The Private Equity Strategy for growing profits without increasing budgets

Published: April 2025

This is the fourth of our articles on The Power Law of CRO—and why Conversion Rate Optimization is the most important activity for any business.

We often work with private equity firms because they recognize Conversion Rate Optimization (CRO) as a fast, effective lever for growing portfolio companies—maximizing value and driving highly profitable exits.

And one thing that strikes us every time is their wildly different approach to engineering growth. In this article, we’ll share the private equity mindset and show how you can use it to grow your business without extra investment—solving a challenge many companies face in the current economic climate.

Changing your mindset—think like a private equity firm

Most businesses are hardwired with the mindset that you need to spend more to grow more. More on ads, on your website, on a bigger dev team. The list goes on.

Private equity firms think differently. First, they analyze performance, looking at what’s working and what isn’t. Then, they cut what isn’t working—the waste—and reinvest the savings into scalable, high-leverage growth levers.

In other words, they reallocate underperforming budgets into high-ROI activities. You might argue that most businesses think about efficiency gains, but these initiatives are almost always siloed within individual functions… and it’s tough to achieve breakthrough growth by optimizing in isolation.

While most businesses optimize within silos, private equity firms optimize across them.

A simple way to apply this approach to your business

If you’re already spending money on ads, apply the 80:20 principle to your paid media spend. Identify the least effective ads, pause them, and reinvest the savings into a proven, scalable, high-leverage growth lever.

You could reinvest into your higher-performing ads—but private equity firms tend to aim higher. They look for levers that create lasting value.

That’s why CRO should be the obvious choice. Unlike ads, CRO creates a permanent lift across all your traffic sources—including the ads you chose to keep running.

Here’s the kicker: Because you’re using money that was previously underutilized, this approach allows you to fund CRO without increasing your budget. It’s essentially CRO for free—self-financed by your underperforming spend.

The power of this strategy might not seem groundbreaking (or exciting)… until you see the numbers.

The Private Equity Strategy in action

To see how this works, let’s revisit InflataFish, our favorite fictional online seller of inflatable fishing boats. As it happens, they’ve just been acquired by Rod & Reel Partners, a fictional private equity firm that’s making big waves in the industry.

The acquisition announcement viewed on a tablet.

After acquiring InflataFish, the team at Rod & Reel Partners did exactly what any effective private equity firm would do: they opened the books, followed the money, and started asking uncomfortable questions.

Then they applied a classic private equity move: cutting low-performing spend and reallocating it into high-leverage growth levers. In this case, they redirected an under-performing portion of the paid media budget into a Conversion Rate Optimization (CRO) program.

In a previous article, we described how InflataFish spends $195,000 a month on paid advertising, making $328,500 worth of sales—with a 5% net margin that’s $16,425 of profit each month.

InflataFish decided to reallocate 10%—$19,500—of their monthly advertising budget into a 12-month CRO program (by pausing their worst-performing campaigns).

As we can see in this graph, the least effective 10% of the budget (the far-right portion) contributes the fewest sales.

A graph illustrating conversions versus ad spend, highlighting diminishing returns. A blue curve steeply rises at first and then gradually flattens out. The graph emphasizes that the final 10% of ad spend (marked clearly in red) generates the fewest conversions, demonstrating that most conversions occur earlier with less spending.

So what happens? Let’s take a look at the results over the next twelve months.

Because InflataFish are reallocating the least effective portion of the budget, sales don’t dip proportionally to ad spend—they decrease by just 3.5%, or $11,500 per month.

Meanwhile, let’s assume that the CRO program achieved an increase in conversion rate of 50% incrementally over the twelve month period, starting in month three.

Month	Conversion rate
1	1.00%
2	1.00%
3	1.05%
4	1.10%
5	1.15%
6	1.20%
7	1.25%
8	1.30%
9	1.35%
10	1.40%
11	1.45%
12	1.50%

Let’s take a look at how sales compared over the twelve months, versus the “base case” scenario where InflataFish did nothing.

A bar chart illustrating monthly sales over a 12-month period, comparing a base case scenario to a scenario with a 50% increase in conversion rate. The chart shows that sales in the 50% increase scenario gradually and consistently outpace the base case scenario throughout the year, emphasizing consistent performance improvement.

Here’s what happened:

In month 1, InflataFish spent $19,500 less on paid ads and—because conversion rate is the same—monthly sales dipped by $11,500 (to $317,000).
In month 2, it was the same story; still no increase in conversion rate and—with the reduced ad spend—monthly sales remained $11,500 down (at $317,000).
In month 3, the conversion rate increased by 5% to 1.05%, and sales increased by $15,850 to $332,850—already surpassing the monthly sales before starting CRO.
In month 4, conversion rate increased again to 1.10% and sales accelerated again. They were now $20,200 above the base case and climbing.

…and so on.

Sales increase in direct proportion to conversion rate, surpassing the base case sales in month 3. These show impressive gains, but what do we see when we focus on the monthly profit?

The increase in net profit (including the investment in CRO) is much more dramatic, because the Power Law of CRO is at work. (When your conversion rate increases, your profits grow disproportionately.) For a detailed explanation of this read the Power Law of CRO and our follow-up study, The math behind PPC dominance.

A bar chart showing monthly profits over 12 months, comparing a base case scenario with a scenario involving a 50% increase in conversion rate. Each month, the profit of the 50% increase scenario consistently and increasingly surpasses the base case, highlighting accelerating profitability.

And speaking of dramatic, let’s take a look at the cumulative net profit over the period, versus the base case.

A line graph comparing cumulative net profit over 12 months for a base case scenario and a scenario with a 50% increase in conversion rate. The 50% increase scenario shows accelerating growth compared to the linear progression of the base case, illustrating significant compounding benefits.

This chart captures the real impact of Rod & Reel Partners’ strategy. At first, profits dip slightly, reflecting reduced sales and the investment in CRO. But by month 4, the breakeven point is reached—the cumulative profit from the reallocation strategy catches up with the “do nothing” scenario. From there, the two paths diverge dramatically. By month 12, the reallocation strategy has outperformed the baseline by 260%, delivering an additional $514,000 in net profit. (Put another way, the cost of not doing CRO would have been over half a million dollars.)

And note the slope of the curve heading into Year 2. Even if you stop working on CRO (and somehow survive your CFO’s wrath), the profit gap continues to widen at the same pace—because CRO creates a permanent lift.

Here’s the same chart taken out to Year 3 (remembering that the investment stopped at the end of Year 1):

A line graph comparing cumulative profits over a 36-month period (3 years) between a base case scenario and a scenario with a 50% increase in conversion rate (CR). The graph highlights a substantial divergence over time, with the 50% increase scenario demonstrating rapid and accelerating growth compared to the modest, steady growth of the base case. — We were thinking of showing continued investment in CRO beyond Year 1, but this graph would end up way too tall.

Not all CRO programs are equal

The figures above model the impact of a 50% increase in conversion rate, achieved over a 12-month period, but what if InflataFish beat that goal, or fell short?

To find out, we can use sensitivity analysis, re-running the model with a range of conversion rate improvements—10%, 20%, 50%, and 100%—all achieved incrementally over 12 months. The chart below shows the cumulative net profit for each scenario compared to the baseline of doing nothing.

A line graph illustrating cumulative net profit growth over 12 months, comparing five scenarios: base case, and scenarios with 10%, 20%, 50%, and 100% increases in conversion rate (CR). Higher increases in CR lead to significantly greater net profit growth, with the 100% increase scenario exhibiting exponential growth.

The results are striking.

Even a modest 10% lift in conversion rate (just a 1% gain per month from months 3 to 12) outperforms the base case—and the gap widens over time. The slope of the 10% line heading into Year 2 shows that profits continue to diverge upward—because the gains are permanent.

As the conversion rate increases beyond 10%, the strategy’s ROI becomes increasingly transformational. A 20%, 50%, or 100% lift doesn’t just improve profits—it multiplies them, while building a more resilient, scalable funnel. Unlike ads, which stop working the moment you stop paying, CRO delivers lasting improvements across all traffic sources—paid, organic, referral, and more.

In adopting this approach, InflataFish has moved from chasing growth to driving growth—not with risky bets or budget increases, but with a calculated reallocation of spend into a high-leverage growth lever.

The result? A step-change in performance. And not an extra cent required.

A practical growth strategy for today’s economic climate

The relentless pressure to do more with less often seems like a barrier to growth—but does it have to be? Private equity firms don’t think so because they perfected the art of building value without inflating costs.

When you move investment from poorly performing areas to high-impact growth levers like CRO, you materially improve your business. The Private Equity Strategy is elegantly simple and extraordinarily powerful.

And here’s the best part: You already have everything you need to get started.

Want help modelling this strategy for your business?

Book a free strategy session and one of our consultants will work with you to model the effect of this strategy on your own numbers. No commitment, just clarity.