Now we head into the meaty section of the Sales Funnel, the back end, where the big profits are made. If you haven’t read the first two parts of this series make sure to catch up, starting with the sales funnel explained and a look at front end marketing.
As I discussed in the last article, the front end of your sales funnel is all about capturing the attention of prospects, people inclined to desire want you provide. Potential customers are called “leads”. The expectation is a certain number of your leads will convert into customers and a small but very responsive group, will buy up everything you offer. This last group are called your “hyper-responsives” and it’s this group that is responsible for a significant proportion of your profits because they fuel your back end sales.
Your back end is made up of your higher priced items, products and services that present significant value – or at least perceived value. Essentially we are talking about meeting the same need (or needs within a niche), just with different media. This might include information distributed via audio (CDs/DVDs/MP3s/Podcasts) or visually (Video/Movies) or live (Conferences/Seminars/Workshops/Retreats) or privately (Phone Calls/Coaching) or even common front end media such as ebooks, newsletters (electronic and print), subscription services and teleconferences.
The specific distinction between the front end and the back end is all about the type of customer and the price paid. In the back end all your customers have traveled through your front end, sampled your free materials, purchased an entry level product or service (or several) and have enjoyed significant value from what you offer, so much so, that they are eager to buy more from you.
At this point it becomes much easier to make sales, although since the idea behind a sales funnel is to filter prospects to find hyper-responsives, you don’t have nearly as many people reaching your back end as you do entering your front end. In many cases it’s common that only a small percentage, say 1-2% of the overall people entering your front end make it through to the back end. That’s okay because that small group are spending big bucks.
While front end products might cost under $100, back end products are usually priced in the several hundreds or thousands. There is no strict formula for pricing a back end product, or a front end product for that matter, but in nearly all cases the profit margin is significant at the back end.
Taking the Double Your Dating sales funnel again as an example model, we can look at their pricing structure. I can’t remember specifics because it has been a while since I was in the Double Your Dating funnel, but as I recall, it went something along the lines of this:
I’m not certain of the bootcamp/private coaching product pricing points and all the numbers above are rough guesstimates. I’m also pretty certain there are additional products available from Double Your Dating, but for the purposes of demonstrating the pricing structure of a sales funnel, I think you should get the idea.
The back end – the high priced items – are bought only by the hardcore, well-matched, target customer group. These clients have the funds, time and inclination to attend events, spend big and care enough about their specific problem to justify the expense in time and money. The end justifies the means, and the particulars – including how much it costs – are not a significant concern. It’s all about solving a problem and consuming as much of the proposed solution (information/education in this case) as required.
The back end is the core profit center for business because it is stable and predictable. Most problems occur in the front end because the customers are more price sensitive, they are not “perfectly matched” and may grumble, ask questions and generally cause greater customer support issues. As I mentioned in part two, the front end is the dynamic area of your marketing, hence you are more prone to unpredictable results.
The entire sales funnel is about numbers – opt-in rates and conversion rates. How many people sign up to each of your opt-in mechanisms, like landing pages, newsletter sign-up forms and free report downloads. How many people buy your entry level products and then go on to buy higher priced products in the back end.
Once again, the back end proves reliable and predictable and this is the main reason for establishing a back end in the first place. If you knew, with relative consistency, that for every 100 people you brought into your front end, two of them would make it all the way through and buy your back end product(s) you would know how much each customer is worth to you.
If you knew, with reasonable consistency, that your back end offers convert at certain rates then you could go to work testing as many front end mechanisms as you can handle in order to drive as many leads through your funnel as possible.
You should recall in my discussion of the front end I mentioned that the Double Your Dating affiliate program pays 200% commissions on each ebook sale. That means they pay out $39.95 to affiliates for every $19.95 book they sell.
The only reason they can do this is because they know the numbers. They know that a certain percentage of ebook buyers go on to buy higher priced products and what percentage go all the way through the back end, buying the big margin products like boot camp attendance and private coaching. If they didn’t have a stable and consistent back end, they could not afford to make a loss on the front end.
In Rich Schefren’s Strategic Profits coaching program, which I am a member of, Rich explores the front end/back end combination and strongly recommends all of his students consider a back end as the true path to business success long term.
I’ve never owned a business with a significant back end (I’m building one now in the blogging world), but what I’ve learnt from Rich Schefren, who has ample experience from his own businesses and coaching his many clients, is that in order to compete long term you have to know your metrics at every point along the sales funnel.
With a stable and predictable back end you can strategically beat the competition and dominate your market through initiatives similar to the Double Your Dating 200% affiliate program. Imagine what your affiliates would do if they were paid 200% commissions? Do you think they would chose to promote your products over those of your competitors?
Do a search now for Double Your Dating and you will see there are literally thousands of affiliates, and I expect the front end of David DeAngelo’s business is driven mostly by affiliate marketing.
How about if you conducted some competitive intelligence (Rich’s course has GREAT stuff on conducting competitive intelligence by the way), found out the significant affiliates for your competition’s products and contacted these affiliates offering 200% commissions AND you could show them very specific numbers on how much money they could make.
Given that you know the metrics of your sales funnel you can tell potential affiliates to expect a certain amount per visitor they send through. Take this small sample from the Double Your Dating affiliate program for example:
I usually have conversion rates of 1:50 to 1:200 depending on the quality of traffic sent. This is, of course no guarantee of what kind of conversion your traffic will produce. If you send 1000 visitors a day, and your conversion is 1:100, that would equal about 300 sales per month, which would net you around $11,985.00 a month. If you send more and/or your conversion is higher, you’ll make more.
That’s a pretty enticing proposition for affiliates. The more numbers you know and can provide to interested parties, based on your tested sales funnel, the greater the advantage you have in your market.
The advantages go beyond affiliate marketing. With a defined sales funnel you can conduct tests on elements like your pricing, product sequence, create segmented lists to refine each customer group and increase conversions, provide highly specialized products specifically for your segmented, hyper responsive customers, find the customers who love your work and spend most of your time with them, solicit amazing testimonials from your evangelist customers, who also act as great word of mouth lead generators.
Rich Schefren covers many areas where having a sales funnel leads to greater competitive advantage, increased profits and long term business stability – too many to mention here – but I think you can see just from the few examples I list what the potential is from having a well constructed sales funnel, with a stable back end.
Of course actually building a sales funnel is easier said than done. Your back end products better be pretty good if you are charging a premium price for them. Perceived value can only carry you so far – you have to offer real value as well – which is generally easier when working with your hyper-responsive customers because they are in the ideal situation to act on what you offer and therefore stand to benefit the most, but it’s not a forgone conclusion, there is work involved.
It may take many months, even years, to fully establish a refined sales funnel, but if you have your sales funnel in mind as the “big picture” it makes the process of building your business that much more enjoyable and grants you some strategic freedoms you might not otherwise have if you weren’t building a funnel.
Knowing that you may not necessarily have to profit on your front end products can come as a relief when you realize sales of your $27 ebook are not going to make you rich. You can go to work building in some form of back end where your margins will be better. Once you start singling out your hyper-responsive customers then you know you’re onto a profitable business model and if product creation is your only constraint then half the battle is over – you just need to start building some great stuff for your back end.
In the final piece of this four part article puzzle on the Sales Funnel I’m going to get practical with you and break down a very basic sales funnel I’m currently working on. I’ll also attempt to offer you some form of guidance to start constructing your own sales funnel based Internet business.
Part four is now available: How To Set-Up A Sales Funnel and Profit
Has A Great Back End
And learn how to build a better blog.