Today’s post comes from a friend of ours on Twitter – his name is Chris web. He put together an awesome article for you today. Chris Webb runs Really Useful Web Apps, a desktop software suite for Bloggers & Internet Marketers that helps you to get traffic, manage social media and more. Really Useful Web Apps can be downloaded for free, and you follow Chris on his Blog or on Twitter at @FreeWebApps Now on with the good stuff…
A classic mistake entrepreneurs make is to start developing a product before finding out whether there is actually a market for it (I know I’ve done it). You start with a great idea, head straight on into creating and launching it, and then find out the market for the idea is somewhere between tiny to non existent (hence the phrase – “It seemed like a good idea at the time”). This can represent weeks to months of wasted work, followed by some serious self loathing for all the time you’ve lost (and yes, I’ve done that as well).
Big companies try to mitigate this risk by doing what’s called Market Testing, which involves utilizing a range of techniques to try and measure whether a market exists for a product, how strong demand is, what competition exists and ultimately the value of the market.
Market Research 2.0
In the past, you’d be looking at phone surveys, mail outs, buying stats off research firms and other expensive processes to get this information. These days, anyone with an internet connection can create an online survey, develop some kind of incentive for users to complete it, then run an AdWords campaign ad nauseam until you’ve collected the data you need. There are even websites that specialize just in finding people to fill in surveys for companies and compensate them – that’s how big this is, and for good reason.
Happily, there is so much free information on the web today, you can largely find out everything you need about a market without spending a cent, for no more than a couple of hours work.
Here are a few techniques you can use to start free market research immediately.
1. Determine Market Entry Point
So, you’ve got your great product idea, now you must answer one question -
What would someone search for in Google to find this?
Come up with a range of search terms, don’t create more than 10 because you’re going to get a lot more for free. If you can’t think of any, this is your first warning signal about the market, but if you’re struggling, try and think about the benefits of your idea. Complete this sentence – “My product helps people to …..” Whatever your answer is, this is what your search phrase should relate to. A few examples (you’ll do better) -
Product Benefit Search Term
“My product helps people to play guitar like Hendrix!” funk guitar lesson
“My product teaches people how to build a computer!” how to build a pc
“My product finds websites that allow links to be submitted!” link building software
2. Keyword Statistics
Having created this list of potential customer search terms, you’re going to use Google’s Keyword Tool to tell you what you need to know about these markets. In addition to providing statistics, Google’s Keyword tool will generate new keyword ideas for you, providing you with even more ideas about tangent markets. Head on over using the link above, and paste your search term in the tool. When the results appear, you’ll want to select “Show All” under the “Choose which columns appear” drop down menu.
So for my search terms above, I got these results -
This tells me – (1) The demand for each market (2) The competition in the market and (3) The basis for estimating the profitability for the market.
Estimated Avg. CPC (Cost Per Click) is the average cost you will pay for a click-through from running an AdWords campaign against the keyword, Advertiser competition shows how many other advertisers are bidding for the same keyword (and thus affecting the CPC price), while Local & Global search volume shows how many searches Google receives for these terms per month. In effect, this is the “size” of your market – how much demand there is each month for results that match the intent of the keyword used.
Remember I’m just focusing on one keyword per “product” here – in reality you’ll assess many of the keywords Google has generated along with your own, meaning your “theoretical” market size is the combined total of all the search volumes you deem relevant to your product. To give these results context, in one of Justin & Chaunna’s recent vids on Ustream, Justin said he doesn’t like entering markets of less than 2000 searches a month, though realistically he’s looking for markets of at least 50,000 searches a month before entering it.
When your product’s ready, you may start off spending $500 a month on ads, and once you’ve optimized your ads, you may want to raise the budget to gain more market share and make more sales. Monthly search volume is an indication of where the market’s capped – if their aren’t enough searches, you simply won’t get shown, along with all the other advertisers bidding on the keyword.
The results for the phrases above are interesting – “funk guitar lessons” and “link building software” have largely similar “demand” (search volume), but the Cost Per Click is over three times the price for “link building software” (yikes!). This isn’t necessarily always bad – what these statistics doesn’t tell you is whether these searches are likely to be from buyers, and how easily these buyers are likely to convert on an offer. “How to build a PC” on the other hand, has a relatively cheap CPC with a much bigger global search volume.
3. Evaluating Buyer Potential
To evaluate whether visitors are likely to buy, nothing will matter nearly as much as the quality of what you are offering, what it provides, it’s price and how well you sell/position it, but for a gauge of “buyer potential,” Microsoft provide a statistic called Online Commercial Intention (OCI) – a probability rating that the customer is intending to buy. Using our competing terms above, the tool shows -
* funk guitar lesson – 0.59 non commercial intention
* how to build a pc – 0.89 non commercial intention
* link building software – 0.51 commercial intention
So, “link building software” may be expensive, but Microsoft rate this as a search phrase with commercial intent – meaning your ad spend is more likely to result in buyers than the other two, which may be wasted ad spend – there may be market demand, there may be click-through’s, but no buyers.
A classic trick to target buyers more precisely is to create keyword variants that are much more likely to be from buyers. Taking the examples above, variants might be -
* how to build a pc products (now a 0.78 commercial intention)
* link building software reviews
* link building software comparisons
You’ll need to put these variant terms back into Google Keywords Tool to see how they perform with the adjustments, as a rule of thumb, you can expect – (a) Higher CPC and (b) Less search volume.
4. Conversion Costs
Let’s say I have a $100 product idea for each of the products above. Let’s assume I’ve got an Ad Budget of $1000 per product, and run an AdWords campaign for the original keywords above which has a click-through rate of 2.5%. Finally, let’s assume I’ve got a really strong offer for each of the products, and can convert 10% of visitors into buyers. This looks like this -
Keyword Ad Spend CPC Impressions click-through’s Buyers Sales
funk guitar lesson $1000 $0.88 1136 28 3 $300
how to build a pc $1000 $1.23 813 20 2 $200
link building software $1000 $3.06 326 8 1 (hopefully!) $100
In reality, factoring in Commercial Intent would probably balance these out revenue wise, but the results are similar – the sales fall far short of the Ad Spend. Click-through rates and conversions can vary wildly, so don’t take the number I’ve used as a reliable guide. Some offers convert at 40%, Some at 0.25%.
This “example” is really product marketing at it’s most basic. In reality a forecast like this can be easily adjusted into the positive by numerous factors -
* Focus, optimize and bid on cheaper, more effective keywords to drive up CTR and drive down CPC.
* Sales funnel – Test, test and test again to improve buyer conversion
* Increase the price of the product to optimize conversion to sales ratio
* Increase the value of the product to improve conversions
* Increase auxiliary revenue via back end sales, up sells, etc.
In addition, this doesn’t take into account the lifetime value of the customer you’ve acquired, or the impact of an effective sales funnel. Additionally, you could choose to enter the market and compete for clicks based on the natural search results, relying on your position in the search results to generate leads and sales.
Lastly, the Keywords Tool is great for this analysis, but you don’t have to rely on the AdWords figures – products like Justin’s Website Traffic Video show you other means to get much cheaper traffic.
5. Find Your Customers
There is bound to be at least one forum, multiple blogs and more where your potential customers are connecting, and you should find them and start conversations. What do they need? What are their real problems? This can shape, guide and modify your ideas from “good” to “extremely useful.”
Who would be the competitors to your idea? If there are no competitors, you’ve got a problem – are you sure there is demand? Chances are if you can’t find a competitor, you won’t find a customer. Search Google for what people say about your competitors – are you going to be able to deliver more? Who’s talking about your competitors? Are big-name Bloggers and Twitter users talking about competitors regularly?
Hopefully you’ve now got some ideas about evaluating the market for your product. The key points are -
1. Work out your product’s key benefits, then work out what customers would search for to find it
2. Use Google Keywords Tool to -
1. Estimate search volume for your customer search keywords
2. Estimate advertising costs for the keywords
3. Use Microsoft’s OCI tool to gauge commercial intent
4. Try and forecast conversions & sales using a simple model
5. Talk to at least one potential customer before you start work on a product