Front end Or Back end money? That Is The Question.
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So today for the podcast I wanted to talk to you about how you build your business. And the choice or the difference between front end and back end money. Because I'm pretty sure you heard a lot of people talk about this. And I just want to touch base on this OK. For those who don't know the difference between front end and back end, let me try to explain to you very easily.
The front end will be the money you make on the spot. So let's say for example you sell a car. So you know that you sell a car for like ten thousand bucks and get that right back. That's front end money. But then afterwards maybe you're selling some service then down the road.
So you're selling servicing for the car and then you can sell the car like insurance and stuff like that. OK. So it's all the money you're going to make after the purchase. OK. And that’s back end money. So that's the difference.
So you have a lot of marketers will tell you that well if you're an idiot and you're an amateur if all you think about is that first sell which is the front end offer. Right. So basically all your energy is devoted to acquire the client.
And then once you have that then that's it. You're not doing anything with it anymore. And that is a big mistake. So you know there is truth to it. Yes it is a big mistake just to focus on getting that one sale.
Front end Or Back end money? That Is The Question
So this is what these marketers are telling you saying “well you're an idiot if you focus on front end. Front end is for idiots and the back end is for pros. OK. I think it's a bit extreme right. Because if you ask me, you must think of both. So basically when you in your strategy you obviously need to take into account the back end. But we'll we're going to see together what's the use of the front end.
So in marketing you have something called “acquisition cost”. How much money do you need to spend before that person spends a dollar with you? And so you need to you know that in order to make this thing work, you need to know your numbers.
It's hard in the very beginning because if you're just starting out you don't have all these numbers to back them up. Right. But once you have them you need to use them. So this is the formula that people are using telling you that the money is in the back end.
So you have to have a bunch of elements. First is acquisition cost. How much the money you have to spend before that person buys anything from you. So let's say for example your acquisition cost is ten bucks. So you're paying 10 bucks for that person to do anything with you. OK.
And in order to get that person to buy in and become a customer, you will sell them a product for 10 bucks for example. OK. Because what you want is the foot in the door. They’re a client now, and once they client, the relationship will change.
So what will happen after that initial purchase? They know that for example a client is going to stay on average 10 months with them. All right 10 months. And that person is going to spend out let's say a hundred dollars a month, all right? So that means that that person throughout those 10 months is going to have to pay a thousand dollars. All right.
So they know that if they pay 10 bucks they will get a client that's going to pay a thousand dollars. OK. So these examples are a bit extreme, but just for you to understand why people say the money is in the back end and they focus on it. OK. So in this case there is like “Dude I don't mind breaking even or even lose maybe a dollar on the front end because I know that in the back end I'm going to get my thousand bucks”.
And that's how they make the calculation, which makes a lot of sense when you think when you think about it.
Front end Or Back end money? That Is The Question
So there is also something called “attrition”. Attrition basically means that out of 10 people who sign up to your offer, some of them are going to cancel at some point. So if you start with a hundred people you're not going to stay with 100 people for a whole year. Basically you lose people over time. So you need to replace these people. And this is why the front end is useful!
I don't know any brand, product or service that doesn't lose people. Just put a mental note that the back end is for your profit. But people will tell you to disregard the front end. But they don't know what they're talking about because of that attrition. You will still need to replace people.
And Of course, if you want to grow the business then you will have to replace the people who leave and also add another set of people. OK. It works in combination. It means that if you bring more people there then in the back end you make more money. So again back end is profit but the front end for you is stability and growth. And if you do a good job, instead of just replacing those people, then you'll add more people. And this is called growth.
That's how you grow. All right. So when people tell you that “oh you know what? Focus on the back end and focus on this”. No you need to work on both because they serve two different purposes. And if people tell you otherwise, I don't know which planet they're on!
That's you know that's just my opinion. My take is that you need both.