CASH COW GOLDFISH

Posted at 02:02

I went to a funfair quite recently, and noticed that at most of the stalls there, it was quite difficult to win anything. The ‘games of skill’ appeared at first glance to be easy, but when you tried them out, it was far much harder than it first looked, and most people went away a couple of pounds poorer and empty handed...

But one stall there was somewhat different...

Yes, it was another game of skill... simple darts... but instead of having to hit a tiny target, all you had to do to win was hit a playing card. And even then, the cards were larger than the ordinary run of the mill cards we would expect to find in a casino. Even a blind man with the shakes while standing on one leg could have done it. And sure enough, everyone who paid their pound to have a go, hit a playing card and won themselves a prize.

Bad news for the stall owner then?

Well not quite. You see, the prize for hitting a playing card on this site was... a common or garden, somewhat ailing and solitary goldfish. Now goldfish aren’t very expensive at wholesale, probably about 20p each if that, but even then you’re never going to make much money ‘selling’ them to people for a pound.

But this stall owner was a bit cleverer than that...

You see, he knew that the people who had ‘won’ a solitary goldfish at his stall, hadn’t gone to the fair expecting to go home with a new pet. He also knew that they probably had nowhere back home to keep it and nothing to feed it on... Bad news for the goldfish... but really good news for the stall holder. He now had you trapped by your compassion for your new found pet.

Which is why, at the back of his stall he just happened to have a ‘Tank & Food Package’ available for the inflated price of £15!

I stood there and watched with some amazement as punter after punter handed over an extra wad of money to the stall owner to help solve the new problems created by their ‘skill’ and good fortune. And I dare say the stall owner made far more money from the sale of his ‘Tank & Food Packages’ than he ever made from people paying a pound to try and win a goldfish...

And I dare say he made a lot more money than the other stall owners who were laughing at him, those who made their games a lot more difficult and were tighter with their prizes.

This really simple example of one man’s enterprise demonstrates one of the most powerful business profit making secrets of all... the power of back end sales. You see this particular stall owner had tapped into one of the biggest secrets for making money... his own back end sales.

Let me give you another example you’re probably more familiar with.

Have you ever recently bought a domestic electrical appliance? And did you manage to get out of the shop without someone trying to sell you an extended warranty of some kind on it? I thought not. 

I was amused (but not surprised) to have someone in Currys try to sell me an extended warranty insurance plan on an item costing just £60 for an additional £25! Can you even begin to imagine the extra profit realised on that? Far, far more than the measly profit they would have ever realised on the purchase of the original item I’m sure.

You see that’s the power of back end sales for you, and it’s what transforms many unprofitable businesses into remarkably profitable ones. 

Here’s another example that I know a little about...

Have you ever received a mail shot invitation from Readers Digest to enter their massive prize draws and subscribe to the magazine for free or buy one of their books? Of course you have. They’re lavishly produced promotions, which even in the numbers which The Digest print and mail out across the land, are still very very expensive.

But do you think they make a profit on them... yes or no?

While I don’t have access to the Readers Digest mailing list results, I’d stake every last penny I have that these mailings never ever make them an instant direct profit. In fact I’d be astonished if they ever break even. But they’re not expected to...

You see, Readers Digest know (like all direct response companies) that the profits in the business are in the back end. Once someone becomes a subscriber or customer, they become very likely to buy more and more products and services from the company, and over time these will eventually yield them a tremendous profit.

With a company like Readers Digest, that period before the back end sales start to offset the cost of acquiring any new customers can be as much as 3 years or more... something which only those with incredible patience and deep pockets can reasonably tolerate. But that period can also be much shorter in other similar businesses. Quite often, it can be as soon as a second transaction transpires.

The fact is that the profit making heart of a lot of businesses isn’t as obvious as it might first appear. Most car dealers make more money on their finance packages, subsequent servicing and repairs than they do on simply selling cars. Currys, Dixons and the like make more money selling warranties and repeat prescriptions of batteries than they do in selling electrical goods. Most mail order businesses make far more money on repeat orders than they do on initial sales. And our fairground friend makes more money selling his tanks and food than he does from his initial £1 a game entry fees.

I think there are several things you can take away from this, which could either make or save you an enormous amount of money... depending on which side of the sales fence you are actually sitting on...

The public, overt face of any business will rarely reveal where the real money and profit from their sales comes from.

When you’re considering purchasing from any business or money making opportunity, it’s vital that you look below the surface, and dig down to where the real profits are being made. Time and again, they are in the ‘back end’ somewhere, and not in what’s immediately obvious.

When analysing any business, it’s definitely worth looking at their back end. No, not the salesman’s (although for some this could be an added bonus) but the company’s. If they don’t have one, or it isn’t very good, then they’re probably doing all the hard work in initially getting customers and then allowing the really easy profits to slip right through their fingers. Just like the first of our fairground stall holders – the ones without the ‘tanks and food’ add-ons.

You see in any modern business there’s a shift in the emphasis from making a one-off ‘hit’ on a customer, to treating the initial sale as a simply non-profit making ice-breaker to start a long term relationship with you, and this could produce massive dividends for them over the long haul.

If any businesses these days have just one product or service to offer the customer, they need to quickly develop some new ones in order to survive. They have to think about what complementary or add-on products and services might their customers ever want, need or use? When they’ve finally got a relationship with you and they’re going to be regularly communicating with you. Doesn’t it make sense for them to fully capitalise on that?

The key to making a great deal of money in any business these days can rarely be found in what happens in the first transaction. What really matters is what happens after that. The difference between a struggling business, and a fantastically profitable one, is often nothing more than a solid back end of complementary and add-on products and services where premium prices can often be commanded.

But why stop there?

The real stars in marketing are the businesses that once they have you will never let you go. They have an in-built method for generating a ‘residual income’. Simply put, that means repeat business.

Again, here’s an illustration (a pet hate of mine) that you’re probably all familiar with...

To read this piece, you will be sat a computer and with most computer set-ups there is usually a printer of some sort running in the background.

These days you can pick up a really good quality printer for next to nothing, which is pretty amazing when you consider all the technology, research and skilled labour that often go into producing such an item. But why do you think this is so?

Once again the businesses producing the printers know they can afford to give away their product to help lure you into their long term business plans. They know that once you have purchased their product, you will have to go to them every time you need inks and premium papers to service their printers and these items don’t usually come cheap. The printer company now has you trapped into a long term relationship of additional opportunities for extra sales.

So I’ll leave you with a couple of questions now which could set you off on a path to discovering some of the massive hidden profit making mechanisms in any modern business.

When dealing with any form of business, you should always ask yourself what are the ‘Goldfish’ in this business? Are these businesses supplying you the ‘tanks and food’ at a premium, or are customers allowed to get them from somewhere else at a much more reasonable price?

And if you are allowed the freedom to shop around, are you really making the best savings in your purchasing you possibly can do when opting for an all-in-one package supplier?

And finally...

No goldfish were or ever will be harmed, in the writing of this blog.

CASH COW GOLDFISH

   

2 Comments:

1. Unknown said...
   26 September 2010 at 02:11  
   too true what you say ! I just invented in a printer but wont be using too much ink so hopefully it lasts for a while!
   . said...
   13 October 2011 at 00:08  
   repeat business, email lists and finance... once you are on someones email lists you will be sent offers for things you dont need and never have needed but hey it will compliment that thing you didnt need that you purchased recently and well there is a finance package we can over you to cover the cost of both of the items so that you are only paying another $5 a week to have 2 things you really never knew you needed, and seriously could have lived without

Post a Comment