William Charlwood

Here’s a quick, cheap and simple way of doing some online market research.

Suppose I want to sell widgets (they seem to be quite popular after all) then should I stock red, green, blue, and yellow widgets or just red ones? Which widget is most popular?

What I can do is set up an AdWords ad promoting my widgets and then run a campaign using the keywords “red widgets”, “green widgets”, “blue widgets” and “yellow widgets”.

After a while, I’ll start to get three sorts of data back from Google.

First, I’ll see how many searches there were for each keyword and in general the number of searches done relates to the market interest. So if more people search for red widgets than blue widgets, I’ll know that there is more interest in red widgets.

Second, I’ll see which keywords generate the most traffic which will give me a better idea about the potential demand for my widgets: people who click on ads are more likely to be interested in buying widgets than people who just search for the things, especially if I include the word “free” as a negative keyword in my campaign.

Finally, I’ll start to see where my ads rank for each keyword which, if I’ve set the bid prices to the same level for all my keywords, will tell me some interesting things about what my competition is doing.

For example, if the keyword “red widget” causes my ad to rank lower than for the keyword “green widget” then assuming my competitors are smart, it is likely that red widgets are more popular and profitable.

What should I do about this? Stock red ones.

If you are thinking of opening a store selling branded goods such as motorbikes, a quick bit of market research like this can tell you which brand to run with: Honda, Harley, BMW etc. You clearly need to take into account local factors here and that is something you can also do with Google.

If you set up your AdWords campaign well you will know that certain keywords deliver highly profitable traffic to your website. You will also know that most keywords do not. But finding out which keywords are good can take time and the process of uncovering the profitable niches requires analysis and thought, testing and measurement.

I run one campaign that relies on just three keywords to deliver a very steady flow of cash into my bank account. I advertise a particular service using these keywords and get paid a commission by the service provider whenever I deliver a new customer to them. I don’t get involved in lead capture or anything like that for this campaign. I just drive targeted traffic to the service provider’s website via my affiliate link.

The same three keywords have been highly profitable for over 18 months and generally generate in commissions 3 to 4 times what I spend on clicks.

So would I be prepared to disclose these keywords to you? Only for a price.

These keywords are responsible for producing an automatic income stream for me and will probably continue to do so for years to come. They are obscure. They took a lot of research and ingenuity to find and I am now benefiting essentially from the intellectual property I have tied up in my AdWords account.

Many companies have a huge intellectual property investment in their Pay Per Click campaigns without realizing it. So I thought it would be interesting to try and put some value on this just so that advertisers became more aware of the true value that a well-run campaign delivers.

I’ll keep the mathematics very simple and so inevitably there is some inaccuracy in my calculations. The point is to demonstrate the principle rather than perform an accurate assessment, something which would require actuarial skills.

So here goes.

Suppose I spend $500 a month on a particular campaign and that it produces $1500 a month in income. My profit, which is automatically generated, is then $1000 a month or $12000 a year.

If this income stream was going to carry on for ever (which it won’t) then we could give it a capital value of the annual income divided by the current interest rates. If interest rates are 5%, then the capital value is $12000 divided by 0.05 = $240000. This is the amount of capital you would need to place on deposit with a safe institution to receive the equivalent annual income.

Realistically I know that my income from this campaign is much less secure than money in the bank but that doesn’t stop me making an estimate of its capital value.

Suppose I give my campaign a life-expectancy of just 2 more years. That is 24 months of $1000 a month profit or $24000. (I am not bothering to calculate the time value of money here which takes into account the fact that money now is worth more than money later. It is the magnitude I am after rather than precision.)

If these figures applied to my campaign, each keyword would be worth an average of $8000 to me. If the campaign had a life-expectancy of 3 years instead of 2, the value would be $12000 per keyword instead.

These are shockingly large figures.

So the questions you should take away from this article are:

1. Have you ever stopped to work out what some of your keywords are really worth to you?

2. Have you ever stopped to think carefully who you are disclosing your campaign details to when you ask someone else to manage your AdWords account for you?

(First published in June 2007 and downloaded over 1,000 times from article sites.)