How do we know if spending time and resources on SEO is the right investment? There are many factors, including the value of a new customer or transaction.
With eCommerce this is much simpler, since we can track a direct correlation between the cost of acquiring a customer and the amount spent on a transaction. Even here, though, we must consider also the lifetime value of a customer; if 20% of our first-time buyers return within the next two years to make an additional purchase, we must factor that into our calculations.
For every dollar earned there are costs associated with acquiring that dollar, including marketing costs, advertising costs, and sales commissions.
It is important for a business to have a clear understanding of what costs they are willing to bear for each dollar of income. Often, different products or services within a single organization require different costs.
Acme Corporation sells Widgetos, a wonderful new widget product. The cost of manufacturing, packaging and distributing each Widgeto is $1.00. If the business plan calls for a 10% profit off each Widgeto sold, and the competitor’s product is sold at $2.00, perhaps we’ll want our product to be sold at $1.90.
$1.90 – 10% profit ($0.19 per unit) = $1.71
$1.71 – $1.00 (cost of production) = $0.71
Our Chief of Marketing would be willing to budget $0.71 for the acquisition of each sale.
Now, it just so happens that this product is perfect for selling on the web. With a pay-per-click (PPC) campaign, we can determine that if one out of seven visitors through a PPC advertisement make a purchase, and each click costs $0.10, we’re ahead of the game. If it takes 10 visitors, we’re losing; or, if the cost per click goes above ten cents and still only one out of seven visitors makes a purchase, we’re not gaining. But at least we can see pretty clearly where we need to make improvements: by improving the conversion rate (how many visitors make a purchase), or by lowering the cost per click. That is the task of the PPC Manager, and there are many tools in their toolkit for achieving the desired results.
With SEO, the exercise becomes a bit more complex.
First, there is a longer life cycle for appearing higher in a search engine. This life cycle can vary with different key phrases and is usually related to the competitiveness of a key phrase. On less competitive key phrases, it is not uncommon for a website to continue to rank highly for several years. With a more competitive key phrase, it may require more ongoing maintenance. But we’re trying to determine the lifetime value of the base set of SEO activities.
Second, SEO usually produces a lot of visitors with related key phrases. I might have optimized content for “Manhattan Honda Dealer” and found that I’m also attracting visitors who have searched for “Honda dealer in Manhattan” or “Honda Civic new Manhattan.” There is a cumulative effect with SEO that spans both time and key phrases. Plus, with a sound SEO initiative, more and more targeted key phrases are added over time, which again has a cumulative positive influence on the rankings of those initial key phrases.
What this means in determining ROI is that we must make some broad assumptions, basing them on averages and likelihood. But by understanding the important factors, the savvy marketer can test the data against the assumptions and help steer the strategic course.
The Cost of an SEO Project
Let’s start by looking at the initial cost of an SEO project. Let’s say that a basic project has a setup cost of $2,200, with six months of ongoing activities at $500 per month, totaling $5,200 after the six-month period.
We show an increase over three years, as this is a pattern we’ve seen. (Some key phrases will deliver more visitors quickly or evenly over a long period of time.)
|Year 1||Year 2||Year 3|
Over the course of three years we’ve received 1,200 visitors from organic search on those key phrases or related key phrases.
Our cost per each user has been: $5,200/1,200 = $4.33 per visitor.
Now, if one out of 10 visitors becomes a customer, the cost for each customer has been $43.30.
What we’re selling will dictate whether this has been a fruitful investment. There are businesses that would gladly pay thousands of dollars for each new customer, and there are some that would pay less than $1.
In our shop, we usually structure our SEO projects on 10 or 20 key phrases at a time. Our KEI research makes use of a series of tools, including Wordtracker, Trellian, and the tools provided by Google.
The chart below shows a typical KEI report for a series of key phrases for a PR firm:
|Key Phrase||Searches in last 90 days||# of
|relative market share profit||378||403||354.6||8460|
|research survey entrepreneur||128||116||141.2||2850|
|crisis communication for attorneys||29||25||33.64||630|
|the five minute presentation||195||1830||20.78||4350|
|email marketing consulting||328||9650||11.15||7320|
|crisis communication for lawyers||17||89||3.247||360|
|business promotions and marketing ideas||20||147||2.721||420|
|hazard communication plans||40||601||2.662||870|
|organizational functions of pr||32||517||1.981||690|
|emergency communication disaster plan||11||73||1.658||240|
|societal functions of public relations||45||1340||1.511||990|
|newsletter writing service||24||563||1.023||510|
|media integrated training services||6||38||0.947||120|
We are looking for key phrases for which we’d be most likely to appear toward the top of the search results.
Then, for each of these key phrases we need to consider total searches and what percentage of clicks we’d receive in the first, second, third and fourth positions.
For instance, if my set of key phrases is Googled 500 times per month, or 6,000 times per year, I may be looking to capture one tenth of the total traffic, or 600 visits per year.
Another aspect of SEO ROI that is difficult to measure is the latent conversion.
Research has shown that SEO can boost PPC and other marketing campaigns. For instance, it is not uncommon for buyers to search on a phrase and then return and search for a specific branded term, clicking on the ad. We credit the PPC ad with the conversion, as we’re not able to identify the earlier search. But with some key phrases it is not uncommon for us to see the natural result directly beneath the paid result. In these circumstances, the searcher is being presented with the customer’s website several times!
Another effective source of traffic and, ultimately, ROI is the backlink. This is when other websites link to our website, using the appropriate key phrases and pointing to the appropriate page.
As you watch increases in traffic from search engines, you might also notice traffic stemming from backlinks from other sites.