Charles Gaudet

Charles Gaudet

The $21 Million Dollar Secret

One of the biggest business killers sucking the lifeblood out of companies is the lack of focus on back-end sales.

For many entrepreneurs, they are so focused on bringing in new customers, they ignore the giant potential that exists in driving multiple sales through the use of upsells, down-sells, and cross-sells – which drastically increase the overall value of your customer.

Here’s the truth: inexperienced marketers focus on the front end. Experienced marketers focus on the back end.

Put another way, the money is in the back end, not the front end!

For example, a friend of mine told me a story about a client who gave away free meals to his most highly targeted customers. As a simple lead generation tool, most people would see this strategy as crazy…

However, because the client delighted his new guests during their free meals – and he targeted them based on the pretense that they might use it to host regular meetings – his focus on the back-end, bigger game strategy made it worth it.

In fact, the restaurateur commented that one patron who became a customer used their function spot so regularly – even if he was the only patron the restaurant attained during this promotion – he alone made the campaign profitable.yeah

Of course, we’re not just talking about giving away free meals, products, or services here (though it’s a great idea with the right back-end strategy) – we’re talking about maximizing the value of each of your marketing campaigns.

You see, what most people don’t understand is that – most of the time – entrepreneurs will lose money, break even, or make a marginal profit on the FIRST purchase a customer makes, simply because of the cost of customer acquisition.

The classic marketing example is Icy Hot.

Jay Abraham, the mastermind genius behind the Icy Hot promotion, developed a strategy where he was willing to spend 115% of the initial selling price to acquire a customer.

Imagine a negative 15% on every first order!

Sounds crazy, right?

What if I told you that it added $21 million dollars in revenue a year to the business.

Still think it’s crazy?

Here’s how…

You see, Jay did a little research to discover that the average customer orders Icy Hot seven times a year, and makes an average order of $10.00.

During Jay’s promotion, while a single serving of the product initially sold for $3, he was willing to spend $3.45 to acquire a customer and lose $0.45 per sale BECAUSE he knew that once a customer tried Icy Hot, they would continue reordering.

And because they no longer had to absorb the cost of customer acquisition, profits soared.

This is why it’s imperative that you understand Lifetime Customer Value (LCV). Without this knowledge, you can’t determine how much money you could conceivably spend to acquire a customer on the front end to yield a profit in the back end.

It’s called an “investment.”

Like any real estate owner, they might spend $100,000 on a multifamily unit knowing that, by the end of the year, they’ll make a $10,000 profit or a 10% annual ROI.

In the case of Icy Hot, they invested $930,000 (not all at once), producing a profit of $10,500,000 – or a campaign ROI of 1,129%.

This is exactly how companies like Columbia House (remember the ads: “Any 11 records or tapes for $1.00”) made money – by understanding the LCV and creating a continuity program that kept customers enrolled for years.

It’s also how companies may offer you big, valuable bonuses for signing up (i.e. $100 deposit for opening up a money market account).

They know that when you become a customer, they’ll make money on the money you deposit in the bank, as well as additional services like home loans and financial services.

You see, Dan Kennedy is famous for saying that your goal should be to find a way to spend MORE money acquiring a new customer than your competitors – in other words, increase your LCV by making your back end work to keep your customers buying.

Jay Abraham says that it’s up to you to take your customers by the hand and guide them through each step of the way, letting them know the next logical step in the process.

Recently, I was on a call with a client who was afraid to place an upsell because it felt “salesy” – however, we must remember three things:

  1. We are not our customers (don’t put words in their mouths)
  2. Let the results speak for themselves (test and see what happens)
  3. If you believe your products/services provide a positive difference in the lives of your customers, clients, or patients, you have a moral and ethical obligation to do whatever you can to ensure they purchase your offering

Amazon is the e-commerce king of this process by immediately letting you know:

Customers Who Bought Items in Your Shopping Cart Also Bought:”

…Followed up with suggestions.

I would have been pissed when I bought my tuxedo if the salesperson didn’t make me an offer for suspenders, a vest, bow tie, cuff links, etc.

Why?

Because I had an event to attend later that week, and I had so much going on that these additional accessories didn’t even cross my mind. The salesman sold me from a place of service.

Things brings us back to The Growth Factor™ Question: How can you provide your customers, clients, or patients with a greater advantage, value, or benefit to get them closer to their ultimate result?

Remember, you’re not “selling” just for the sake of making a sale – you’re selling from a place of service.

Often times, I purchase products or services to get an understanding of the company’s process.

So just the other day, I purchased a financial product from the television (I chose them because I saw their advertisement running for months – given the expense of this effort, I suspected they must have a back-end system that works).

I ordered their free book (plus $7.95 in shipping and handling), and after they took my payment, I was offered four chances to buy a product or service that was complementary to the material I received in the book.

Each upsell provided me with a greater advantage or result. When I received the book in the mail, two more offers to make a purchase were included.

So to start, chart out your customer’s buying cycle – starting with the initial purchase and all the subsequent offers you could make them. I use a tool called “Lucid Chart” for flow-charting.

Here’s a list of all the potential upsell strategies that can increase your profits:

  1. Deluxe Upsell: You sell a basic product and tell people that, for a slightly larger investment, they can upgrade to the deluxe model.
  2. Discount Upsell: Instead of your customer buying 1 product, they could buy 3 for the price of 2.
  3. Time Upsell: Instead of buying one month’s supply, if they agree to automatic shipping, you’ll take 10% off, or for a newsletter subscription, instead of buying for 1 year, they can get a discount for 2 years.
  4. Package Upsell: Instead of buying one product, create a package of products that, together, provide a greater benefit, value, or advantage. Think McDonald’s value meals.
  5. Free Upsell: Instead of selling someone a high ticket item, you could offer them something “free,” or offer a trial for an item that (from past purchase history) you know converts well.
  6. Service Upsell: Sell people a “do it yourself” model and offer the opportunity for additional service with “do it with you” and “do it for you” options.
  7. Security Upsell: Many folks want the comfort and security of knowing their purchase is protected, so offer them additional insurance or an extension of their warranty.
  8. Speed and Convenience Upsell: The airlines have this one nailed down – for an extra investment, you can cut through the security line and be the first to board your plane. How can you add an extra convenience offering to your product or service?

So, there you have it folks…

How will you take this information to create a better back-end experience for your business?

More to explore

Create Fans – Part 2

Last time, we talked about the new landscape… How customers across all industries are expecting more.  If you want to create lasting

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