Commercial due diligence is the part of a deal process that tests whether the business can actually earn the revenue the model assumes. Financial diligence tells you whether the historical numbers are real. Commercial due diligence asks whether they will continue: whether the market is there, whether customers will stay, whether competitors will let margins hold, and whether the growth plan is achievable.
Every pitch deck makes the same claims. The market is large and growing. Customers love the product. The company is differentiated. There is a clear path to doubling revenue. The job of commercial diligence is to turn each of those claims into a testable question and then go find evidence. This article walks through how we approach it for private equity clients and what we look for.
Start with the investment thesis, not a template
Generic diligence scopes produce generic reports. Before any research starts, write down the three to five things that must be true for the deal to work at the price you are paying. For example:
- Core customers will renew at roughly historical rates through the hold period.
- The company can raise prices modestly without material churn.
- A new product line can reach a meaningful share of revenue within three years.
- No well-funded competitor is about to undercut the core offer.
Each of these becomes a workstream. Anything that does not bear on the thesis is lower priority, no matter how interesting it is.
Test the market claim
Pitch decks love top-down market sizing: a large industry number, a percentage that is supposedly addressable, and an implied share. That math is easy to build and hard to disprove, which is the problem.
A stronger approach builds the market bottom-up:
- Define the buyer precisely (industry, company size, geography, use case).
- Count how many of those buyers exist, using public business data, industry associations and government statistics.
- Estimate what a typical buyer spends on this category per year, using customer interviews and the target's own contract data.
- Multiply, then compare with the top-down figure.
If the bottom-up number is a small fraction of the deck's figure, the growth plan probably assumes customers the company cannot reach. Also look at the growth rate claim. Ask what is driving it (regulation, technology shifts, consolidation) and whether those drivers are already priced into competitors' plans.
Test customer loyalty with the customers
The single most valuable input in commercial due diligence is talking to customers. Management will provide reference customers, and those calls are useful, but they are a curated sample. A thorough process also reaches customers the company did not choose, former customers and customers of competitors.
Customer and industry interviews should cover:
- Why they chose this vendor and what alternatives they considered.
- How hard it would be to switch, in time, cost and disruption.
- What they would do if the price went up by a meaningful amount.
- What the vendor does poorly, and whether anyone is doing it better.
- Whether they expect to spend more, the same or less next year.
Pair the interviews with the data. Cohort analysis of the customer base shows whether retention claims hold up across customer vintages, sizes and segments. Revenue concentration matters too: if a few accounts drive a large share of revenue, each of them deserves a direct conversation and a look at contract terms and renewal dates.
Former customers are often the most candid source. Their reasons for leaving tell you where the product or service is weak and whether those weaknesses are getting better or worse.
Test competitive position with benchmarking
"We have no real competitors" is a red flag, not a selling point. Every business competes with something, even if it is a spreadsheet and an internal team.
Competitive benchmarking should compare the target with its main alternatives on the factors buyers say matter most:
- Pricing and packaging, including discounting practices.
- Product capabilities and how often each side ships improvements.
- Service levels, implementation time and support quality.
- Sales coverage and channel partnerships.
- Reputation in public reviews, industry forums and analyst coverage.
Public sources go a long way: competitor websites and published pricing, product documentation, job postings (which reveal where a competitor is investing), review sites, press releases and regulatory filings. Industry interviews with distributors, channel partners, consultants and former employees of competitors fill in what is not published.
The output should be a clear view of where the target wins, where it loses, and whether the gap is widening or narrowing.
Test pricing power
Pricing assumptions sit behind most PE value creation plans. Commercial diligence should establish:
- How prices have moved historically, and what happened to retention and new sales when they did.
- How the target's prices compare with alternatives for a comparable scope.
- Whether customers view the product as essential or discretionary.
- How much of the price is set by contract and how much is negotiated at each renewal.
Customer interviews help here, but stated willingness to pay is not the same as behavior. Look at actual win and loss data, discount levels by deal size and any past price increases and their outcomes.
Test the growth plan
The growth plan in the deck usually rests on a few levers: new customers in the core market, expansion within existing accounts, new products, new geographies, or acquisitions. For each lever, ask what evidence exists today.
| Growth lever | Evidence to look for |
|---|---|
| New customers in core market | Pipeline quality, win rates, sales cycle length, cost to acquire |
| Expansion in existing accounts | Net revenue retention by cohort, attach rates of add-on products |
| New product | Early customer adoption, interviews with target buyers, competitive alternatives |
| New geography | Existing customers there, regulatory barriers, local competitors |
| Acquisitions | Pipeline of targets, valuation ranges, integration capability |
A plan that depends on a lever with no evidence is a hope, not a forecast. That does not kill a deal, but it should change the price or the structure.
Where technology meets commercial diligence
Commercial and technology questions overlap more than most scopes admit. A company's ability to raise prices, launch new products or expand into new segments often depends on its systems: whether the product can scale, whether customer data is clean enough to support upsell, whether the go-to-market engine runs on tools that work. We often run technology due diligence alongside commercial work so findings in one inform the other.
AI is also changing the mechanics of commercial diligence itself. Research that once took a team weeks, such as cataloging competitor pricing pages, summarizing hundreds of reviews or structuring interview notes, can now be done faster with AI-assisted workflows, with analysts checking and interpreting the output. Our article on how private equity firms are using AI across the deal cycle covers this in more detail.
What a useful report looks like
A good commercial due diligence report is short at the top and deep underneath. The first pages should answer the thesis questions directly: confirmed, partially confirmed, or not supported, with the evidence for each. Supporting sections hold the market model, interview summaries, competitive benchmarking and cohort analysis.
Avoid reports that describe the industry at length without taking a view. The deal team needs answers that change the price, the structure or the 100-day plan.
We run commercial due diligence for private equity firms and investors, built around customer and industry interviews, competitive benchmarking and data analysis, delivered on deal timelines.
Frequently asked questions
How long does commercial due diligence take?
Most engagements run two to six weeks depending on the deal timeline, the number of customer interviews required and how much data the target provides. A focused scope tied to the investment thesis is faster than a broad industry study.
How many customer interviews are enough?
It depends on the customer base. For a business with a few large accounts, the top customers by revenue are essential. For a business with thousands of small customers, a sample across segments and vintages matters more than a large count. The goal is to hear consistent patterns, including from customers management did not suggest.
What is the difference between commercial and financial due diligence?
Financial due diligence verifies historical financial performance, quality of earnings and working capital. Commercial due diligence looks forward, testing whether the market, customers and competitive position support the projected revenue.
Can commercial due diligence be done without management access?
Partly. Market sizing, competitive benchmarking and industry interviews can be done from outside the company, which is useful early in a process. Customer cohort analysis and contract review need data from the target.
What are the most common red flags?
Heavy revenue concentration, retention that looks strong only in aggregate, a growth plan resting on an unproven product, competitors winning on price in recent deals, and a market size that does not hold up when built from the bottom up.