The 4-Hour Workweek: Escape 9–5, Live Anywhere, and Join the New Rich - Expanded and Updated

by Timothy Ferriss

  The basic test process consists of three parts, each of which is covered in this chapter.

  Best: Look at the competition and create a more-compelling offer on a basic one-to-three-page website (one to three hours).

  Test: Test the offer using short Google Adwords advertising campaigns (three hours to set up and five days of passive observation).

  Divest or Invest: Cut losses with losers and manufacture the winner(s) for sales rollout.

  Let’s use two people, Sherwood and Johanna, and their two product ideas—French sailor shirts and a how-to yoga DVD for rock climbers—as case studies of what the testing steps look like and how you can do the same.

  Sherwood bought a striped sailing shirt in France while traveling last summer, and upon returning to NYC has been continually approached by 20–30-year-old males on the street who want to know where to get their own. Sensing an opportunity, he requests back issues of NYC-based weekly magazines aimed at this demographic and calls the manufacturer in France for pricing. He learns that he can purchase shirts at a wholesale price of $20 that sell for $100 retail. He adds $5 per shirt to account for shipping to the U.S. and arrives at a per-shirt cost of $25. It’s not quite our ideal markup (4x vs. 8–10x), but he wants to test the product regardless.

  Johanna is a yoga instructor who has noticed her growing client base of rock climbers. She is also a rock climber and is considering creating a yoga instructional DVD tailored to that sport, which would include a 20-page spiral-bound manual and be priced at $80. She predicts that production of a low-budget first edition of the DVD would cost nothing more than a borrowed digital camera and a friend’s iMac for simple editing. She can burn small quantities of this first-edition DVD—no menus, just straight footage and titles—on the laptop and create labels with freeware from www.download.com. She has contacted a duplication house and learned that more-professional DVDs will cost $3–5 apiece to duplicate in small quantities (minimum of 250), including cases.

  Now that they have ideas and estimates of start-up costs, what next?

  Besting the Competition

  First and foremost, each product must pass a competitive litmus test. How can Sherwood and Johanna beat the competition and offer a superior product or guarantee?

  1. Sherwood and Johanna Google the top terms each would use to try and find their respective products. To come up with related terms and derivative terms, both use search term suggestion tools.

  Google Adwords Keyword Tool (http://adwords.google.com/select/KeywordToolExternal) Enter the potential search terms to find search volume and alternative terms with more search traffic. Click on the “Approx Avg Search Volume” column to sort results from most to least searched.

  SEOBook Keyword Tool, SEO for Firefox Extension (http://tools.seobook.com/) This is an outstanding resource page with searches powered by Wordtracker (www.wordtracker.com).

  Both then visit the three websites that consistently appear in top search and PPC positions. How can Sherwood and Johanna differentiate themselves?

  Use more credibility indicators? (media, academia, associations, and testimonials)

  Create a better guarantee?

  Offer better selection?41

  Free or faster shipping?

  Sherwood notices that the shirts are often hard to find on the competitive sites, all of which feature dozens of products, and the shirts are either made in the U.S. (inauthentic) or shipped from France (customers must wait two to four weeks). Johanna cannot find a “yoga for rock climbing” DVD, so she is starting from a blank slate.

  2. Sherwood and Johanna now need to create a one-page (300–600 words) testimonial-rich advertisement that emphasizes their differentiators and product benefits using text and either personal photos or stock photos from stock photo websites. Both have spent two weeks collecting advertisements that have prompted them to make purchases or that have caught their attention in print or online—these will serve as models.42 Johanna asks her clients for testimonials and Sherwood lets his friends try on the shirts to get several for his page. Sherwood also asks the manufacturer for photos and advertising samples.

  See www.pxmethod.com for a good example of how I have created a test page using testimonials from seminar attendees. Please note that it’s just a template for readers and not a live sales page. Free how-to seminars as recommended in the Expert Builder are ideal for identifying popular selling points and securing testimonials.

  Testing the Advertisement

  Sherwood and Johanna now need to test actual customer response to their advertisements. Sherwood first tests his concept with a 72-hour eBay auction that includes his advertising text. He sets the “reserve” (the lowest price he’ll accept) for one shirt at $50 and cancels the auction last minute to avoid legal issues since he doesn’t have product to ship. He has received bids up to $75 and decides to move to the next phase of testing. Johanna doesn’t feel comfortable with the apparent deception and skips this preliminary testing.

  Sherwood’s cost: <$5.

  Both register domain names for their soon-to-be one-page sites using the cheap domain registrar www.domainsinseconds.com. Sherwood chooses www.shirtsfromfrance.com and Johanna chooses www.yogaclimber.com. For additional domain names, Johanna uses www.domainsinseconds.com.

  Cost to both: <$20.

  Sherwood uses www.weebly.com to create his one-page site advertisement and then creates two additional pages using the form builder www.wufoo.com. If someone clicks on the “purchase” button at the bottom of the first page, it takes them to a second page with pricing, shipping and handling,43 and basic contact fields to fill out (including e-mail and phone). If the visitor presses “continue with order,” it takes them to a page that states, “Unfortunately, we are currently on back order but will contact you as soon as we have product in stock. Thank you for your patience.” This structure allows him to test the first-page ad and his pricing separately. If someone gets to the last page, it is considered an order.

  Johanna is not comfortable with “dry testing,” as Sherwood’s approach is known, even though it is legal if the billing data isn’t captured. She instead uses the same two services to create a single webpage with the content of her one-page ad and an e-mail sign-up for a free “top 10 tips” list for using yoga for rock climbing. She will consider 60% of the sign-ups as hypothetical orders.

  Cost to both: <$0.

  Both set up simple Google Adwords campaigns with 50–100 search terms to simultaneously test headlines while driving traffic to their pages. Their daily budget limits are set at $50 per day. (At this segue into PPC testing, I recommend you first visit www.adwords/google.com/onlinebusiness and then follow along by creating your own account, which should take about 10 minutes. It would be a waste of rain forests to use ten pages to explain terms that can be understood at a glance online.)

  Sherwood and Johanna decide on the best search terms by using the search term suggestion tools mentioned earlier. Both aim for specific terms when possible (“french sailor shirts” vs. “french shirts;” “yoga for sports” vs. “yoga”) for higher conversion rates (the percentage of visitors that purchase) and lower cost-per-click (CPC). They aim also for second through fourth positioning, but no more than $.20 CPC.

  Sherwood will use Google’s free analytical tools to track “orders” and page abandonment rates—what percentage of visitors leave the site from which pages. Johanna will use www.wufoo.com to track e-mail sign-ups on this small testing scale.44

  Cost to both: $0.

  Both Johanna and Sherwood design Adwords ads that focus on their differentiators. Each Google Adwords ad consists of a headline and then two lines of description, neither of which can exceed 35 characters. In Sherwood’s case, he creates five groups of 10 search terms each. The following are two of his ads.

  SAILOR SHIRTS FROM FRANCE

  Johanna creates the same five groups of 10 terms each and tests a number of ads, including these:

  Notice that these ads can be used to test not
just headlines but guarantees, product names, and domain names. It’s as simple as creating several ads, rotated automatically by Google, that are identical except for the one variable to be tested. How do you think I determined the best title for this book?

  Both Sherwood and Johanna disable the feature on Google that serves only the best-performing ad. This is necessary to later compare the click-through rates from each and combine the best elements (headline, domain name, and body text) into a final ad.

  Last but not least, ensure that the ads don’t trick prospects into visiting the site. The product offer should be clear. Our goal is qualified traffic, so we do not want to offer something “free” or otherwise attract window shoppers or the curious who are unlikely to buy.

  Cost to both: $50 or less per day x 5 days = $250.45

  Investing or Divesting

  Five days later, it’s time to tally the results.

  What can we consider a “good” click-through and conversion rate? This is where the math can be deceiving. If we’re selling a $10,000 abominable snowman suit with an 80% profit margin, we obviously need a much lower conversion rate than someone who is selling a $50 DVD with a 70% profit margin. For sophisticated tools and free spreadsheets that do all sorts of calculations for you, visit the reader-only resources at www.fourhourblog.com.

  Johanna and Sherwood decide to keep it simple at this stage: How much did they spend on PPC ads and how much did they “sell”?

  Johanna has done well. The traffic wasn’t enough to make the test stand up to statistical scrutiny, but she spent about $200 on PPC and got 14 sign-ups for a free 10-tip report. If she assumes 60% would purchase, that means 8.4 people x $75 profit per DVD = $630 in hypothetical total profit. This is also not taking into account the potential lifetime value of each customer.

  The results of her small test are no guarantee of future success, but the indications are positive enough that she decides to set up a Yahoo Store for $99 per month and a small per-transaction fee. Her credit isn’t excellent, so she will opt to use www.paypal.com to accept credit cards online instead of approaching her bank for a merchant account.46 She e-mails the 10-tip report to those who signed up and asks for their feedback and recommendations for content on the DVD. Ten days later, she has a first attempt at the DVD ready to ship and her store is online. Her sales to the original sign-ups cover costs of production and she is soon selling a respectable 10 DVDs per week ($750 profit) via Google Adwords. She plans to test advertising in niche magazines and blogs and now needs to create an automation architecture to remove herself from the equation.

  Sherwood didn’t fare as well but still sees potential. He spent $150 on PPC and “sold” three shirts for a hypothetical $225 in profit. He had more than enough traffic, but the bulk of visitors left the site on the pricing page. Rather than drop pricing, he decides to test a “2x money-back guarantee” on the pricing page, which will enable customers to get a $200 refund if the $100 shirts aren’t the “most comfortable they’ve ever owned.” He retests and “sells” seven shirts for $525 in profit. Based on these results, he sets up a merchant account through his bank and Authorize.net to process credit cards, orders a dozen shirts from France, and sells them all over the following ten days. This gives him enough profit to buy a small display ad at 50% off (asking for a “first-time advertiser discount” and then citing a competing magazine to get another 20% off) in a local weekly art magazine, in which he calls the shirt “Jackson Pollock Shirts.” He orders two dozen more shirts with net-30 payment terms and puts a toll-free number47 in the print ad that forwards to his cell phone. He does this instead of using a website for two reasons: (1) He wants to determine the most common questions for his FAQ online, and (2) he wants to test an offer of $100 for one shirt ($75 in profit) or “buy two, get one free” ($200 - $75 = $125 profit).

  He sells all 24 shirts in the first five days the magazine runs, most through the special offer. Success. He redesigns the print ad, putting answers to common questions in the text to cut down on calls for information, and decides to negotiate a longer-term ad agreement with the magazine. He sends his sales rep a check for four issues at 30% of their published rates. He calls to confirm that they received his check via FedEx and, with check in hand and deadlines looming, they don’t refuse.

  Sherwood wants to go to Berlin during a two-week break from his job, which he is now considering quitting. How can he roll out his success and escape his own company? He needs to build the architecture and get his mobile M.B.A.

  That’s where the next chapter comes in.

  New Rich Revisited: How Doug Did It

  Remember Doug from ProSoundEffects.com? How did he test the idea and go from $0 to $10,000 per month in the process? He followed these steps.

  1. Market Selection

  He chose music and television producers as his market because he is a musician himself and has used these products.

  2. Product Brainstorm

  He chose the most popular products available for resale from the largest manufacturers of sound libraries and arranged a wholesale purchase and drop-ship agreement with them. Many of these libraries cost well above $300 (up to $7,500), and this is precisely why he needs to answer more customer-service questions than someone with a lower-priced product of $50–200.

  3. Micro-Testing

  He auctioned the products on eBay to test demand (and the highest possible pricing) before purchasing inventory. He ordered product only when people placed orders from him, and product shipped immediately from the manufacturers’ warehouses. Based on this demand confirmed on eBay, Doug created a Yahoo Store with these products and began testing Google Adwords and other PPC search engines.

  4. Rollout and Automation

  Following this testing, and upon generating sufficient cash flow, Doug began experimenting with print advertising in trade magazines. Simultaneously, he streamlined and outsourced operations to reduce his time requirements from two hours per day to two hours per week.

  COMFORT CHALLENGE

  Rejecting First Offers and Walking Away (3 Days)

  Before performing this exercise, if possible, read the bonus chapter “How to Get $700,000 of Advertising for $10,000” on our companion site, and then set aside two hours on a consecutive Saturday, Sunday, and Monday.

  On Saturday and Sunday, go to a farmers’ market or other outdoor event where goods are sold. If this isn’t possible, go to small independent retailers (not chains or mass retail).

  Set a budget of $100 for your negotiating tuition and look for items to purchase that total at least $150. Your job is to get the sellers down to a total of $100 or less for the lot. It is better to practice on many cheap items rather than a few big items. Be sure to reply to their first offer with, “What type of discount can you offer?” to let them negotiate against themselves. Negotiate near closing time, choose your objective price, bracket, and make a firm offer with cash in hand for that amount.48 Practice walking away if your objective price isn’t met. On Monday, call two magazines (expect the first to be awkward) and use the script on the companion site to negotiate, minus the last firm offer. Get them as low as possible and then call them back later to indicate that your proposal was refused by upper management or otherwise vetoed.

  This is the negotiating equivalent of paper trading.49 Get used to refusing offers and countering in person and—most importantly—on the phone.

  TOOLS AND TRICKS

  Sample Muse Test Page

  The PX Method (www.pxmethod.com)

  This sales template was used to determine the viability of a speed-reading product, which tested successfully. Notice how testimonials, credibility indicators, and risk-reversal guarantees are used, as well as how the pricing is put on a separate page so it can be isolated as a testing variable. Use this as a reference—it is a simple and effective model that can be copied. Please do not input your credit card information, as it is just a mock-up for teaching purposes.

  Fast and Simple Website Creation f
or Non-Techies (and Techies)

  Weebly (www.weebly.com)

  Weebly, which the BBC labeled “a must,” allowed me to create www.timothyferriss.com in less than two hours and have it appear on the front page of Google for “timothy ferriss” searches within 48 hours. It is, like WordPress.com below, designed to be very SEO-friendly (search-engine optimization) without any knowledge or action on your part. No HTML or Internet expertise is required.

  WordPress.com (www.wordpress.com)

  I used WordPress.com to set up www.litliberation.org from a coffee shop in Bratislava, Slovakia, when a U.S.-based designer flaked out and left me scrambling. It took me less than three hours to learn how to use it and build the site. The site, an experimental educational fundraiser, ended up raising 200%+ more than Stephen Colbert in the same period of time. I also use their free open-sourced version of WordPress (www.wordpress.org, which requires separate hosting) to manage everything for my top-1,000 blog at www.fourhourblog.com. This offers greater customization but requires more management and technical know-how.

  Both Weebly and WordPress.com host your site for you, so additional hosting setup isn’t required.

  If you choose to use www.wordpress.org (not.com) for greater customizability, I suggest using a hosting service with one-click WordPress installation like www.bluehost.com. The Shopp plug-in (http://shopplugin.net/) or Market Theme plug-in (http://www.markettheme.com/) can then be used to add e-commerce capabilities. Shopify.com (discussed later) is another good all-in-one alternative.