Backend Vs. Frontend Profits
I listened to this Q and A session with James a while back:
In it, James was talking about people who say that their gurus recommend making money on the backend and taking the loss on the frontend.
I agree with James that this is a bad idea.
In this article, I’ll tell you why.
First Reason: You Should Only Make A Loss When You KNOW You’re Going to Make A Profit On The Backend
Most newbies who get into any form of online business aren’t in a position to know how to craft a backend offer that’s profitable.
I can’t put it any simpler than the above point.
Imagine a guru telling you, “Don’t worry… run FB ads and make a $5 loss on each order, because you can make a lifetime customer worth $50!”
Why would you do this?
If you make a loss on what’s likely a product worth less than $10, then what makes you think you’re going to sell something with a $50 profit?
And if you can’t sell profitably on the front end, what makes you think you’ll sell profitably on the backend when you’ve voluntarily decreased your own budget?
When you’re a newbie, you have no real knowledge or experience that’ll tell you how well a more complicated funnel is going to convert. You can’t even make a profitable front end offer yet!
You should only ever make a loss when you’re sure you’ll get a profit.
It’s a lot easier to see if this funnel is going to be profitable:
Facebook Ad > Sales Page > $$$
Than this one:
Facebook Ad> Sales Page 1 > Sale at a Loss > Retargeting Ad > Sales Page 2 > Upsell
And anyone who recommends the latter versus the former for a newbie is stupid or disingenuous.
Second Reason: It’s Too Competitive
There are a million niches out there, and there are plenty of those where you can make a profitable front end and profitable back end offer.
If you’re entering a market and offering something for cheap to make a loss in order to build a list…
… then chances are you’re entering a competitive market or you’re doing something wrong.
Unless you’re trying to build some Facebook tech startup thingy where it’s expected that a ton of people are going to get something free and you’re going to sell the data later on, I can’t see it being worth it.
For dropshipping stores and info products, there’s no real sense in making a loss.
If you have to then you’ve chosen a market that’s tough and so it follows that everything else is going to be tough moving on.
Third Reason: The Customers Are DIFFERENT
Here’s my problem with operating at a loss for higher lifetime figures.
Eventually, you’re going to want to make more money from your customers. You can increase the lifetime value of any customer.
But on a balance of things, if you’ve loaded your list with people who are “getting a deal” or actually costing you to sell to them, then this isn’t a great audience.
You want to load your list with people who want your stuff so bad that they’ll pay above market rates and come back for more.
Final Thoughts
Ultimately, the goal of business is for you to give someone an offer and everyone walks away happy.
Starting off with making a loss is a way to ensure your relationship starts with you not being happy (because you’ve made a loss.)
If you’re pushy about getting follow up sales then chances are your customer is going to end up unhappy.
And really, it’s all unnecessary. There are plenty of profitable businesses which you can try where you don’t have to worry about this.