Is Search Engine Optimization (SEO) Worth The Money? Is it a money pit or an investment that bears fruit? On average SEO generates $2.75 in additional profit for every dollar spent. In this podcast, we discuss if search engine optimization is worth the money or not. In the podcast, we also look at how to properly calculate the ROI (return on investment) for SEO or marketing methods of any kind. This podcast was inspired by an article on SEW titled "Is SEO Worth It In 2015?"
In this podcast, you won't find anything complicated you don't understand. We break down everything into simple to understand business terms anyone can grasp. If after listening to the podcast and reading this article you determine that your business needs help understanding search engine optimization feel free to send us and email to discuss further if our services would be a good fit for your business or not.
This article was based on the page from SEW that can be found at this link:
In summary, this article is about:
- Search engine optimization is any activities conducted on a website to positively affect the search engine rankings of a website
- When calculating SEO return on investment you need to take into account the lifetime value of a new customer
- On average SEO generates at least $2.75 in profit for ever dollar spent on it
- The benefits of SEO compound over time
- When choosing an SEO firm avoid email spammers, firms from foreign countries, firms that sell backlinks, firms that sell prewritten content, firms that try to trick Google
Sales & Marketing ROI Podcast: Episode #9
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Measuring Search Engine Optimization Return On Investment The Right Way
The right way to measure the ROI from search engine optimization is to calculate not just the initial sale that the SEO efforts deliver but to look at the total lifetime value of that customer. If SEO generates one customer that purchases $5,000 this year but will keep making an annual purchase of $5,000 every year for 20 years, it does not make sense to only factor in the first $5,000 in the ROI calculation. Instead the value used in the calculation should be $5,000 x 20 years = $100,000. You can read more about this idea in the search engine watch article. This is the metric you want to use to find the real ROI of your SEO efforts. So the formula for SEO ROI would look something like the below.
SEO Return On Investment = [(Customers from SEO x lifetime value of a customer) - (Customers from SEO x lifetime variable costs to deliver the product you sell) - SEO costs]/SEO costs
Customers from SEO = the number of customers generated from SEO in a year
Lifetime value of a customer = the total revenue generate from a customer during the lifetime of a customer
Lifetime variable costs to deliver the product you sell = the additional costs you incur to deliver the product or service you sell to that one customer (does not include fixed costs like office space rent or capital equipment). Usually the best way to calculation this is the cost of goods sold plus any other additional variable costs.
SEO costs = The costs for a years worth of SEO
Now the problem is that often businesses don't know what the lifetime value is of their customers. The best thing to do is to take a look at your current customers and historical data to get the best estimate on this. For the purposes of our calculations, we usually use the value of 3 years of sales for recurring purchase products or services and only the initial purchase for items that have over a five-year repurchase cycle. We know that this is far more conservative than what the reality would be. We prefer to have a metric though that is conservative, and we can say with 100% confidence that the actual ROI can only be higher than what we have calculated, not lower. That is the rationale for why we use such a low number of years for repeat sales in our calculations.
The Return On Investment Of Search Engine Optimization
Profit per dollar spent on SEO = $2.75
How we calculate ROI is using the lifetime revenue of a customer for the reasons mentioned in the section above on measuring ROI the right way. To be ultra conservative, we use 3 years of revenue for recurring revenue products or services. So the ROI calculation we use is the revenue a customer will generate over the course of 3 years (if the company sells a recurring revenue stream product) less the variable costs attributed to delivering those products or services, less the costs of the SEO service, divided by the costs of the marketing. If they sell a non-recurring revenue product the formula is the same except the revenue is just that of the initial sale from the customers. Due to that we only look at the first 3 years of revenue for recurring revenue businesses the numbers we state are actually understated for businesses of this type. It is difficult to track the return beyond 3 years so we don't do this unless we have the data. If you have a business that generates recurring revenue from your customers the lifetime ROI of search engine optimization will be significantly higher than what we have posted here.
You may wonder why across the site we site different amounts for the return on investment of SEO. This is because we update our data regularly so the amount of the ROI from SEO changes from time to time going up or down based on the new data, but it has always consistently been in the 200% to 500% range.
The Benefit Of Ongoing SEO Investment
SEO work takes time to become effective and each month new things can be learned to further improve a websites rankings, traffic and sales. SEO almost always has a positive return on investment where the more you spend on SEO the more profit your business makes. For each dollar you spend on SEO most companies make about an additional $2.75 in profit. By investing in SEO ongoing it continually improves your website and compounds the return you get from the investment. Each peice of work done compounds the effects of the pervious work. In addition search engines like Google are constantly changing the factors that impact search rankings. In order to have a website stay effective, constant changes need to be made in step with the changes that search engines like Google make to their ranking factors.
Choosing An SEO Company
As the article on SEW states, there are multiple things you should avoid when selecting an SEO company. As stated in the article the things to avoid, including email spammers, firms from foreign countries, firms that sell backlinks, firms that sell prewritten content and firms that pitch quick results using black-hat practices which try to trick Google. There are many suspicious and unethical companies in the SEO industry, the last thing you want to do is pay a firm that is unethical and have your website penalized by Google or pay a firm and have it be a scam. Instead, you want to find a company that uses white hat approaches following Google's guidelines and an SEO company that aims to help Google deliver better search results to its users. When selecting an SEO company you want to choose one that is focused on the most important metric...sales. Many companies focus on ranking and traffic but at the end of the day you need an SEO firm that is going to deliver more sales.
The Search Engine Optimization (SEO) Paradox
The challenge with SEO is that Google and other search engines are constantly making changes to improve the quality of the search results they display to searchers. As a result the factors that impact what search phrases your website ranks for and where in the rankings for each of those keywords you rank is constantly changing. Doing the same thing with your SEO as you did the year prior will not yield the same results. The challenge with being effective at SEO is that you need to be constantly monitoring what is changing and make adjustments to your SEO strategy that follow the changes Google and other search engines are making to their algorithims (the formulas used by Google and search engine to determine what website pages to display in search results for what searches).
What Is Search Engine Optimization (SEO)
SEO stands for Search Engine Optimization. SEO is activities conducted on a website to positively affect the search engine rankings of a website or web page in search engine's (like Google, Yahoo, Bing etc.), results, It helps drive more traffic to a website some search engines. To learn more about what search engine optimization is, click here.
Our Philosophy To Search Engine Optimization (SEO)
Search engines want to give their users the best results, the happier users are the more likely they are to use that search engine. The more users the search engine has the more money it can make off of advertising on the search engine. Thus if you do things to help search engines provide good information then you'll be rewarded, if you try to trick them then you'll be penalized. That is why at Profitworks we try and help search engines deliver the best search results to users, which will be rewarded by the search engines in the long run, instead of tyring to find loop holes in the search algorithm that will be eventually penailized.
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