For as long as I can remember, there’s been a fundamental problem with running pretty much any business. Finally, we’ve figured out the solution.

In the old days, it was known as the “traveling salesman problem.” You see, a salesman needs to visit a number of geographically disparate cities. The problem – known in mathematics as a problem of combinatorial optimization – is how to visit all of the locations in the least amount of time.

The same problem applies to baking a cake. How do you combine flour, eggs, sugar, and butter in the right combination to make a light, moist, delicious cake?

But this problem extends beyond traveling salespeople and cake baking. Every businessperson faces the same challenge every day. Namely, how do you combine the resources you have at your disposal to produce the best outcome?

The traveling salesman problem may still have mathematicians scratching their heads. But there’s now a solution – which I’ll get to in a minute – for similar problems facing online businesses.

Let’s use pay-per-click (PPC) advertising as an example. How do you combine headline and content and offer at an optimal cost to convert the highest number of qualified prospects into paying customers or newsletter subscribers?

A problem like this can seem nearly impossible to solve. There are so many elements to consider that you can quickly come up with thousands of possible combinations. And that makes it unlikely that you’ll be able to calculate the single combination of elements that will produce the best result.

So you take a chance, pick one of the possible permutations, and say, “We’ll do it this way.” Let’s face it – you have to do that, or it would take forever to make a decision and get on with your business.

But “this way” may not be the best way. A different combination of elements could produce a better result. The only way to find out is to test a new combination. And then another one… and another one.

Baking a Better Cake

What you need is a way to test a number of possible combinations simultaneously. If you could test several different combinations of offer, headline, and content for your PPC ad, you could come to a pretty definite conclusion that one is truly better than the others.

Now, this is actually possible. It’s known as “multivariate testing.” And it can be used for any aspect of online business where there is a measurable goal.

We’ve started to use this approach at Early to Rise and other Agora businesses, and have seen remarkable results. Specifically, we’ve used multivariate testing to improve a number of our landing pages for PPC campaigns. (The landing page is the page a person arrives at after clicking on a PPC ad.) To our surprise, we were able to improve many of our existing campaigns by at least 24 percent.

On one landing page where people sign up for an e-mail newsletter, for example, we increased sign-ups by 57 percent by testing different combinations of headlines, copy, and the sign-up form.

On a shopping cart checkout page, we found that only 2.9 percent of people who started the checkout actually completed it. This was costing millions of dollars in lost sales annually. We tested various content, the placement of security seals, etc., and the result was a 375 percent increase in the number of people completing the checkout process.

And a client of mine who offers a free report on living and buying property in Ecuador increased the number of people signing up for it by 29 percent. He did so simply by testing the placement of elements on his sign-up page. He’s now bringing in about 3,000 additional e-mail names a year… without spending any extra money.

How to Get Started

A number of companies offer software that can help you develop multivariate tests. These include Google, Verster, and Sitespect. You can also find “behavioral targeting” systems, such as Omniture’s “Touch Clarity,” that adapt site content based on site visitor actions.

At ETR, we chose Google’s Website Optimizer tool. It’s quick and simple to use, it integrates well with our existing websites, and it does the math for you to show what is working and what isn’t. Plus, it’s free. You can also find a good online support group for it, and a number of tutorials and learning resources.

If you’re unfamiliar with testing, or need a brush up, I recommend that you read some of the classic direct-marketing books. Ogilvy on Advertising will give you a good understanding of why and how to approach testing, and what to test. Other classics include Scientific Advertising by Claude Hopkins (available free online), and Breakthrough Advertising by Eugene M. Schwarz.

One of the first things you might want to test is your PPC landing pages. For instance, you could test two variations of a headline. Or you could test the content of a page by breaking a paragraph into benefit-driven bullet points.

Google’s tool guides you through the process, and calculates all the numbers. Depending on the amount of traffic your landing page gets, you get an indication of what is working within a few days. For example, you might start to see that a certain headline on your PPC ad is starting to get more orders… or that including a certain price in the ad gets more people to click through to your landing page.

Over time, a more accurate picture begins to emerge of which combination of individual elements produces the best overall result.

Of course, you could do the statistical analysis yourself to see how the variations you’re testing are performing. But it would mean a huge expenditure of time and energy. Since you have a business to run, using Google or some other multivariate testing software is a much better option.

A Winning Combination

In the multivariate tests I’ve conducted, the “worst” improvement I’ve ever seen was 24 percent. And I know of reputable marketers who’ve had improvements approaching 400 percent.

What kind of results can you expect? I believe you can reasonably expect an improvement of between 20 percent and 60 percent on any campaign you are running today.

I first started doing business online 20 years ago. In my experience, multivariate testing is the most powerful tool that has emerged since then for Internet marketers. I encourage you to yoke this approach to your online business without delay.

[Ed. Note: David Cross is Senior Internet Consultant for Agora Inc. You can start your very own Internet business – from the ground up – at ETR’s 5 Days in July Internet Business Building Conference. David and ETR’s team of Internet experts will teach you how to use multivariate testing and dozens of other techniques that can help your brand-new business grow.]

Although David hails from Blackpool, England – which is often referred to as the “Las Vegas of England” – he shunned a career in show business and instead followed a meandering career path overflowing with “life’s great experiences,” working or living in over 20 countries along the way. Chef, teacher of Transcendental Meditation, guest presenter on QVC, earthquake relief volunteer, CEO of a web hosting company, marketer at a radio station and all combined with years of direct marketing, PR and sales experience for clients as diverse as health food stores, small charities and right up to multinational public companies. David brought unique talent and experience to his role for six years as Senior Internet Consultant to Agora Publishing Group. Working closely with Agora’s publishers and marketers to test new ideas and marketing campaigns, Agora’s Internet revenues topped $200 million in 2007. David understands and can communicate fluently with creative “right-brain” marketers and analytical “left-brain” IT and software teams, all with equal ease. He has a proven track record for generating results and creative thinking and excels at making trouble to find new ways of making things happen! He lives on a small farm close to Mount Hood in Oregon with his wife Cinda, a veterinarian, and their four children and a menagerie of animals (no more, please!). When not marketing or brainstorming you’ll find David following a dream of self-sufficiency for food, power and water within 10 years, tending the land and caring for the farm and animals. Not surprisingly, David is an engaging and knowledgeable speaker with many amusing anecdotes from his work and travels over the years.

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