Running Lean With AdWords

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This article by Howie Jacobson was originally posted on Search Engine Watch.

Ash Maurya’s book “Running Lean” provides an excellent roadmap for anyone starting a new business or introducing a new product line, especially if that person doesn’t want to spend huge amounts of time, money and emotion discovering that there’s no market for the new offering.

As I studied the book, I found myself agreeing energetically with most of Ash’s ideas. While most of them aren’t new, exactly, the elegance and step-by-step clarity with which he lays out a plan for getting from “Plan A to a plan that works” is really impressive, and extremely useful.

But there was one teeny weeny bit that Ash got a teeny weeny bit wrong. And it concerns AdWords, so I’m going to pick on that bit in this column.

Market Intelligence Through AdWords?

According to Ash, the purpose of your early market channels are not to make money, or figure out how to scale your business, but just to learn what the ravenous early adopters want and are willing to pay for. The deliverable of this phase of market engagement is what Ash calls your MVP, or Minimum Viable Product.

He writes that one of his mentors, Eric Reis, tested a product by spending $5 a day on Google AdWords. That $5 bought 100 nickel clicks each day. Ash comments:

“If you can pull this off today, by all means use it, but unfortunately those days are long gone for most products. Keyword competition is so fierce now that you need to either outspend or outwit your competition. Both of these activities are better suited to the after product/market fit time frame when your focus shifts to optimizing versus learning.”

The details are mostly correct, but Ash’s conclusion is way off. AdWords is still one of the best ways to gather predictive market intelligence before rolling the dice on a launch.

How can that be, when the days of nickel clicks are long gone?

Pretty much true, at least for keywords that you’d want to bid on. I know folks who get cheaper clicks in the Display Network, but it’s much harder to mine Display Network data for market viability.

The question is, why does it matter that clicks are more than a nickel? Would you be willing to spend $20 bucks to get valuable data, even if each click cost more than a dollar?

Cheap AdWords Experiments

Let’s say you want to enter the men’s blue jeans market, but you aren’t sure what type of product will give you the fastest traction in a highly competitive market. Should you go for designer jeans, skinny jeans, or plain old men’s blue jeans?

For fun (actually part of a class we were teaching), my Vitruvian Way colleague Joel McDonald ran a 4-way ad headline split test on the broad match keyword “men’s jeans” that cost a total of $19.14 and took just over 24 hours (see the screen shot below).

The useful number in this table is the click through rate, or CTR. While the numbers are admittedly too low to be conclusive, they do show that the first headline that trumpets “Men’s Jeans | Jean Shoppe” is more than 50 percent more attractive than the next most popular, the one for “Designer Men’s Jeans.” And if Joel were planning to sell skinny jeans off that keyword, the results should give him serious pause; only one click out of 561 impressions suggests a rather lean (pun intended) market.

These definitely aren’t nickel clicks. And you definitely would want more traffic to see if these results hold up. In fact, I’d suggest you run a test like this for a week, to make sure you’re getting a representative sample of potential customers. So we’re talking, in this case, of $19.14 x 7, or a total AdWords testing spend of $133.98.

Joel didn’t need to outwit or outspend his competition – the average position for his ads ranged from 3 to 6, so there was plenty of room above them for the big competitors.

As for high click costs, I’d argue that they are a good sign. At nickel clicks, you can’t be sure that anybody’s making money in this market. At north of a dollar for position 6, you know that the market is robust enough to support healthy advertising.

Also, the actual cost per click is a metric worth spending money to discover. Too many businesses use the fantasy numbers Google suggests, and as a result either run out of money too quickly, or don’t bid aggressively enough to get the data, exposure, and traffic they need.

No question that AdWords is, as Ash says, the perfect traffic source for optimization and scaling. But it’s still the quickest, fastest, and cheapest way to get your prospects to tell you honestly what they think of your offers.