Everywhere I go I see it.
The biggest marketing mistake companies make always glares at me. But, it makes me smile, because it is easy to fix (and, it makes me look like a genius-hero).
If you fix it, you’ll immediately find your customer acquisition costs seem ridiculously small. It allows you to be much bolder than all your competitors. In fact, when completely fixed, your competitors will have difficulty keeping up with you in any way whatsoever.
Sound like a dream? It’s not.
One company who fixed this problem was able to pay affiliates TWICE the initial sale price of their product.
Imagine this: You’re a skillful affiliate and you have the choice between promoting two products that are essentially the same. Everything else being essentially equal, you get paid DOUBLE the commissions, who are you going to spend all your time, expertise and money promoting?
The one that pays you twice as much for the sale, of course.
Now, why would a company pay out TWICE what they took in from an initial sale?
They could do it because they understood the TRUE value of their customer. It’s often called “Lifetime Customer Value” or something similar. If you keep track of what your customers purchase and when, you can derive this number AND another number called “Expected Days to Break-Even.” This is how many days it takes for customers to have purchased enough from your company to cover all the marketing and fulfillment costs.
They didn’t start off paying 200% of the initial sale… No. At first, they gave affiliates what everyone else in the category was giving, still a healthy 50% of the first sale.
They went to work creating a ton of “back-end” offers for their newly acquired customers. Some of them were their own products and services… others were products/services by reputable companies they pitched to their “house list.” They received a portion of each sale as commission.
Each back-end offer added to the average Lifetime Customer Value.
By fully developing their “back-end” offers this company had a very thorough understanding of what a client (on average) would purchase and what their value looked like over time.
Armed with this knowledge they put the nail in the coffin in their category by sucking up all the affiliates with the 200% commission rate. With the affiliates wrapped up and working like mad, the company itself not only garnered more customers, it received the branding and SEO benefits of having the best keywords getting pointed to their brand (via the affiliates’ efforts). After a few months, 8 out of the first 10 for their primary keywords were affiliates of theirs!
With such huge payoffs the affiliates were also able to bid more on ppc keywords than competitors.
Within a few months, this astute company shifted the entire category towards them. They left all their competitors gasping for air… most of those with “internet-only” strategies were put out of business. Others were forced to focus on other, less profitable, aspects of the category to stay alive.
They attained the Leadership position in less than a year after implementing this strategy and haven’t looked back. Their closest ‘competitor’ is one-tenth their size. Their dominance has kept new competitors from entering which allows their profit margins to stay incredibly high.
The biggest mistake I see software companies make is NOT (usually) on their new customer acquisition efforts. It is ALMOST always that they do not increase their back-end sales pipeline to the maximum.
Consider this:
Once a customer has purchased from you, your company is no longer a stranger to be wary of… but, a valued Advisor.
Contacting these customer is MUCH more economical because you already have their contact information.
Charging a HIGHER price is easier because they already trust you.
So, what else could you sell? What “back-end” offers can you create?
The easiest is a “heavier-duty” version of whatever you already offer. Hopefully, you are already doing that.
Here’s what I like to do…
Make a list of what OTHER things a person buys when they purchase your solution. (It doesn’t have to be software… someone who buys website software may be open to logos and/or graphic design as an example. However, offering them a wireless plan wouldn’t make sense and would probably be frowned upon by almost all of them, not to mention not likely to be profitable.)
What do they purchase BEFORE… what do they purchase AFTER… what would be optional BUT highly useful to them if they did?
I begin brainstorming in this manner until I have a list of things to work with that are directly or tangentially related… If you already offer any of it but DO NOT have a process in place to make sure it is promoted regularly then mark that down to delegate to someone.
If you do not offer it but could develop it fairly quickly then add it to a future projects list. BUT, before you begin spending resources on it, I like to discover if it will pay off. So, I find someone who already sells it and become an affiliate or vendor. I send a test promotion to my list and see if it brings in profits.
Does it look promising? If so, then we continue selling it until we are ready to launch our version of it.
Using this methodology it is NOT uncommon to double or triple your Lifetime Customer Value. Knowing this AND the days to break even will allow you to become all the more aggressive on your initial customer acquisition efforts.
By knowing your numbers you will know how much to spend on front-end advertising, how much to pay affiliates to get them to work like crazy for you, how aggressive you can be on the initial product pricing.
Adopt this strategy and mindset and you, too, will soon be able to suck the lifeblood out of your market. Poor competitors, they won’t even know what hit them.
Jason
P.S. To learn more about how I find potential joint-venture partners read “Discover Rich New Oceans of Prospects for Your Service.”