The Definitive Guide to Understanding Your SEO ROI
I see so many articles about online marketing and how it’s hard to calculate the ROI that an SEO campaign produces. Sure, it’s not as simple as opening up an AdWords account and seeing the spend vs. the sales generated, but it can be done in an effective way.
I decided to put together a post that contained all of the tips and strategies that I use to calculate the ROI for my own search marketing, but also for the many clients of SerpLogic. After all, if we can’t show our clients that SEO is delivering a solid return what incentive to do they have to continue paying us month after month?
Let’s dive in to the important, yet often ignored side of SEO ROIs..
What does SEO really do?
In a nutshell, SEO helps attract prospects to your website. These are people that are looking to buy whatever product or service it is that you are selling. It basically places prospects at your door, but there are many factors that will determine whether or not they move forward and complete your purchase cycle. A nice website design, good pricing, seamless user experience, etc. is all very important. SEO will lead the horse to the water, but it doesn’t guarantee they start drinking.
The SEO “Buying Cycle”
1. Prospect “finds” your website
This is the part that SEO is mainly responsible for. They come into contact with your website through a search, where a particular keyword or search phrase returns your website in the results. A strong description and title are needed to attract the click. If they click through, the SEO worked. While it can’t be held responsible for the full conversion cycle, it is responsible for getting visitors on your website.
Someone can also “find” your website through your content. You might have guest blogged on a relevant website or gotten a mention on an authority website. Referral traffic is also part of the SEO game. Branding through infographics is also an example of how someone can “find” you other than a Google search. Placing your website and business in front of a very target audience is going to send traffic your way as well.
2. The prospect performs due diligence and research
Just because your website is ranking #1 for a lot of keywords and visitors are clicking through, it doesn’t mean that they are all going to convert. You have to build trust, and do so quickly. Things like having a secure website by using HTTPS and displaying seals of trust (Better Business Bureau and SSL, etc.) are little things that you can do to help create instant trust.
If a prospect doesn’t feel safe right away they are going to perform their own research and due diligence. They will attempt to verify your business is a legal entity and the real deal. Do you blame them? With so many cases on online fraud and identity theft consumers are being very careful. You should make sure that you have a contact page that includes your physical address as well as phone number.
Far too many websites just have a generic contact submit form on their contact pages and this does not help the trust building process.
3. More searching to finalize decision
Guess what most people are going to do after they land on your website through an organic Google search? They are going to Google your business name to see what they can find. Any smart consumer will do this because they know any mention of a rip-off report or scam will be towards the top of the results.
This is why being proactive about ORM (online reputation management) is so important. Even if you don’t have anything bad written about your company, you still want to flood the first couple of pages with good search results that make your business look very trustworthy. Complete profiles on all social media websites and use other properties like about.me to build a huge buffer.
If someone Google’s your business name and sees nothing but your website, they might not feel comfortable doing business with you. If they see that the first couple of pages are filled with mentions of your business and proof that it’s legitimate there is a much better chance of them becoming a customer.
This is the point at which a visitor becomes something of value to your business. It could be in the form of an actual sale, a phone call or a form submit. A conversion doesn’t always have to have a monetary value associated with it.
Would be rather every website conversion be a sale that generates revenue? Of course, but that isn’t a realistic goal, so you need to create several conversion paths that will create leads that you can market to, which creates future revenue.
Evaluate ALL of your conversions when determining whether or not your SEO is producing a positive ROI. While you might spend $5K on SEO for the month and only generate $4K in revenue that same month, if you are creating leads that will eventually convert into $10K, then the ROI is most definitely positive. Look at the big picture when evaluating your conversion data.
5. Promotion and support + LTV cycle begins
SEO gets the visitors to your website, but it is up to you to create a loyal supporter and someone that is going to be a repeat customer. SEO only does so much. Going the extra mile to create satisfied customers will start the LTV cycle.
Deliver exceptional customer support and treat every customer like they are your most important one, and they will come back for more. When this happens, the ROI of your SEO efforts continues to increase.
While most SEO agencies just worry about delivering traffic, I like to take the time to really dive into my clients’ business and help them improve everything from traffic to customer experience. This all comes into play; the more successful they are AFTER the traffic hits their website, the more value I deliver as their SEO partner.
The LTV (Lifetime Value) is Your Biggest SEO ROI Indicator
How to calculate LTV..
1. Determine, on average, how many purchases a typical customer makes per year
This will vary a lot depending on your industry. An SEO company, for example, can easily determine how many months the average client stays onboard. If that number is 15 months, then their average customer makes a purchase every month for a year and then makes an additional 3 purchases in year number two.
If you are an e-commerce website, you can pull all of your data and find an average number of purchases. If you are a specialty retailer, your average customer might make just one or two purchases per year. If you are a mainstream retailer that number could be several dozen. There is no right or wrong answer. You need to analyze your customer data to determine this number.
2. Establish an average purchase price
Using the same examples above, an SEO company will total all of their monthly retainer income and then divide by the number of clients it represents in order to find the average purchase price. That’s simple. A large e-commerce retailer is going to have thousands of products, so it will take some extra work to come up with this figure. It can be done; some will just be a little trickier than others.
3. Determine how many years a typical customer sticks around
How long does a typical customer keep buying from you? In the example above, an SEO client that stays on board for 15 months has a value of 1.25 years. Diving into your data and sales isn’t fun, but it’s necessary if you want to get the correct values for this. If you don’t have the time, assign the task to an employee or even consider outsourcing the project if you are comfortable with sharing this information with a freelancer.
4. Determine your average GPM (gross profit margin)
Most businesses all have a wider range when it comes to GPM. Some items or services are profit heavy, while some have very little margin and are offered to attract customers or compliment other products or services. You will have to take all of your data and identify an average GPM.
5. LTV is established
Using all the data above you are able to assign an average dollar value to every customer. Let’s assume that number is $1,000. Now, if you are attracting 20 new customers a month and it’s costing you $3K in SEO, you are generating $17,000 in profit from the campaign. In business, this ratio is very attractive, making the SEO well worth it, as it’s producing a great ROI.
Now, once you know your LTV, you can determine whether or not your SEO effort is paying off. You will want to look at your monthly conversion data and simply compare it to your SEO cost. If you are spending $5K a month on SEO, but you are generating $20K in LTV profit, then your SEO is kicking ass and if anything, you want to look for ways to scale it up.
There are a few things to consider when determining the ROI of your SEO campaigns..
Not all customers are created equally
Let’s imagine that you operate a consumer electronics website that offers everything from iPhone cases to big screen TV’s. There are going to be some customers that visit your website and buy a $20 cell phone case and never return. There are also those that will visit and purchase the latest and greatest flat screen TV for $4,000, again to never return. Then, there will be loyal customers that visit your website to buy smaller items, but on a regular basis.
You need to understand that not all customers will deliver the same LTV. Some will only be a one time value, never buying again down the line. So, while all of the information in this post can be used to help determine ROI, it’s important that you take into account that each customer is going to be slightly different in terms of value and purchase habit.
You need to determine numbers for poor, average and exceptional customers
The only way you ever ever going to grow and scale your business, no matter what your niche, is to track everything and keep very detailed records about each customer that had bought from you in the past. You should have it set up so you can see what each customer profile looks like with a click of the button.
You want to know what their buying habits are, so you can market to them at times they are likely to purchase from you. You should also be able to determine what types of products they buy so you can market similar ones to them.
Take averages: 3 month, 6 month, 1 year, etc.
You want to be able to have an idea of what your poor, average and exceptional percentage is over time. This will help you make educated decisions regarding your SEO. For example, if you know more than half of your customers are exceptional, you can use that data to really determine whether or not your SEO is paying off. If you are generating profit based only on that segment, you know for a fact that your ROI is solid.
Referral traffic data and tracking can help you really scale your efforts and experience a much higher customer LTV
I can’t stress the power of goals and conversion tracking in Google Analytics. So many people are afraid of Google, but they provide you with tools that can really help you scale, and do so quickly. Analytics is free and probably the most powerful data you can get your hands on.
SEO is all about making changes on the go, in order to avoid trouble and keep the traffic flowing. Today, SEO is all about content and securing exposure on websites that have similar audiences. Yes, we build links to boost organic rankings, but SEO also heavily involves generating referral traffic. After all, isn’t that what a link is REALLY there for? It gives the reader an option to explore more information or learn more about the source of the information.
I’ll give you a great example: one of our clients sells high end luxury travel packages. We learned through Analytics and goal tracking that a particular website was responsible for a very high percentage of conversions (requests for a call back). So, we developed additional relationships with editors and writers at this publication and focused on getting them as many mentions as possible. We did guest posting, used infographics and did interviews to really pump them up. Guess what? Conversions and revenue went through the roof.
While many “experts” like to argue about how PPC is easier to track a ROI, when you know what to look for and how to determine LTV, it’s very easy to know whether or not your SEO is paying off financially.
Use Google Analytics to study traffic patterns and set up goal and conversion tracking so you can determine where your most valuable traffic comes from. If you are building high quality links and determine that a particular website is producing customers with a greater than average LTV, you can work on securing more links and exposure from there, or even buy ads on those particular websites.
Track everything. If it don’t make dollars, it don’t make sense! 😉