I’m a marketing consultant and at one of my client-companies, a company that, in less than 10 years, has gone from a $10 million to a $100 million dollar business one of the people I work with frequently has jokingly given herself the title, ‘Vice President, Back-End.’
Although that clearly opens her up to be the butt of many jokes, it does very accurately describe her very, very important area of responsibility, in direct marketing parlance. At least 80% of the company’s profitability depends on her contributions.
If the term “back-end” is new to you, it means everything you sell your customers after their initial purchase (that first order is called the “front-end”). For instance, let’s say you sell instructional video tapes to golfers on how to play better. You advertise in golf magazines and your lead product is a $25 video on putting strategies. That’s your “front-end” because that’s what people buy first. But then once people purchase that first video, you send them a catalog offering them over 50 other golf videos ranging in price from $50 to $99. Those follow-on videos are your “back-end.”
In many businesses, there is a relatively brief period of time during which there are significant, exciting profits on the front-end, that is the very first sale to a customer.
But that happy situation dissolves over time, as you “cream” the market. And, as you go deeper and deeper into a market, the cost of making the first sale (acquiring a customer) goes up and up. For instance, in the above example of the golf videos the first time you run a magazine ad you might pull 100 orders. But if you keep running it every month, your order volume will probably drop off steadily. Within six months, you’d be lucky to be selling 30 videos from the same ad in the same magazine. As some point, it gets so high it is no longer practical to advertise and sell that product to that market.
Nothing is forever. This fact of life is what mandates being smart about making all the money that you can from the back-end.
The good news is that your satisfied customers are probably willing to buy other things from you — and they don’t even have to be your own products/services. You can make deals with other companies to offer their products/services to your customers in exchange for a piece of the action.
For instance, let’s go back to our example of the golf video company. You might do a “joint venture” with a manufacturer of special golf clubs which sell for $1,500 a set. You’ll mail a letter to your customers telling them how well these clubs will improve their golf game and you’ll get $750 on each order placed. If your customers trust you, they’ll be much more likely to respond to your letter than they would be if the golf club manufacturer mailed to them directly.
Of course you only want to recommend high-quality products and services which will be of value to your customers. But you get the idea. You could make similar deals with other companies who sell what golfers want — golf apparel, golf trip and excursion operators, even custom home builders who sell houses near golf courses. They’d all happily pay you a ‘toll’ commission to sell their wares to your customers.
No matter what your business, one of the most valuable assets you have is a list of satisfied customer, predisposed to buy from you again. When you control a sizable list of customers who bought from you, know your name/business name, are happy with what they bought and with the ensuing relationship … and are pre-disposed to read your mail and buy from you again, it’s like owning your own “toll booth.”
A pioneer of direct marketing, Harvey Brody, taught me the power and value of getting into “The Toll Booth Position” and I’ve been teaching it for years. Imagine owning your own toll booth on the highway near your city. Anybody who wants to get to the other side of that toll booth has to pass through its gates and pay you money.
As the controller of a responsive customer list, that’s exactly where you are; sitting there in your own toll booth and anybody who wants to get their appropriate product or service to those customers you control, has to pay you money.
You can collect a toll through joint ventures, as described above wherein you do an endorsed mailing to your customers and get a piece of all sales that result.
Or, if you build a list of 50,000 or more, through outright lists rentals. I have a number of clients who pay all their overhead expenses every year just with the checks they get from the list broker representing their list to others.
I have often paid others to pass through their toll booths —and done so cheerfully. I have also been paid by others eager to get through my toll booth, to my customers, with my endorsement.
In the direct marketing business, it’s a well-known fact that most of the profits is derived from back-end sales to existing customers. Yet outside that business, I rarely encounter a company which comes anywhere close to tapping the potential of establishing their own “toll booth position.” Get started building yours right now and start charging others to go down your road.