Direct Response Growth Strategy Part 5: Backend Marketing

At the core of any direct response marketing growth strategy is what you do with a customer AFTER you get him.

Because the backend is your primary profit center. If you think about it you realize your #1 hard cost is the media you buy to generate leads & customers. Once you have the customer it’s time to milk the proverbial cow.

The funny thing is is that this is one of those principles everyone “knows” but almost everyone is miserable at applying to their actual business.

Let me drive this home.

Close to twenty years ago a very well known financial publisher who now generates well over $60 million a year was at the time barely making $4 million a year in sales. That’s pretty good but a far cry from where they would end up.

An outside copywriter came to them with a proposal – he’d craft a promotion and product of considerably higher-price point than they had been selling – and they’d mail to their existing customer base. He’d even offered to do it for purely a % of sales – so the only hard cost was printing & postage to send out the promotion to their house file.

The publisher thought is was worth testing.

They rolled it out and over about 4 days added about $12 million to their bottom line -  TRIPLE their total annual sales prior to that promotion.(If you want to know what they did then see “Step Two” below.)

The Bottom Line: What you do with a customer AFTER you get him is one of the keys to explosive growth & sustainable businesses.

From $1 million to $11 million
WITHOUT getting “more” customers

This is one fundamental area we can really use to produce explosive sales. And the principles are relatively simple, well established and easy to understand:

• STEP ONE: Systematically multiple the NUMBER OF TIMES each customer buys from you
• STEP TWO: Systematically multiply the DOLLAR AMOUNT each customer spends with you at each purchase
• STEP THREE: Systematically increase the LENGTH OF TIME each customer keeps buying from you

Here’s an example to show the power of doing these three simple things.

STEP ONE: When we increase the frequency customers purchase we dramatically increase revenues.

Purchases Per Year	Average Sale	Annual Revenue	Lifetime in years	Lifetime Value
1	$97	$97	4	$388
2	$97	$194	4	$776
3	$97	$291	4	$1,164
4	$97	$388	4	$1,552
5	$97	$485	4	$1,940
6	$97	$582	4	$2,328

STEP TWO: We create another dramatic increase in revenues when we increase the average size of purchase.

Purchases Per Year	Average Sale	Annual Revenue	Lifetime in years	Lifetime Value
3	$97	$291	4	$1,164
3	$147	$441	4	$1,764
3	$197	$591	4	$2,364
3	$299	$897	4	$3,588
3	$399	$1,197	4	$4,788
3	$997	$2,991	4	$11,964

STEP THREE: Finally, if we keep a customer actively buying longer we multiply revenues again.

Purchases Per Year	Average Sale	Annual Revenue	Lifetime in years	Lifetime Value
3	$399	$1,197	4	$4,788
3	$399	$1,197	5	$5,985
3	$399	$1,197	6	$7,182
3	$399	$1,197	7	$8,379
3	$399	$1,197	8	$9,576
3	$399	$1,197	9	$10,773

This is why what you do with a customer AFTER you acquire him is the key to explosive growth.

Consider what happens to your total revenue when you multiple annual revenues per customer from $100 to $1,197:

BEFORE:

Annual revenue per customer: $100
Total Customers: 10,000
Annual Revenue: $1 million

AFTER:

Annual Revenue per customer: $1,1971
Total Customers: 10,000
Annual Revenue: $11,197,000

One million or eleven million – that’s the difference.

This is the fundamental key to multiplying your profits. Because, like we established earlier in this Business Growth Series, the number of customers you get is largely determined by how much money you can spend to get them.

This is also where most marketers fall down on the job.

In order to sell tens of millions of dollars in product you need to continually create more opportunities for your existing customers to buy products from you.

I’ve seen one direct response financial publisher with 170,000 names struggle to make $1 million in sales annually while a second financial publisher with about 150,000 names sold well over $20 million a year.

The difference rested entirely on how they converted existing leads to customers; converted one time buyers to mutli-buyers;  and moved customers from purchasing at lower price points to higher price points

And when the $20 million financial publisher decide to generate a bigger list it became relatively easy to add 100,000 new, qualified leads to their email list in a matter of months because they could easily pay more for a new qualified lead. (To understand how that works check out:  Customer Acquisition Basics & Breaking Even on New Customers )

The fundamental point is that because they’d already refined their backend marketing it was simple for them to add millions in sales to their bottom line.

How well does it work? I’ve personally used this basic framework to build a $10 million publishing business in 18 months.

Hope that helps,

John Newtson