Published on: 22 Dec, 2014
This is quite possibly one of the most important questions you should be asking yourself as a website or business owner…..and probably of your Bristol SEO agency too!
What’s the point of pouring money into a search engine marketing campaign if you’re not going to understand what benefit it’s giving you? And with the tools available this can be a really simple exercise.
What is ROI or “Return On Investment”
This is a calculation to determine, as a percentage, how much money you are receiving and will receive from an SEO campaign compared to how much the actual campaign is costing you.
I’ve added “….will receive” as the benefits from SEO will last even after you cease the campaign. How long depends on the competitiveness of your industry and keywords but it could be as much as 12 months.
I would say this on the subject…. “if you don’t know if you’re getting value, then you’re probably not getting any.” Any SEO company worth their salt will not only work out an estimated ROI before a campaign starts but they will be providing actual ROI data as the campaign progresses.
All is not lost if you’re not getting ROI. An SEO campaign is a ‘live campaign” meaning it can be adjusted and improved over time to give you the ROI you require.
How to calculate ROI
It’s a fairly simple formula, no need for any advanced mathematics qualification.
Let’s look at all the data/variables you’ll need first.
Campaign budget or actual spend – This will include PPC cost if relevant, otherwise it’s the total of all out or insourcing costs for strategy development, account management, keyword research, link building, content creation and reporting etc.
Number of new clients acquired (estimated or actual) – As a direct result of the campaign
Average lifetime value per client – This could be calculated in one of two ways, if you’re providing a service, then average profit per client per year multiplied by average client lifetime in years. Or for an a transactional relationship average profit per order multiplied by average number of orders per client over their lifetime.
(Number of new clients acquired x Average lifetime value per client)
————————————————————————————————– x 100 = ROI (%)
Campaign budget or actual spend
This calculation can be made before you start the campaign, this should be done to validate your efforts before you start. If you’re not going to get enough from the campaign then should you be going ahead with it? If the returns are low then you could get a better return doing something else.
And after each month as the campaign progresses to give you an actual ROI based on the real numbers.
Then it’s a case of what return are you looking for? Some people may be happy with less than others. As a rule of thumb, an ROI of approx 200% seems worthwhile. That means you are doubling your money at least.
How to work out estimated SEO conversion ratio
Well, this is the 64 million dollar question, and one that’s almost impossible to answer as there are so many influencing factors.
Your best bet is to use the information found in Google Webmaster tools and Google Analytics, assuming that they set up correctly they will be able to tell you your click through rate (CTR) and your visitor to conversion ratio from your website.
What if you don’t have those tools setup or you’ve not been collecting data long enough to make any meaningful conclusions? Well you’re going to have to use some heavily caveated generalised data.
From my experience the best “finger-in-the-wind” conversion ratio would be approx 1%. That means for every 100 visitors to your website 1 converts to a client. This takes into account the number of enquiries and proposals written to get that client.
How much traffic do I need from SEO?
OK, well done. You’re still with me. Now we’re going to work out the important part. How much traffic do I need to generate to meet my target ROI of 200%?
Let’s say my organic SEO budget is £400/month and I’m going to run a 6 month campaign, giving me a total campaign cost of £2,400 not including any taxes payable.
I need to generate approx. £5,000 in new revenue from this campaign.
Let’s say that my average profit per client lifetime is £500.
Then I will need 10 new clients from this campaign.
With my conversion ratio of 1%, then I will need to generate 1000 extra visits through my SEO work.
I hope this article has gone someway to provide you with some simple ways of understanding how to determine if your getting any value from SEO. I’ve purposely kept things simple as most if not all of you reading this will not be an SEO expert.
Want to talk to someone about SEO but afraid you’ll get at best the hard-sell or at worst complete garbage advice? Please feel free to email me directly at firstname.lastname@example.org with questions or connect via LinkedIn, Twitter and like our Facebook page for further updates.