I have worked with some of the most successful direct marketing companies in the United States, and have studied the operations of many others. Just as successful people have traits in common, the most successful direct marketing companies have something in common. They follow a specific “success formula” for making tons of money via direct mail.
Marketers refer to “Front-End” and “Back-End” marketing campaigns. The front-end is the first product that a new customer buys. The back-end is all the additional products that a customer will buy from you over the time that they remain your customer.
What’s the difference?
It is costly to find customers who will buy from you the first time. But once customers buy from you the first time, they have a chance to get to know you. They see the quality of your product. They see how fast you ship the product, and whether or not they have a customer service problem when they order from you.
Customers who have bought from you and who are happy with their purchase are much more likely to buy from you in the future. You are not a stranger to them. Their experience with you is that you deliver on your promises. They now have a reason to trust you. A relationship has been formed.
If you offer them additional products to buy, they will have much less resistance to purchasing from you compared to what they might feel if they had never bought from you before.
It can cost a marketer as much as 15 times more to find a new customer, as it does to sell an additional item to an existing customer.
It’s expensive to find a new customer because you have to pay for printing and postage to mail to everyone on the list, but only a very small percentage of those prospects will order. But, those people who do order are “GOLDEN.” They have raised their hand, as if to say, “I’m interested in what you have to sell. Here, take my order!”
It costs much less to sell to an existing customer because you don’t have the expense of finding interested parties hiding within a larger list. They are right there in your customer file.
And even though you are spending less to reach them, their response rate for additional products will be “off the charts” compared to the response rate from people who have never bought from you before.
So, with lower costs and a higher response rate most businesses find that almost ALL of their profit comes from back-end sales.
The “Holy Grail” of marketing is this –
If you can bring in new customers at zero net cost to you or a small loss, then you can mail an almost unlimited quantity of sales pieces, because the mailings will EASILY pay for themselves by the time you add in a few back-end sales – provided you have a back-end in place.
But business owners who are new to direct mail don’t always get this at first. They ask, “Why would I want to send a big mailing if I’m just breaking even or taking a loss? Why not price my product or do something so I can make a profit on the mailing?”
Because your goal with your first mailing is primarily to build as large a list as possible of people who have bought from you – who show you that they’re interested. The profits will come from upselling those customers to additional products on the back-end.
And those profits will come soon enough. For example, if after their first purchase, you then give those initial product buyers the opportunity to buy a second product, those sales will cost you very little to get, and with a good conversion rate, that will translate into big profits for you.
Let’s say you break even on your first mailing and you generate 100 new customers. Then you offer a $200 product to those buyers. And say 20% of them buy that product.
100 x .20 = 20 Back-end Buyers
20 x $200 = $4,000 Back-end Sales
$4,000 / 100 Original Buyers = $40 Average Per Buyer
That means you’ve just made an additional $40 income from every one of those customers where you thought you had only “broken even.”
You might think 20% is a high conversion rate and not attainable. You’re not going to get 20% on a mailing to lists of people who have never heard of you, but it is common to get high conversion rates like that from people who have bought from you before. The best time to get them to upgrade to the next step is right after they get the product they just ordered from you, while they are still excited.
The $40 in extra income per new customer from what was previously “break even” will give you a positive cash flow. If you can bring in new customers at break-even, or even a small loss, and then immediately upsell them to the first back-end product, then you will have a positive cash flow and your business can grow very quickly.
Once you realize that you don’t need to make money on the front-end, then you can invest to bring in a lot more customers on the front-end. The amount of names you can mail (the “universe”) grows exponentially. I implemented this for one of my private clients I was able to mail 5 times as many sales pieces for them as they’d been sending previously.
You might be saying – “But, I don’t have any additional products to sell.” Which raises an important question: How do you come up with additional products to sell?
Think in terms of a product LINE instead of just one product. Every product (or service) line can be expanded. An easy example is information marketing. Any information product can be made into a series of seven products or more:
- Initial “beginner/introductory” course
- Advanced course
- DVD of live seminar
- Live Seminar in Person
- Monthly newsletter or Membership web site
- Group coaching/mastermind groups
- Personalized coaching from the guru
Do you know what’s working for you on the front-end and back-end, and what isn’t?
The companies that track what’s working and what isn’t working, and then use that information to optimize their front-end and back-end campaigns, grow and make more money. The companies that don’t track their sales and conversions properly will end up going out of business, period!
Are you tracking the right things? Do you have a clear picture of your front-end and back-end sales numbers? A lot of people track leads or inquiries and not sales. They don’t know what the conversion rate is from inquiries to sales. What they need to track is this – “If I spend $1.00 advertising in this way, how much money will I get back?”
Companies that only track leads (Cost per Lead) and not conversion to sales (Cost per Sale) are making a big mistake. That is because many times, a low cost per lead does not mean a low cost per sale. Low cost leads often do not convert as well to sales. What matters is Cost Per Sale and whether you are making a profit (from sales) from a particular lead source.
The number you should base your decisions on is this: “If I spend a dollar on this advertising, how much money will I get back over the lifetime of this customer?” It is the dollars that matter, not the percentages. You can’t spend percentages at the grocery store or deposit them in the bank.
Make sure you have a clear understanding of your sales sequence and how your front-end and back-end campaigns are tied together.