The art of sorting out your customers, weeding out the qualified from the non-qualified, is one of the most important skills you can develop in business. There are hundreds of tools out there that claim to help you to weed out these customers, but none as effective as the 80/20 rule.
This week AdWords guru Perry Marshall is here to discuss the 80/20 rule of marketing strategies. We discuss everything you need to know about predicting what your market will be spending, getting those higher-ticket sales, and making your mark in your industry.
(With your host Andrew Youderian of eCommerceFuel.com and Perry Marshall of PerryMarshall.com)
Andrew: Before we dive into the episode, I want to tell you about an experiment we’re going to run over the next couple of weeks. One of our private community members David Heacock posted a discussion about asking for advice about if he should advertise his eCommerce store on the Tim Ferriss podcast. And its really expensive to do that given Tim’s reach and before he made the plunge and made a huge investment we said well hey, tell you what, what if we use the eCommerceFuel podcast as a little experiment to gauge if potentially it would be a good idea based on the reaction of our podcast listeners, the percentage that listen to the episode and take action and compare to Tim Ferriss’ rates and get an idea if this is a good investment. So thats what we’re going to do. And we’re going to follow up on this after they run to let you know if they worked. Did you guys actually respond? Was it useful? If you have an eCommerce store, should this be something that you consider? Should be kinda interesting.
At this point you’re wondering what does David sell. David is the owner of Filterbuy.com where he manufactures high efficiency quality air filters for your home furnace. And if you’re listening I could tell you to buy one of these filters because it’s going to increase the life of your furnace and keep away the $500/hour HVAC guys. I could try to scare you with that. I could also try to scare you by saying hey you’ve probably got a nasty filter in your home right now, the air quality in your home is terrible and more than likely it’s giving all of your family, everyone you love, your young children, chronic asthma and allergies. I have asthma and I’m fairly certain it’s because my parents didn’t change their furnace filter as much as they should.
I could try to scare you about all these things and those things are all true. But I think the most compelling reason for me is that you don’t have to make those terrible trips to the home hardware store, where you waste an entire morning or afternoon, you drive across town, you wander around a store, you run into a couple of acquaintances and before you know it, it’s been a few hours and $200 later you’re finally home. You don’t have to do that. David will ship these filters right to your door. And if you sign up with one of his really convenient subscriptions services ever year, or however often you need them, a filter magically appears on your doorstep. No home depot run required.
So check him out at filterbuy.com/ecommercefuel. David is going to give you 15% off all his stuff or 20% off all his filters if you sign up for a subscription. That’s filterbuy.com/ecommercefuel. Check them out, grab a filter for your home and make it a better environment and be a part of the experiment. We’re going to follow up in upcoming episodes and let you know how it worked out. Alright. On with the show.
Today on the podcast joined by Perry Marshall who is a fairly familiar name online, and in the eCommerce world, most notably for AdWords. He quite literally wrote the book on AdWords, “The Ultimate Guide to AdWords,” which has been one of, if not the definitive guide in the space, and so we do, we definitely talk about AdWords. We talk about the changes that have recently rolled out with the right side disappearing, but we cover a lot of other topics as well. We talk about the 80/20 principle in a slightly different perspective than maybe you’ve heard about it before, a la Tim Ferris for example. We talk about predicting the size of markets, we talk about copywriting. He’s a great copywriter. If you need proof of that go check out his LinkedIn profile page and read the summary. It’s really well done and compelling. So we cover a lot of ground in this discussion, and hope you enjoy it.
Andrew: Perry a lot of people know you at least in eCommerce as the AdWords guy. You know, you of course wrote “The Ultimate Guide To AdWords,” but the obviously do a lot more. What else do you do and what’s your focus these days?
Perry: Well, you know, if you want to get into business, the best way to do it is to be a specialist. But I think if your career is going blossom eventually in some way, shape, or form, you need to become more of a generalist, especially for customers to stick with you for a long time. And so what I essentially have focused on is what really gives businesses the edge? I started moving deeper and deeper and deeper into the sales funnel to where today, I really look at the sales funnel backwards, and I start with, well, do you have a fundamentally kick ass proposition that’s so much better than what else is available, that you’re like Uber compared to taxis.
I mean that’s a really what I hope that a client can get to. I see my job as being able to address the sales process anywhere from the first click to having the ultimate unique selling proposition, or even the totally game changing, unique selling proposition, and then also I’m bored easily, so I kind of like jumping around. I’m still in pay per click. In fact in the last few months I’ve had a resurgence of interest in pay per click, because I think it’s in the midst of changing drastically right now. So it’s an exciting time to be alive.
Andrew: I didn’t originally planned on diving too deep into AdWords, but given that you he dangled the carrot in front of me, I’ve got to take the bait. What do you see changing with AdWords and how much of that is related to the changes we’ve seen with, you know, no right side Ads anymore, and only top and bottom in the search results?
Perry: Yes, so when that change came out I said this is the biggest change in AdWords in 10 years, and I actually had a webpage with a picture of the people drowning, and banging on the door of Noah’s ark and wanting in. Okay, all right, you know that’s probably a little excessively dramatic, and I talk to Larry Kim, I don’t know if you know him, he’s the guy that runs WordStream and he’s like got access to more data than everybody except Google and maybe one or two other people, and so I actually still maintain my original position.
Now here’s why you looked at Larry’s data and you said, “Well, I think Perry is overhyping it.” So let me explain why you would come to that conclusion. If you look at Larry’s data, those positions were only getting like less than half a percent of the clicks or something. It was like this ridiculously tiny percantage of the traffic that those lower positions were actually getting, and so in the grand scheme of things, if you took those away, it was like no big deal. But if you looked at the whole thing there was another very interesting thing that happened, which is they added a fourth advertising position at the top, so there’s one, two, three, four ads at the top instead of three, and that pushed the organic results down in positions one to three, the traffic in those positions went up by about 10%, which is a lot.
The organic traffic dropped probably 5% when you’re talking billions of searches and billions of clicks that is a lot, and the overall traffic that goes to advertisers went up, but it only went up for the top three positions. And what happened on Google’s desktop search was desktop search went from 80/20 to 90/10. Now when you go from 80/20 to 90/10, that is a huge power shift and what it does is it accelerates the winners and it accelerates the losers. So effectively the internet just sped up, but it’s not obvious.
Andrew: So if traffic going into those top guys is increasing, and I think you said 5%, 10%, which in aggregate is enormous, right? Like you look at the aggregate sum, but looking at it from an individual advertisers perspective, 10% is nice, 5% is nice, but it’s not like a game changing amount, I would argue, playing devil’s advocate.
Perry: I say it is and here’s why. This goes back to…this is actually about 10 years ago, I had a consultation with a huge mutual fund, that everybody would recognize and I talked to one of their analysts and he’s like, “Oh, you do those big click stuff. Let me talk to you.” And at the time Google and Yahoo were running neck and neck and he goes, “So how is this going to shake out?” I said, “Google is going to kick their ass.” And he goes, “So tell me why that is.” And I said, “Well, Yahoo’s system which used to be Overture, it doesn’t facilitate split testing very well, and their auction is based on the highest bidder, it’s not based on the highest CPM, and Google’s auction gives people credit for writing better Ads, and so essentially every single search that Google makes Google makes like 10% more money than Yahoo.”
Well but 10% equals 40%, because when you start reinvesting that money and you look in terms of the margins, and then how much they can grow and you apply compound interest to it, and actually it’s just basic math of conversion, I said, “Google actually effectively really has a 40% advantage over Yahoo, not a 10% because it all gets amplified.” So I said, “What you’re going to see happening is the next few years you’re going to see Google just pull way ahead of Yahoo, and they’re going to pound them into the ground.” And that’s exactly what happened.
So that 10% on the surface like as of today, or as of you know this month or the next 30 days, it’s only like a 5% or 10% lead, but that will earn compound interest. And if somebody is trying to compete with them like they’re in the number four position, or their number six position compared to the guy that’s in the number three, the loser just is losing faster and the winner is winning faster. It is a very big deal and I still maintain it’s the biggest change in Google in 10 years. It’s a very big deal.
Andrew: So really implications for people who are you know running pay per click right now, should they be just willing to pay more to get those higher sponsor, are they just known to the fact that their competitors if they’re out ranking them are going to gain ground on the more quickly? What should they take away?
Perry: Well, I don’t think that your first response should be, “Oh, I’m going to spend more money.” Your first response should be, “Am I optimizing everything that I can really optimize? Do I have my exact matches and my phrase matches and my modified broad matches, and my broad matches all in separate ad groups or even separate campaigns, and I’m using separate bidding strategies on those? Am I using all of the site extensions that are available, and all the ad formats? Am I really doing correct to market research to understand what itch the customers are trying to scratch?” And you know, like all the different layers of the onion. First you got to optimize all that.
Now I know that you know 1% of the advertisers are optimizing everything to the hilt, but most of them aren’t. I know how the world is because I have been doing this for a long time, you know, most people are just kind of a little bit lax, and they don’t split test things in a very disciplined way. And so they’re just letting things slip, and what you want to do is you want to do all that optimization also it’s very much a matter of picking your battles.
Like especially if you’re the challenger and you’re not the incumbent. You’re going to have to pick certain keywords that you think you can win on that maybe the other guys aren’t paying as much attention to, and you know, you go fight those little skirmishes. You shore those up first and so you’re just going to need to be strategic about it. Now once you get all of those things lined up and it’s all humming like a well oiled machine, then you put more money into it, and then it’s really hard for somebody to unseat you.
Andrew: I’m going to change gears just a little bit and talk about some of stuff in your book again, “80/20 Marketing.” Great book, really enjoyed it and in that book there’s been a lot…I mean Tim Ferris has talked about 80/20. I think most people probably pretty familiar with the principle, but you approached it from a slightly different angle, doing 80/20 of the 80/20. Focusing on not just the 20% that drives 80% the outcome, but taking it to the second or third power. Focusing on the you know the 4% that drives the 60% of that of the outcome, something like that.
And one of the things I found most fascinating was kind of a fun experiment or the process you used to be able to look at a market, and I think in the book you use the example of let’s say a professional sports team. Look at a market and figure out how much potential revenue you could charge, and you could generate from that market. And I thought was fascinating, both in the sense of just the predictive abilities, but also as a way to be able to see in my own business how much money potentially am I leaving on the table. Can you talk about that a little bit?
Perry: Yeah, 80/20 is fractal. In other words it’s a repeating pattern, inside a pattern, inside a pattern, inside every 80/20 is another one, another one, and another one. So I can look at the whole world, I could look at all the countries in the world from the richest of the poorest, and there’s an 80/20 distribution of all those countries. But then I can look at the Forbes 400 and 80/20 is still true just within that group of people, and I could look at the top 10 people in the Forbes 400 and 80/20 is still true just among the top 10.
Andrew: In terms of saying that in those top 10, the top 2 people are going to own 80% of the wealth as opposed the other 8 in the top 10 of the Forbes 100.
Perry: Yeah, and if you look at it it’s actually like the top 3 are worth about twice as much as the other 7 put together. So it’s not exactly 80/20 but the pattern is definitely there. And this is actually true all over the place of just about anything you can measure. I remember one of my mentors early on, he said, “One of the things that all great businesspeople, all great marketers do is they harness natural forces.” And what I realized is there is a natural attractor going on in almost any kind of economic activity, or product defects, or complaints to the customer service department that all of these things are 80/20, so what this means is that if you let people do what they want to do, if you give them the opportunity to do what they want to do, if you give them a lot of choices, then they will naturally flow in these directions.
So if I have 60,000 football tickets for $50 apiece, then I can just start applying the 80/20 and go, “Okay, 20% of those people are actually willing to spend 4 times the money for a better experience, and 20% of those people are willing to spend 4 times the money for better experience, and 20% of those people are willing to spend 4 times the money,” and you work your way up in all of a sudden you can calculate the number of $10,000 sky boxes that you can sell. And you will find it scary uncanny accurate how close that is. It will probably be plus or minus 30% of any one of those numbers, is that’s going to be how many of those they sell, and in fact when the super bowl was going on I tweeted this thing and I said, “Hey 80/20 geeks, if X number of Super Bowl tickets were selling $3,000 apiece, then what did the most expensive person spend on going to the Super Bowl?” And the answer was I think $10 million.
Now I didn’t go in and investigate to find out, but do you suppose it’s too much of a stretch to say that somebody did spend $10 million throwing a big giant party for their corporation, and took all of the sales guys, or all the customers, or all the clients, or somebody, to the Super Bowl.
Andrew: Yeah, it’s definitely realistic.
Perry: And I’m so sure that it’s true that I didn’t even bother to go check it out, because I already know that it’s true. Like somebody spent $10 million treating companies where, oh your already sold that service package to a 100 clients, and you don’t have this other package that’s 20 times as expensive, where it’s just completely on a silver platter with all the bells and whistles that they could ever want? And a lot of times a business is not viable unless it has that additional level, or maybe you sell the leads to somebody else who’s in that business. Maybe you being in that business would just be too taxing on your resources, but the money is there, it is being spent, it’s basically a law of physics, so get out your magnifying glass and look for it because it is there.
Andrew: You mentioned the book, in your opinion one of the most important if not the number one skill in marketing, is the ability to sort your customers, and maybe not even your customers, but your leads, your business leads, into the qualified and the non-qualified. You call it racking the shotgun. Can you expand on that a little bit? Why is it so important, and if you can if it’s possible to kind to talk about it from perspective an e-commerce store owner, where leads maybe are visitors coming to the site or phone calls coming in, why is it so important and how could potentially an e-commerce store owner apply that?
Perry: So the 80/20 rule says that 80% of the people that hit your site are probably never ever, ever going to buy anything from you ever. Okay? Like they’re just not for whatever reason. Like maybe they don’t have the money or maybe they got there by accident, you know. And then there’s this other group of people that is very disproportionally likely to do business with you.
And first of all there’s almost always a pretty small number of reasons, but you can usually sort the good from the bad with three questions. And it’s going to be a different set of questions for most people, but certainly a question that almost everybody is going to have in common is whether or not they have the money. You have this like super cool exotic radio and it does all this cool stuff. but you know, let’s say that you put a little five question things.
Like is this radio really for you? I mean a programmer could probably put that together in an hour and a half, and stick it up on your page there, and like, you know, if you…and I don’t even know what the criteria are because I haven’t looked at you radios, but you’re really helping that person out and like you answered all five of these questions a certain way, like not only should you by this radio, but this is the only radio in the world that has those five answers where you end up with that result. So this is a no-brainer. Most people don’t do that. I rarely see it done.
Andrew: One of my personal goals this year, Perry, is to get better at copywriting, it’s not something I’ve ever invested a lot of time into doing, and it’s, I mean, as I think I would guess you’d say is incredibly valuable. What would be your 80/20 recommendations to focus on when learning to be a better copywriter, where should I spend the majority of my time either learning or practicing? What’s the 80/20 to become just an amazing copywriter?
Perry: You know, I think first of all if you’re going to learn anything, you have to narrow your information sources down to a pretty small number. And I would say this to you, you know, you could be trying to learn biology, or you could be trying to learn, I don’t know how, to design transistors or something, and no matter what you do there is all these schools of thought.
And there’s all these different approaches, and what you find with people that are really good at that, is that they have picked a particular approach and it works in certain situations and it has certain ingredients in it, and if you get really familiar any kind of shut out everything else and just focus on it, you will learn that person’s view of the world and that will actually be the fastest way for you to learn.
I think a slow way to learn is if you go, “I’m going to study like 47 copywriters and I’m going to get on 47 people’s email list,” or whatever. You end up picking up a whole bunch of mutually incompatible ideas that you’re not yet at the stage where you can discern well this is why I would do this, instead of that. And so I would start by really paring it down ideally to one person like, I like how this person writes. And the first thing I would do is I would take some of their copy, and I would hand copy it on a piece of paper, and that will have a funny effect of actually burning their writing patterns into your muscle memory.
And that’s actually one of the fastest way to become a great writer. It’s like literal imitation but you want to get that alter ego that voice inside your head in tune, and what will happen is at first you’ll just be amateurishly sounding like them. However, what will happen in time is you’ll get past that, and you’ll get to where you can actually consciously decide, “Do I want to sound like my mentor or do I actually want to sound like me?”
And John Carlton is one of my copywriting mentors, he called it finding your voice. And you know, inside every guitar player is potentially a guy who sounds like himself instead of sounding like an imitation of Carlos Santana, or an imitation of Eric Clapton. That’s when you’ve mastered the art is when you sound like yourself and nobody else and people can really go, “I know who wrote that. I know who played that. I like that guy.”
Andrew: So let’s say, I know you want to really focus on maybe one person expound on a maximum of three. What one, if it’s only one, up to three, really powerful copywriters have you studied personally that you think are just world class, and that you’d maybe recommend?
Perry: Well my first was Dan Kennedy, and that’s probably true for a lot of people. And then I let John Carlton pound me for a while. And that’s kind of interesting because John’s style and my style are very different, but the thing about a good teacher is the good teacher does not require that you sound like him. But what John would always get on me about was being kind of flaccid about how I was sounding. He would say, “Perry, take your inner salesman out for a walk every now and then. Like you got that guy in a tight leash. This is so milked.”
I was like, “Come on and wake me up. Like you’ve got to move me.” Okay, he wasn’t saying pummel the guys with adjectives or anything like that, he was saying, “No, in your voice act like you’ve got some conviction like you really believe in this. Like you’re selling from your heels.” And after a while the voice of John Carlton is in my head and it would start to be self correcting. I would read something, I would go, “I know what John would say about this. I’m not sending it to him. I know what he’ll say. He’ll rip it to shreds and tell me to start over. So I will start over without him having to tell me.”
And that worked and it got me over the hump. And the hump was I wanted to be an info marketer. If you want to be an info marketer, like doggone, you better be a good copy writer. I mean there’s a lot of industry, a lot of e-commerce where you can be a C level copy writer, and you’re just fine, because the in the lane of the blind the man with one eye gets to be king. But there’s another niches. You know it just depends on the industry, and you’ve got to be razor sharp.
Andrew: Perry is the author of “80/20 Marketing: The Definitive Guide To Working Less and Making More Money,” and of course as we mentioned “The Ultimate Guide To AdWords.” You can learn more about him, his books, and everything he’s doing over at perrymarshall.com. Perry, pleasure having you on. Thanks for taking the time.
Perry: Thank you.
Andrew: Want to connect with and learn from other proven e-commerce entrepreneurs? Join us in the eCommerceFuel private community. It’s our tight knit vetted group for store owners with at least a quarter million dollars in annual sales. You can learn more and apply for membership at ecommercefuel.com. Thanks so much to our podcast producer Laura Serino for all of her hard work in making this show possible, and to you for tuning in. Thank you for listening. That will do it for this week, but looking forward to seeing you again next Friday.
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