment has been and guide the exit.
But it’s not just about financials. The firm will also assess:
- Time to exit
- Strategic fit for buyers
- Whether the buy-and-build strategy KPI is performing as planned
PE managers often use these data points in their exit multiple analysis, comparing past investment rounds with expected returns to time their exit for maximum gain.
Why These 5 Metrics Work Across All Industries?
You might think:
“But I’m not in tech or finance. Do these still apply?”
Yes, because these metrics are less about what you sell and more about how well you run the business.
Whether you run a logistics company, healthcare startup, e-commerce brand, or manufacturing plant, Private Equity Firms still want to see:
- Growth
- Profitability
- Scalability
- Efficiency
- Impact
And all of these show up in the metrics we’ve discussed.
Role of Due Diligence and Data
Before any investment is made, Private Equity Firms go deep into due diligence metrics that PE teams use to analyze:
- Legal structure
- Historical financials
- Customer contracts
- Employee data
- Risk exposure
This is where poor documentation, missed KPIs, or inflated revenue numbers can kill a deal fast.
To prevent that, many modern firms use AI-driven performance analytics that compare your numbers against hundreds of similar businesses.
If your key metrics for private equity don’t match your story, you’ll lose credibility fast.
Value Creation Levers: What PE Firms Do After Investing
Once a deal is made, the real work begins.
Private Equity Firms don’t just wait for growth; they build it. They activate what are called value creation levers, which can include:
- Improving pricing strategy
- Automating operations
- Cutting costs without cutting quality
- Building stronger leadership teams
- Acquiring smaller players (a classic buy-and-build strategy KPI)
If your business already shows you’re working on these areas, you’re already thinking like a PE-backed company. That’s powerful.
Portfolio Benchmarking: Comparing You to Your Peers
Let’s say your EBITDA margins are solid. Great!
But what if competitors have 30% better margins using fewer people?
That’s where portfolio benchmarking comes in. Private Equity Firms compare your key metrics with industry averages and top performers. If you’re lagging, they want to know why. If you’re ahead, they want to scale it.
Regular benchmarking is part of almost every PE firm evaluation criteria. It tells them whether your numbers are good, or just good enough.
What Founders Should Take From This?
If you’re running a business and thinking about selling one day, this is your takeaway:
Start tracking the right metrics now. Don’t wait until you’re trying to sell.
You don’t need fancy tools or a finance team of ten. Even a spreadsheet tracking Private equity valuation metrics like EBITDA, CAC, LTV, and ROIC can set you apart.
And if you’re serious about attracting Private Equity Firms, build reports that show:
- Year-over-year improvement
- Efficiency gains
- Customer retention
- Cost control
- Your plan to exit (and how it benefits the firm)
This makes you not just “a business” but a smart investment.
PE Metrics = Your Growth Roadmap
At the heart of it, Private Equity Firms are looking for businesses that are:
- Growing fast
- Earning consistently
- Ready to scale
- Run by people who know their numbers
And if you understand the portfolio company KPIs, value creation levers, and investment performance metrics they care about , you’re already on the right track.
No need to fake it. Just start learning and tracking.
And remember:
Metrics aren’t there to scare you. They’re there to guide you.
Because the right data can turn a good business into a great one.
Why They’re More Than Just Numbers?
It’s easy to get caught up in the numbers , growth rates, margins, cash flows, and all the metrics Private Equity Firms love to see on paper. But here’s something we often forget:
Behind every spreadsheet is a story. Behind every KPI is a human decision.
When PE firms evaluate a portfolio company, they’re not just asking, “How much profit is this business making?”
They’re also asking:
- “Can this team scale further?”
- “Are they making smart long-term bets?”
- “Are customers truly loyal , or just temporarily interested?”
- “Is the business built on strong, ethical foundations?”
That’s why great PE investments aren’t just about choosing the right numbers , they’re about choosing the right narrative backed by data. And the companies that do best? They’re the ones who’ve already built internal habits of measuring what matters before the due diligence even starts.
If you’re a business leader thinking, “This feels like a lot , where do I even start?”
You’re not alone.
Start tracking five or six core metrics regularly. Don’t wait for a private equity conversation to begin preparing. Build clarity now , and you’ll thank yourself later.
How MSAFDAR Turns Your Numbers Into Negotiating Power?
Partnering for Growth, Exit, and Everything In Between
If you’re trying to attract Private Equity Firms, you need more than clean books and a nice pitch deck. You need a strategy that connects the right metrics to your real growth potential, and that’s where MSAFDAR comes in.
Here’s how we help:
Strategic Metric Selection
We help you define which portfolio company KPIs matter most in your industry, no guesswork, no jargon. Whether it’s operational efficiency, customer retention, or ESG metrics in private equity, we show you what actually moves the needle.
Dashboard Setup & Monitoring
Not sure how to track all those metrics? We’ll set up easy-to-understand dashboards (manual or automated), ensuring that your investment performance metrics are always up to date and presentation-ready.
Pre-Due Diligence Readiness
We’ve seen businesses lose deals because of poor documentation or mismatched data. We’ll help you organize financials, governance documents, and due diligence metrics PE firms expect , so nothing gets missed.
Value Creation Planning
We don’t stop at reports. We help you identify your value creation levers, design improvement strategies, and even support implementation, making your business more attractive for a future exit or growth capital raise.
Exit Strategy & Benchmarking
Want to know what your company is worth? We run multiple exit analyses, benchmark your metrics against your industry, and help you create a roadmap for valuation growth, step by step.
At MSAFDAR, we don’t just speak “PE language.”
We translate your business’s real performance into the kind of story that Private Equity Firms want to hear, grounded, clear, and investment-ready.
FAQs
Q1: What’s the #1 metric PE firms care about?
Usually, EBITDA, because it shows real operating profit, drives valuation.
Q2: What if my business is small? Will these still apply?
Yes. Even small businesses are measured using similar Private equity valuation metrics. Start tracking them now.
Q3: Do all PE firms use ESG metrics now?
More and more are. Especially those aiming for IPO exits or working with global institutional investors.
Q4: What is “exit multiple analysis”?
It’s a way to calculate what a company might sell for, based on a multiple of EBITDA or revenue at exit time.
Q5: Can AI really help in performance tracking?
Yes. Many firms now use AI-driven performance analytics to spot trends, detect risk, and benchmark companies faster and more accurately.