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The ROI of SEO

Let’s look at the ROI of SEO i.e. the return on investment of spending money on SEO. As a business owner you may have thought about investing in Search Engine Optimization, or SEO for short, but weren’t sure if it really made good business sense. This post can help you determine whether SEO is a worthwhile investment or not.

The answer ranges from “absolutely not” to “absolutely”! It really depends upon on several different things. For example, we recently talked to a dentist about marketing, and he told us that he is fully booked and not taking on any clients! Well, then. He clearly doesn’t need ANY marketing services including SEO! We have another customer that we were actively doing SEO for. He’s got a local used car business. Unfortunately, due to Covid and the semiconductor shortage he completely ran out of cars! He told us he was very happy with our services (and he continues to host his website with us) but given the situation he was putting the SEO services on hold. We couldn’t agree more.

For some other clients, SEO is virtually a no-brainer. We’d put real estate agents in this category. One extra house sale would most likely cover SEO services for several years!

For other clients, it may not be so cut and dried. A bit more analysis is required. Throwing money at SEO that doesn’t yield results is obviously not in your best interests. So how do you determine if an SEO investment is worthwhile to invest in, and whether it’s effective or not?

Actually, it turns out it’s not that hard.

It really boils down to understanding how much additional traffic you need to generate from your SEO to break even on your cost of SEO. After that, additional traffic becomes profit.

At a very high level, we have: 

 

SEO ROI Formula

Where:

$ means the money you make from sales generated by visitors to your website.
T is the traffic to your website. Someone visits your site. That’s ‘traffic’.
CR is the conversion rate of your website. What this refers to is the percentage of people who buys a product from you after visiting your website. If 100 people visit your website and 3 of them buy a product, then your CR = 3%.

However, this equation just tells us the gross amount of money we make from the website. What we really want to know is how much traffic do we need to generate to cover our SEO costs. After that, any additional traffic will be profit that occurs because of the increase in traffic generated by SEO activities.

BE (breakeven) = T*CR* AGM * APC

AGM which stands for Average Gross Margin.
If you sell a product for $100 and you make $60 on it, your AGM is 60%

APC is your average product price charged to customers.
Again CR is your conversion rate.

BE is your SEO cost. This is determined by you in conjunction with your SEO specialist.

What we really want to know is “T”.

So using a bit of simple algebra, we adjust the equation to:

T = BE / (CR* AGM * APC)

Let’s say the SEO spend is $600 a month and your CR = 3%, your APC is $100 and your AGM is 60%.

T = $600 / (0.03 * 0.60 *100). = 333.3

This means on average if you can increase the number of visitors to your site by 334, every month, you will break even on an SEO investment of $600 per month.

If following this math is not your forte or the way you want to spend your time, you can go to our SEO Breakeven Calculator, and it will do the heavy lifting for you.

If your product price times multiplied by your gross margin is higher than our example above, then the traffic you need to breakeven goes down.

Let’s say your average product price is $1000 and your average product margin is 40% and you still have a CR of 3%.

In this case, the traffic you need to your website to breakeven for a monthly SEO investment of $600 is:

T = $600 / (0.03 * 0.40 * 1000) = 50

In this case with only an increase of 50 visitors per month, you cover your monthly SEO costs.

Let’s use an example that might relate to a real estate agent:

Let’s assume the AGM = 40%
The house commission is 5% and the average house sells for $600,000.
Profit on a house sale is 0.05 * 0.4 * 600000 = 12,000.
This profit replaces AGM*APC in the equation.

Now T = BE / Profit * CR
The conversion rate of the website is difficult to ascertain. Let’s be very conservative and assume it is 0.1%. That means only 1 in 1000 visitors become customers and eventually buy or sell a house through the agent.

Let’s assume the SEO cost is $700 a month. Plugging these numbers into the equation we have:

T = $700/ 12000* 0.001 = 58

That may seem surprisingly small! With only an average increase of 58 visitors, the real estate agent will cover his or her monthly SEO costs.

Let’s look at it the other way around. If a real estate agent sells ONE extra house (due to SEO activities), how much SEO can he or she pay for?

If the average house price is $600,000 and the net commission earned on the sale is $12,000 and let’s assume that the monthly SEO cost is $700, then:

$12,000 / $700 = 17 months

ONE extra house sale pays for approximately a year and a half of SEO activities at $700 a month. We think this helps explain why we believe SEO is generally a no-brainer for a real estate agent assuming they are in a market where a realistic increase in traffic can be expected and your SEO specialist performs satisfactorily.

We can help determine that. Give us a call or use our contact form to get in touch with no cost or obligation of course.

Furthermore, we have a particular SEO strategy. The key comes to understanding how the search engine rankings relate to the amount of traffic generated. We cover this topic in another post. But here’s the thing to realize:

If you are not on page 1 of a given search engine search, then you are getting less than 3% of the traffic available for that search term.

That 3% number is the HIGH end! i.e. if you are at the top of page 2. The further down you go on page 2 or even further back on other pages, the less traffic you will get from this search! I’m sure that intuitively makes sense to you. How often do you EVER look at your own search results beyond the first page? We’re willing to bet almost never.

However, even if you are on page 1, you aren’t going to get a lot of the available traffic for that search term unless you are in the top four positions.

For more information on this specific aspect of SEO refer to our post “Expected Traffic from SEO Rankings”