Using AdWords to assess demand for your new online service, step-by-step

If you want to build an online service, and you don't test it with a fake AdWords campaign ahead of time, you're crazy. That's the conclusion I've come to after watching tons of online products fail for a complete lack of customers. So I thought I would walk you through exactly how to run a "fake landing page" test using cheap tools that require no technical skills whatsoever.

Our goal is to find out whether customers are interested in your product by offering to give (or even sell) it to them, and then failing to deliver on that promise. If you're worried about disappointing some potential customers - don't be. Most of the time, the experiments you run will have a zero percent conversion rate - meaning no customers were harmed during the making of this experiment. And if you do get a handful of people taking you up on the offer, you'll be able to send them a nice personal apology. And if you get tons of people trying to take you up on your offer - congratulations. You probably have a business. Hopefully that will take some of the sting out of the fact that you had to engage in a little trickery.

To motivate you to give this a try, let me tell you a story from the early days of IMVU. It was fall 2004, and the presidential election was in full swing. One day, we became convinced that a killer app for IMVU would be to sell a presidential debate bundle, where our customers could put on a Bush or Kerry avatar, and then engage in mock debates with each other. It was one of those brilliant startup brainstorms that comes to the team in a flash, with a giant thunderclap. We spent weeks working on this new product, racing the clock so it would be done in time for the real presidential debates. We had endless arguments internally about what features it should include, how the avatars should look, and how much it should cost. We finally settled on a $1.99 price point, figuring that we wouldn't make much money, but at least we wouldn't get in the way of achieving scale. Finally the day came, we unleashed the landing page, emailed our existing customers, and started advertising online.

The net result: we sold exactly zero presidential debate avatars. None. Nada. We tried different price points, different ad copy, different landing pages. Nothing made any difference. Turns out, there was aboslutely no demand whatsoever for that particular product. And we could have found it out quite easily, if we'd used the simple five step process below. Oops - there went several precious weeks of development effort down the drain.

So, if you're interested in helping avoid mistakes like that, here are the steps:

1. Get a domain name. It doesn't have to be the world's catchiest name, just pick something reasonably descriptive. If you're concerned about sullying your eventual brand name, don't use your "really good" name, pick a code name. Make sure your domain registrar offers free "website forwarding" if you don't use a hosting service that lets you use a custom domain name in step 2.
   
   
2. Setup a simple website. I recommend using a hosted service like SnapPages. You basically want to create two pages: a landing page that says what your product does, and a signup page that people can use to register for it. If you're feeling charitable, you can add a third page that lets people know that the product isn't available right now, and that you'll get back to them when it is.
   
   
3. Enable Google Analytics tracking. The nice thing about services like SnapPages is that they offer this built-in. You just have to sign up for Google Analytics, get your account number, and plug it into your site.
   
   
4. Start an AdWords campaign. Google AdWords has no minimum buy required, so you can easily run a campaign for five dollars a day, or even less. Just put in your credit card. I recommend using their Keyword Tool to setup your initial list of ad targets. Don't worry about selecting particularly good keywords, if you're new to SEM. Just load them all in and choose a low cost-per-click. I used to use $.05, but you might want to go as high as $.25 or $.50. Just make sure you choose a maximum daily budget that is affordable for you to run the campaign for a few weeks with. I would aim to get no more than 1o0 clicks per day - over the course of a week or two, you'll get pretty good conversion data.
   
   
5. Measure conversion rates. Use Google's built-in Analytics/AdWords integration, to track the effectiveness of each ad you run. Then set up "goal tracking" in Analytics to see how many people actually sign up using your registration page. Here are the stats you want to pay particular attention to: the overall conversion % of customers from landing page to completed registration, the click-through-rate for your ads on different keywords, and the bounce rate of your landing page for different keywords.
   

Armed with that data, you will know a lot about what your business will look like when you finally do build the product you're imagining. At the very least, you can plug those assumptions into your financial model, now that you have a sense for what the cost of acquiring new customers might look like.

Even more importantly, you can start to experiment with feature set, positioning, and marketing - all without building a product. Use Google Optimizer to try different landing pages (even radically different landing pages) to see if any particular way of talking about your product makes a difference to your conversion rates. And if you're getting conversion rates that you feel good about, try asking for a credit card or other method of payment. If that takes your conversion rate to zero, that doesn't necessarily mean you don't have a business, but I'd give it some serious thought. Products that truly solve a severe pain for early adopters can usually find some visionary customers who will pre-order, just based on the vision that you're selling. If you can't find any, maybe that means you haven't figured out who your customer is yet.

And if you don't know who your customer is, perhaps some customer development is in order?