Is SEO worth your investment? There are two ways to answer that question: What are incremental increases in search positions worth to your business? And what are the cost alternatives if you don’t do SEO?
Let’s dive into both answers. (Warning: There are lots of numbers, percentages and dollar signs coming your way. Get ready!)
What is SEO worth?
Here’s a simple equation to determine whether SEO is worth it: Multiply keyword search volume by expected click-through rate times average conversion rate times average order value. (Keyword search volume X expected click-through rate X average conversion rate X average order value)
Let’s say you’re looking to rank for the term “digital marketing company.” According to Ahrefs.com, the term “digital marketing company” is searched for 900 times per month.
Based on studies and analyses of our own clients, expected click-through rates for first-page search positions on Google are around:
Let’s assume an average conversion rate of 2%, with an average order value of $2,000 per month for digital marketing services. Now, let’s put these numbers into our equation, assuming that we rank No. 1 for the term “digital marketing company.” If we multiply 900 monthly searches by 36.5% CTR times a 2% conversion rate and multiply that by the $2,000 per month, we get a total of $13,140 per month in revenue.
OK, now we have our best-case scenario. Next, let’s find our current scenario by saying that we currently rank No. 23 for the term “digital marketing company.” In this case, we’ll multiply the 900 monthly searches by 0.3% CTR times our 2% conversion rate times $2,000 per month, which gives us $108 per month in revenue.
Now we have our range. Ranking No. 23 for the term “digital marketing company” is worth $108 per month, while ranking No. 1 is worth $13,140 per month.
The missing key ingredients to this equation are the likelihood of achieving a better search ranking (based on a keyword’s ranking difficulty) and the time it would take to rank (based on the skill set of the SEO manager, strategy and successful execution of the strategy). That stuff is harder to forecast and calculate.
Let’s look at a sample ranking curve to see what the ROI of an SEO firm would be for our “digital marketing company” search term.
If we add up all 12 months, we get $15,876 per year in value. So, if the total expense of SEO services per month is $2,000 per month times 12 months, that’s a total of $24,000 for the full year. The net loss in year one is $8,124.
Now, if we add up all 12 months from month No. 13-24, we get $66,960 per year in value. With SEO service costs remaining consistent at $2,000 per month times 12 months, that’s a total of $24,000 for the full year. Now the net gain in year two is $42,960, with a total net gain of $32,640 over two years.
Now you have an estimate of what SEO is worth to your business for your main keyword and what you can expect to pay for SEO services and ROI over the short and long term, which leads us to our next question to factor in.
What’s the cost of an SEO alternative?
The best SEO alternative is PPC, or pay-per-click advertising. Why is it the best? You don’t have to wait to rank No. 1. Launching Google AdWords PPC ads puts you right in the top sponsored search results, above the organic search results. Let’s take our “digital marketing company” keyword, for example.
Utilizing Google AdWords free keyword tool, we see that Google’s suggested bid for this keyword is about $25 per click. Sponsored Google ads typically have lower click-through rates than organic search results, so let’s assume around 5% CTR for calculation purposes:
900 searches per month x 5% CTR x $25 per click = $1,125 per month in ad costs
900 searches per month x 5% CTR x 2% conversion rate x $2,000 / month = $1,800 in revenue
If you’re managing the ads yourself, these equations show a positive ROI. Even if you’re paying $500 per month to have someone manage the ads, you’re still coming out with a positive ROI.
How does this stack up with SEO efforts over the course of a year? What about two years?
Your net gains in year one and two would be $8,100 per year or a total net gain of $16,200. Then, factor in ad management costs of $500 per month, and you are left with a $4,200 gain over two years.
The comparative SEO net loss over one year was -$8,124, and cumulative gain over two years was $32,640.
Will you get revenue more quickly with PPC? Yes. Will you have more expenses with PPC? Yes.
Is SEO worth it for small businesses then? Identify your search term. Run through the equations above. Let the numbers help guide your decision.