I have heard this question many times and while answer to this is very simple, it is indeed one of the most overlooked aspect of building an online business and building backend generally takes place as an afterthought. How about we start with the business frontend?
Business frontend consists of the products or services that you sell to your prospects the very first time they become your customers, those products could very well be your best sellers too. Now, that’s pretty simple and you may be going “OK. thank you for the wonderful thought!”. The easiest way to describe backend, is to start with the missing link here which is the customer acquisition cost (cac). CAC, as it says, is the cost of acquiring a customer, i.e. all those marketing (email or social media marketing tools etc.) and advertisements (Adwords, Facebook Ads, Amazon Ads etc.) $ spend. If all your sales come from new customers (i.e. no repeat customers), you can easily see how the acquisition costs could add up to pretty much wipe out your product profitability. Let me also introduce, another term known as customer lifetime value (or LTV). LTV metric resolves the dilemma of associated with customer acquisition cost by helping us focus on repeat business from the same customer, that’s where magic of pure profitability starts.
Selling more products to your existing customers, thus enhancing customer LTV, is what’s known as your business backend. Let’s now discuss a few practical ways you can implement business backend in your private label business.
There are primarily three ways to build your business backend.
- Subscriptions (parent order, and multiple child or renewal orders)
- Cross Selling (selling complementary products to your existing customers after initial order)
- Product or Service Bundling
We live in a subscription economy, chances you’re already consuming plenty of subscription products. If you recall, one of the keys to Dollar Shave Club business model was selling shaving kit subscriptions to their fan club. Likewise, all of us are familiar with Amazon’s Subscribe & Save (where you get 15% discount for subscription as opposed to one-time buy).
Now, if your online business, first order of business is to recognize what your customer base buys from you upfront, may be something that delivers tremendous value for a smaller price. This would be your business frontend. Is it possible to turn that into a subscription? if it is a physical product, can your customers consume it every X month for a decent discount (15-20%)? With subscriptions, you just have to ensure that you are providing value continuously to customers over the subscription period, which is much easier with a physical product (diapers every month, anyone?!) than a digital one. Good examples of digital product on subscription would be Amazon Kindle Unlimited ($9.99/month) that provides readers access to 1M+ kindle and audio books. Another great example could be selling doll clothing patterns online as a digital product (seriously, someone is making $600K each year doing it!).
2. Cross Selling
Cross selling allows you to sell complementary products to your customers. In one of my business, I sell study guides for an IT certification program, in the early days, that was the frontend of my business. However, eventually I added a practice quiz subscription to it as a backend in the form of a cross sell which allowed me to both increase Average Order Value (AOV) as well as customer LTV.
Go back to how your customers consume your product, their use lifecycle and you can easily come up with a list of products or services that would be complementary to them. For me, I could see that once they are done consuming the study guides, they are ready to practice using quizzes and get ready to take the certification exam.
Bundling would never go out of fashion from online or offline sales. Bundling is a variant of cross selling. Continuing from my example of study guide and practice quizzes, when those two were cross selling well, I packaged those two and a couple more complementary products as an all-in-one bundle. Bundling really accelerated both my sales (or transactions) as well as AVO $.
You can find candidates for bundling, if you know how your customer will consume them if you were to combine them in a bundle or a grouped product and offer at a discount compared to individual products totaled together ($100 vs. $125 for example). In order to find products or services to bundle, again I’d suggest you to go back to your customer consumption lifecycle and see if a bundle would make more sense.
Online Business Mastery Course - Business Frontend and Backend
Who am I?
I run multiple highly profitable six-figure online businesses. Last but not least, I discuss this topic and techniques in detail within my Online Business Mastery Course. You’re definitely missing it out, if you have not checked it out already. For a Limited-time, Module 1 of this course is available free of cost. Signup now to claim your instant access!
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