Perry Marshall interviews the founder & CEO of Coffee.org, Bill McClure. Bill attended our 2-day 4-man Intensive last year and in this interview he talks about the success of his company in the ultra-competitive coffee market.

Perry: Bill, welcome! How are you doing today?

Bill: Good, good. I had been in the internet business since the mid-90’s. I was looking back this morning to see when we built our first site in the archives, and it was actually in February of 1997 and that was www.FlowersDirect.com.

In just a very quick snapshot, we made every mistake over the next five years of owning Flowers Direct and EFlowers.com that I believe you could make in those days.

The cost of entry and building the sites, as well as the marketing and advertising, which was all by banners in the early part and then later by GoTo and pay per click, was a challenge, but once the pay per click came along it was easy to buy the position.

As all who have been on this side of the pay per click business now know, it’s more difficult and it’s not about how much money that you have to spend, but a whole source of different variables that make you successful.

I sold two or three different internet companies in addition to EFlowers.com and FlowersDirect.com in 2002, and built another company called Traffic Strategies, which we sold to LinkShare last May. I currently own over 6,000 domains in a variety of different market areas.

One of them is in the beverage and wholesale business, wholesale beverages and coffee and vitamin water and teas. This past year we acquired www.Coffee.org. We built a warehouse distribution system in Portsmouth, Arkansas and launched the Coffee.org site in October this year.

We had several discussions with Perry, and actually I’ve been getting his newsletter and emails for several years, but didn’t feel like I had a need to really improve our systems.

However, with this new operation I inquired with Perry and we spent the time in Chicago at the 4-man Intensive, and remarkably have been able to position Coffee.org on Google Adwords very successfully at a lower cost than we expected.

Perry: That’s pretty good. I always like it when it works out that way.

Bill: We started before the 4-man Intensive. Perry suggested we build a separate account and put in the keywords at $0.15. I didn’t expect that account to do anything, because our experience showed that you needed to spend $1.25 to $2.50 in order to get any traffic under our keywords.

By the way, coffee is typed in 1,100,00 times a month. We have most recently been able to get to the bottom page of Google under the keyword coffee. I haven’t checked that today.

Perry: You mean you’re on the bottom on the first page results, which means you’re on page 1.

Bill: We have been. On my search this morning we’re at the top of page 2, kind of vacillating from the top of page 2 to the bottom of page 1 in the search results.

Now we’re testing utilizing several things that Perry’s taught us, testing some different keywords. One of the things that we found, and I think we built 20 ad groups utilizing some of the techniques in the different ad writing campaigns and different techniques, and we’ve been able to get clicks in at $0.25 and $0.30 at a 4-5% click-through rates, a fraction of the cost.

Perry: Bill, how did you come up with your estimate of what it was going to cost to chip into this at the beginning?

Bill: To get into the coffee space?

Perry: Yes, like how did you come up with your estimate that it was going to cost a buck or two?

Bill: I used the Google keyword research tools and it tells you that in order to be on page 1 that it’s $1.25 to $2.

Perry: One of the things that’s undoubtedly a factor here, which I talk about a lot, is your domain name has a huge effect on your click-through rate. Coffee.org is a pretty good domain name, right?

Bill: That was our object even in buying Coffee.org. Of course, Coffee.com was taken by a company that’s not really using it, and Coffee.net was used by a restaurant chain in Seattle. Coffee.org was owned by a coffee farming family in Hawaii.

We felt like if we could get one of the top three there that we had a chance to both get into the pay per click and the SEO search.

Perry: We always encourage people to do testing. We’ve got a whole lot of tricks for figuring out the likelihood of domains working out.

One of them I call it the www- technique, where let’s say you couldn’t get Coffee.com, but you could get www-Coffee.com and used that in your Google ad. A lot of times that will give you at least a reasonably reliable indication of how much people like that domain name and how much you might be willing to pay for it.

When there’s really good domains out there, they’re not available. You have to buy them from somebody so it becomes a calculated investment of actually going out and doing that, right?

Bill: It has been for us. We’ve acquired numerous beverage domains, and we look for them to be at least three years old and have been registered by somebody else besides us.

Perry: Right. That’s kind of the opposite strategy that a lot of people use, but Bill, this is clearly headed in the direction of becoming a major player in the coffee market. Is that correct?

Bill: That’s right, and let me tell you how I came into this market. I knew nothing about the coffee business or the coffee market, but I looked at acquiring a couple of coffee distributors.

One of them was doing about $3 million in sales, netting $500,000, and it was 100% SEO. Their commissions were $14,000 for the year 2006. I looked at them in September of 2007 and they were running right along the same numbers.

My concern with buying that company was that you could make a change to it and it could go away tomorrow.

Perry: Because it was free search engine optimization traffic.

Bill: 100% of their revenue was generated by that.

Perry: Right, and you said they’d only spent $14,000 on pay per click?

Bill: Well, it wasn’t actually pay per click, it was commissions like Price Grabber or somebody like that. They didn’t do any pay per click advertising.

Perry: What that was was really a business that was dependent entirely on free traffic, and it had a lot of free traffic, but nobody had ever proven they could make it work with paid traffic and there was no guarantee that the free traffic was going to keep coming.

So how much did you decide that business was really worth?

Bill: I discounted it. I figured that it was worth five to six times if you could maintain it. In other words, if I could guarantee that I could maintain $500,000 in pre-tax profits that I was willing to pay $3 million for it, and in fact that’s what they were asking.

However, to discount to say that even if you made a few changes and lost your key positions – and I would say they had maybe 20 keywords that they were coming up under in the high area – and no pay per click, that that company might be worth $1 million.

So I chose to not acquire it. I was willing to spend $750,000 and build a new company, and that’s where we decided to go buy Coffee.org to start that new venture.

Now I believe that with the combination of the two, both a very good pay per click program as well as some good SEO, we’ll be very key in that.

Perry: I think you’re right. There’s one other little thing that I want to talk about before I go onto the next interview, which is you had decided to put your daughter, Ellie, in charge of this operation, and she’s doing that.

But when you came to the Intensive I wanted to punch that up a couple levels. Could you explain?

Bill: We believe that the hook that most of the coffee businesses are either out of the Seattle/Northwest area or there are some in other parts of the country in the northern area, but from the South that we would focus on Miss Ellie being a brand.

Unfortunately, we haven’t got the beans in and the product in. It’s at the roaster today. We had hoped to launch that November 1, but within the next few weeks we’ll launch Miss Ellie’s Original Blend, which is really a McDonald’s tasting coffee and also a Dunkin Donuts.

Perry: In other words, it’s not terribly different from the taste that those companies have chosen for their coffee, right?

Bill: That’s correct. They’re roasted by the same roasters in North Carolina at the same facility.

Perry: What I saw here was that he could build a brand around a personality, whereas coffee generally has this either east coast or west coast cosmopolitan flair to it. We decided, you know what, we can have a feel that’s more like sitting on a back porch on a farm with your feet up in the morning drinking a cup of coffee. There’s red dirt on the ground and gossip with the other friends that are around you.

Miss Ellie, being a real person, can build this brand around her personality. As such, it’s not like getting an email from Starbucks. It’s an email from Miss Ellie. It’s a whole different feel.

Bill: Another aspect to that, Perry, is when you call in to Coffee.org you can talk to somebody. We don’t have an auto-answer service on the system, and if you do get an auto answer it’s because everybody here is on the line talking to another customer.

So when the customer wants to talk and wants to find out what type of coffee works for their office, they can actually talk to a live person, and in many cases will get Miss Ellie.

Perry: That’s good. We had a lot of fun talking about Bill’s business. I won’t go into it, but Bill actually brought a partner with him and we also worked on another business that Bill owns. We’ve been having a lot of fun. This whole thing is only six weeks old, right?

Bill: That’s correct. Yesterday we did 17 orders on Sunday afternoon, and it’s doing between 10-20 orders a day. In order to get to the $3 million/year level we need to do 90 orders a day, so for being six weeks old I’m very pleased with where we are.

Perry: That’s excellent! I want to congratulate you.

The 4-man Intensive is a 2-day private seminar that’s held in my home office. You come to my home in Chicago, and you and three others spend two days with us. We roll up our sleeves and we work and we have a blast. When you leave, your business is tangibly and measurably better than it was when you came.

Everybody gets a half day hot seat, and I and the three other people in the room focus exclusively on you and your business. But the funny thing is, most people learn more from listening to the other people’s hot seats than they learn from their own, and that’s because the other people are doing different things and they raise questions that you would never have thought to ask yourself, so there’s always an unexpected surprise.

To see a list of upcoming Planet Perry events, go to www.perrymarshall.com.