The Problem with "New Customers Only"

No matter which Business Advice book you read eventually they all tell you to concentrate on repeat orders to keep your business cash-healthy and growing. More and more I see the terms: Front-End and Back-End sales (or purchases) creeping up.
There are now two types of sales: Front-End (to new clients you have managed to find) and Back-End (selling more items, more frequent and for higher prices to your existing clients).

Or in other words:

Front-End = customer acquisition
Back-End = lifetime value

Last week I finished reading Richard Lomax's "The 7 secrets of Highly Effective Marketing" - not yet available from amazon.co.uk, only from his own "common-sense-marketing" website after going through the IMHO most ineffective extremely long landing-page I've seen recently, and I don't really understand why he keeps sending me emails to encourage me to buy the book and get 7 FREE marketing reports with it when I'm one of the first 100 buyers of his book?!?! He's not practising what he's preaching in free report 2: "How To Avoid The Six Most Common, Deadly Sins Of Sales Communication" - but that's beside the point now).

Anyway, back to the subject on hand: back-end versus front-end sales, marketing and strategies.

Richard Lomax states (pages 100-101, secret #6):

"The critical step at the front-end is to make it so absolutely irresistible for a targeted new customer or client to buy from you for their very first time, that they find it impossible NOT TO.

The back-end purchases are where the true profit and growth potential of your business really lies. So how do you go about achieving a powerful Front-End customer acquisition strategy?
Instead of offering your complete, normal product or service in the first instance, think of how you can make just one aspect or facet of segment of your offering available for a fraction of the normal price.

Don't focus on making your maximum income at the front-end.

Be content to gain new customers on a minimal margin or for free on a break-even basis"

Let's look at this from a printing company point of view: offering to print business cards with a 50% discount to any new qualified lead. If successful and done with grate care and great overall service a business will be over the moon and decide to have its letterheads printed by the same printing company (at normal rate of course). Then follows the envelops with logo, complimentary slips, the yearly Christmas cards with logo and seasonal wishes, one-off marketing projects, company brochure etc in the following years.

Or in other words: 50% discount on a small item (and business cards aren't the most expensive stationery you will ever buy) turns a qualified lead in a loyal client for an average lifetime of 5 years. So a true statement? The chart below does indicate so.

Now lets look at it from what I've come to call a NCO' - "New Customers Only" business - point of view, great example our own company: wooden flooring.

Chart below shows our standard life-time value build-up per average customer:

Don't focus on making your maximum income at the front-end?

Wooden flooring is a definite NCO - our maximum income does come from the Front-End first purchase of a converted qualified lead. We can't be content with a minimal margin or to just break-even on that first purchase.
And we're absolutely not an unique business.

What's your type of business: Front-End or Back-End based? I really would like to know the following of all NCO's:

How do you look at all those plentiful highly effective marketing strategy books, blogs, article, reports etc that all seem to focus on Back-End businesses?

Tell me right here in the comment box, please!

Comments

[Fisk Gawsen]

Personally, I believe in the long-term power of my customers. I mean, regardless if they are new or old customers these people are buying from you so you should always treat them like they have been your customer for life.

People like Woody at WoodyMaxim.com, James at JamesBrausch.org and other successful marketers offer quality solutions to people whether they buy or not, but in the end a good percentage will.

I think complicating it with all that front end and back end nonsense takes away from treating people like what they are people.

Just my two cents.

Fisk Gawsen

[Karin H.]

Hi Fisk, welcome

I couldn't agree more! Treating all clients well, proper and decent will turn them into ambassadors for you - no matter if you're a Front-End or Back-End based business.
Doing so increases their life-time-value significantly: every new lead they bring you are 'instant' qualified prospects.

Karin H.

[Kent Blumberg]

Karin,

If an existing customer refers someone to you, what's that worth? How do you add that into the customer value in the second graph? What do you do to entice existing customers to refer more NCOs to you?

Kent

[Karin H.]

Hi Kent

Every new client is worth around GBP 2700 - GPB 3000 to us (life-time value on products and services bought). At the moment on average 10% of our clients bring us new clients - increase of average life-time value of around 250 - 300.
Quality products, quality service and a little incentive is where we focus on the make that happen - and glad to say the number of referred clients are on the increase ;-)

One of the 'easy' ways to make this happen is to keep in constant contact with all our clients (ans prospects) - we don't "close-the-door" after we've installed or delivered the wood floor.

Karin H.

[Celebration Balloons]

Hi Karin,

I'm currently reading the same book you mentioned, although I havn't reached the part you mentioned. I would assume that your 'NCO' company wouldn't have to discount the main product to follow Richard Lomax's advice. I don't know the first thing about the wooden floor business except as a customer. A while back we were shoping for wooden floors and we visited a lot of shops, not one of them asked for our contact details or tried to market to us in any way at all. I would have thought something simple like a free underlay offer or how about a free sample pack to take home and try at home, like a carpet sample book or something. If one of the companies had done this type of thing I'd probably have bought from them.

Thanks

Jim

[Karin H.]

Hi Jim, thanks for dropping by

Not sure how or why you ended up on this 2 year old post, but let me
assure you that during these 2 years my perception and experience of
being a NCO-business has rather changed - as you do when in business
;-)

Although the majority of our clients still generates the maximum income
for us during the first sale, we have found ways to entice this maximum
profit of first contact in numerous ways. Email marketing with free
information on what to note during shopping for wooden flooring and other
important and interesting information is a major one in this. Call it our
"golden carrot" for prospects.

And then of course has our attention to back-end products never lapsed,
we are seeing a constant increase in returning clients.

So in fact you could say that Richard Lomax made me think more/better
about how to use his tips for a NCO-business ;-)

Karin H