In any business there are only 3 ways to generate revenue. Get new customers, up-sell them and get them coming back over time to buy
more.
Realise you’ll incur most of your marketing costs bringing in a new client. (It costs 7 to 9 times more to initially acquire a customer than to keep selling to them long term.)
Given that, it should make sense that the more you sell them later down the track, the higher your profitability.
Unfortunately, not every business understands this.
So let’s look at 3 strategic mindsets regarding client acquisition.
Mindset 1: Being transactional and wanting to make an immediate profit.
You spend $1 and make $2 immediately. Each client buys only once and you make no real effort to get them coming back.
So you keep spending $1 for every client.
Mindset 2: Breaking even with the first order knowing your profit will come down the line with subsequent orders.
Here you spend $1 and make $1 immediately. Then you offer additional upsells immediately or into the future. Macdonald’s “Would you like fries with that”, is the classic immediate upsell.
Backend offer examples include razor blades where you keep buying the blades or coffee providers like Nespresso where you have to buy their coffee pods.
Mindset 3: Loss Leaders: Go negative on the front end knowing you’ll make far more down the track.
This is where you lose money on the first purchase, effectively buying the client. Then make far more on the back end sales over time. You’re playing the long game, making an investment today to bring on a client knowing what they’re worth over their lifetime.
Netflix and Spotify are great examples with 30 day free trials. They’re effectively buying your eyeballs knowing that once you’ve started to binge, you’re likely to stay a client.
Which way you go is a strategic decision.
A number of factors come into play. If you’re selling a commodity with no backend possibilities it’s going to be difficult (but not impossible) to execute Mindset 2 or 3.
Breaking even or going negative rely on you knowing the average lifetime value of your clients. i.e. what they spend over their lifetime with your business and the profit margins.
And especially in Mindset 3 of going negative you will need the cash resources to support this knowing you might only make the money back weeks, months or even years into the future.
Having said that, if you look carefully, all market leaders go negative with at least some of their products knowing the importance of buying a client.
And as there is a direct correlation between the amount of marketing and growth, the more they can afford to spend, the more they grow until it’s almost impossible for their competitors to match them.
So my final advice. Start with transactional sales but immediately think of back end offers that add continuity. Then once you have the cash flow to support it, go negative.
Now some of you may wonder how you can create a back end strategy. If you’d like help, our “4 Pillars Growth System” will help you create offers and the marketing and sales systems that promote them.
Give me a call on 0414 913 334.
