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The Ten Dumbest Marketing Mishaps - #04
Mishap 4: Failing To Cover The Back-end
Most companies never address the back-end or residual part of their businesses. But the back-end is all-important.
In a recent email campaign, I had one of my clients offer to sell a small software application to his new customers for just $19. The application automatically created headlines that adhered to the rules of effective headlines. He actually lost a few dollars up-front on every sale.
“Up-front” is the key qualifier there, because of the 50,000 people who bought the application at $19, nearly 10,000 came back and bought on the back-end for $1,000 or more. My client made $2,000,000 (yes, two million dollars!) on the back-end.
But that’s just the first step. Once every three months this client goes back to the original 50,000 people who bought the $19 applications and gets at least 250 people to buy at least $1,000 more in software applications.
That translates into $50,000 in back-end profits every three months, above and beyond the $2,000,000 I’ve already told you about.
My client then goes back to those 10,000 people who bought something for $1,000 and gets about 1,500 of them to buy more within the first nine months. The average additional order is $5,000, which makes my client another $1,500,000.
And those 1,500 customers keep ordering an average of one-and-a-half times a year. That means an additional $1,500,000 in business every year comes from the back-end.
The back-end is one of the most vital areas of any business.
Look at the above illustration.
If my client had only made that first $19 sale and not cultivated the back-end, he’d have missed out on many, many millions of dollars in business, and actually lost money on the customer.
Until and unless you can identify how much back-end business you can expect, you won’t know how profitable or unprofitable an ad, sale, customer or promotion really is.
For example, if you run $10,000/week for ads in the newspaper, and they produce $9,000 in retail sales, it looks like you are losing $1,000 or more (I’m not figuring the cost of the product sold or services furnished). But are you losing in the long run?
If you induce those new customers to purchase a similar product or service from you within 45 days, you double the value of the customer, and all of a sudden you’re far into profit - instead of loss.
Induce them to come back once every three months and repeat the average transaction, and you’ve set up an annuity. All from an original $1,000 loss, which you subsidized. But within three months or less the back-end business should offset your subsidy several times over.
The same dynamics apply to salespeople and sales. If a salesperson costs you $2,000 a month in base salary and all he sells each month is $2,000 in new business, it sounds bad.
Yet, if the new customers do repeat business, or, if you develop a back-end that converts normally one-shot sales into repeat customers, you accrue fabulous future income even if your salesperson loses you money at first.
If every month you bring on 20 customers who initially spend $100, and you let them to spend $100 every three months, soon you’ll have 600 people spending $100 every three months. That’s $60,000.
Another part of back-end dynamics is harvesting the “residual value” of a customer — also known as the “Lifetime Value” (LV) of the customer. This takes a lot of thought, experimentation, and carefully documented analysis.
Look for logical product or service extensions to offer your customers.
Experiment with salesmen “locking clients into” an ongoing purchasing commitment.
Experiment with capturing their names, email addresses and telephone numbers, then mailing them a specific offer, or making a specific offer by phone and measuring the response.
If you are basically a one-product or one-service company, seek out other products, companies or services to offer your customers as your back-end.
Be open-minded about other products, services and companies that might fit, based on either demographics or areas of interest.
Religiously, work the back-end over and over again.
Ironically, most businesses rarely try to resell their current or previous customers.
You should be doing that constantly.
By Walter |
Topics: Client Top Secret, Marketing Mishaps |