The Return on Investment of Search Engine Optimization
It can be difficult for small business owners or business owners of any kind to decide where they should spend their marketing dollars. You obviously want to spend your money on the types of marketing or advertising that will bring in the most customers. But how do you know which one(s) to choose?
Typically the most important factor to consider when deciding to go forward with any marketing campaign is the potential return on investment (ROI). How much are you going to get in return for the amount of money you spend? If you’re considering SEO and online marketing, you might be surprised.
How do you calculate the ROI of SEO? Well here’s the formula:
|ROI =||(Number of Searches Per Month x Click Through Rate x Conversion Rate x Average Value of a Sale) – Campaign Cost|
- Click Through Rate (CTR) – the average percentage of clicks each position on the first page of Google (1-10) is clicked by searchers
- Conversion Rate – ratio of the number of visitors to your website that result in a sale
To better understand the role these two terms play in the ROI of SEO, and how you can work these into your equation, let’s talk about the image to the right. CTR simply means the percentage of times that searchers click on your website versus another site on the first page. This percentage is significantly based on your Google website ranking. As you can tell from the screen shot, the higher you are on the page the more percentage of visits you will receive versus the lower positions. Where your website shows up (or ranks) when someone does a search for your target keywords on Google will play a huge part in how many visitors your website receives.
Secondly, the conversion rate represents the number of monthly clients converted through your website divided by the number of visitors to your site during the same month. Your conversion rate can vary between a number of factors and industries.
Measuring your conversion rate is important even if you do not sell products directly on your website. Regardless, any website should have some form of call-to-action such as customers submitting requests for quotes, request for free consultations, scheduling appointments, etc. Each of these actions can be tracked and then used to measure the effectiveness of your SEO efforts.
To determine your number of searches each month, you will need to select keywords that your customers will use to find your business. These target keywords are words or phrases that potential customers might type into Google when searching for your products or services, not business jargon. Your number of searches per month is the total number of times the target keywords you just selected are searched for on Google monthly. If you need help determining those keywords and the number of searches, Google Keyword Planner can provide that information.
So let’s take what we just learned and bust out an example.
EXAMPLES OF THE POTENTIAL ROI OF SEO
Let’s say a business would like to increase sales but is not sure if SEO will provide the return on investment they are looking for. For this example, they did research and found out that if they target a handful keywords that describe their business, there are 35,400 searches per month in their area. If their site appears anywhere on the first page, even the last spot, their average click-through rate would be 2%. Let’s assume conservatively that they only convert 5% of their visitors and their average value of a sale is $100.
If you follow the ROI equation, you can see that this company gained $3,500 a month just being in the last spot on the first page of Google and with a very low conversion rate. Even if they invested $1000 a month to ensure that they were on the first page, this example company would still have a 250% return on investment. ((35,400 x 2% x 5% x $100) – $1,000) / $1,000 = 250%.
They not only reached their goal of increasing sales, but they also paid their SEO budget.
Keep in mind that these examples assume that your website is somewhere on the first page for the target keywords. If your site isn’t already on the first page, it may take anywhere from 1-6 months for your site to show up there depending on the competition. SEO is a long term strategy and the ROI won’t be seen immediately, but if you take this ROI example one step further and consider the yearly value of new customers you will see why it won’t matter.
So what is the potential value of SEO for a year? If your company understands the long term investment of SEO, then you will appreciate more the value of being on the first page over the course of a year. By multiplying the additional monthly sales by twelve months in a year, the example company could potentially earn $42,000 annually.
If your average value of sale is greater than $100 a transaction, then the value of SEO would increase substantially. Only you know the value of your average sale or service but it’s safe to say: higher search engine rankings equals more business.
If you applied the ROI example above to your business, what would this increase in sales mean for your business?