SEO can be a very expensive investment ranging from thousands of dollars to even millions. So, it is important to figure out whether our investment is making money in return, while also figuring the areas where we can make improvements.
In this guide, we will discuss how to calculate the ROI for an SEO campaign, as well as some tips on improving it. Let us begin.
Calculating ROI of Your SEO
The Detailed Method
The ROI of your SEO efforts can be calculated by the following method:
SEO ROI=Lifetime Value (LTV) – Customer Acquisition Cost (CAC)
So, there are two main variables here: LTV and CAC, and we should first understand both.
LTV, as mentioned, stands for the ‘Lifetime Value’ of a customer. In essence, the amount of revenue you get from a single customer during their relationship with your business. The exact number, however, will vary greatly depending on your business model, so let’s use an example to illustrate.
Let’s say you are a restaurant selling just one variant of pizza with a gross profit margin of $2 per pizza slice to simplify things. A customer named Bob regularly purchases 6 pizzas a month. So, in one year, you will get 72 purchases from Bob worth $144. This is the LTV for Bob.
On another example, let’s say you are a subscription-based SAAS company selling a software with a gross profit margin of $100 per a year subscription. Let’s say your customer, John subscribed for 3 years before he canceled the subscription. Here, the LTV for John is $300.
So, based on your business model, you can make the necessary calculation as shown in above examples. Obviously, some businesses might have more complicated LTV calculation than others.
Customer Acquisition Cost, as the name suggests, is the amount of money you would need to spend before a customer finally purchase your product.
Obviously, your overall CAC won’t consist solely of the amount of money you spent on SEO, but your overall marketing costs.
First, let us calculate the SEO cost per acquisition.
SEO CAC=Total cost of your SEO campaign / Total Acquisition X 100%
Now, you can either calculate the whole CAC across all marketing channels for a more detailed approach or just calculate your fixed costs (website maintenance, customer service staff, etc).
Other CAC costs= Other Costs / Total Acquisitions X 100%
Your total CAC will be your SEO CAC+other CAC costs
So, let’s say your SEO CAC is $50, and your fixed CAC is $20. Your Total CAC will be $70. Using Bob from the first example where the LTV is $144, your SEO ROI here will be $144-$70 equals $74. We can then calculate the ROI percentage which is $74 divided with $70 (the CAC) X 100%, equals 105.7%
The Simple Method
You can also calculate SEO ROI with a simpler formula:
SEO ROI= (Total SEO Revenue-Total SEO Cost)/Total SEO Cost
This calculation can be effective if you can precisely calculate the revenue you get from SEO, such as in the e-commerce business where you can effectively track visitors coming from search engine results.
You can also use various analytics to correctly calculate SEO revenue, such as setting up tracking goals and defining conversion values for those specific goals. So, this method will require a proper measurement of revenue.
How To Effectively Calculate SEO ROI
As mentioned, businesses that are not solely relying on e-commerce might have a hard time calculating the revenue generated from SEO. To tackle this issue, here are some tips to help you:
Define The Responsibilities of SEO
SEO is just one aspect of the whole digital marketing ecosystem. So, SEO team shouldn’t hold the sole responsibility for the whole marketing goals, from building awareness to qualifying leads to conversions. Define the clear responsibilities of SEO to accurately calculate its contribution to revenue.
Specify Your Goals
Different companies can have different business models, and so should have different goals. For example, a SAAS company could be aiming for a higher free-trial signup for its top-priority conversion goal. On the other hand, an e-commerce site might aim solely to sell more products. Clearly define conversion goals you would want to achieve through search traffic, and you can use Google Analytics to track those goals.
Exclude Branded Keywords
Branded keywords, as the name suggests, is keywords that contain your company’s name. Meaning, if searchers are using these keywords, they are already aware of your brand. These keywords and the revenues entailed should be excluded when calculating SEO ROI.
Accurately Calculate Current Conversion Rate
Before you can accurately calculate SEO ROI, you should first determine the current customer conversion rate. It can be a challenging process depending on your sales qualifying models, but it is necessary.
How To Optimize SEO ROI
Now that we’ve figured out how to calculate the ROI of your SEO campaign, as well as some tips to make the calculation more accurate, there are two possible outcomes. First, you have a satisfying SEO ROI, but there are still rooms for improvements. Second, you are disappointed with your current ROI.
So, our next discussion will be about how to improve the ROI of your SEO campaign. These tips below can help you in improving returns:
Improve Your Click-Through Rate (CTR)
The higher your click-through rate (CTR), the higher your SEO ROI will be for various reasons. First, CTR is now a major ranking signal, and so a higher CTR can directly improve your SEO results. Also, the more people that clicked your contents, the higher the chance of conversion will be. So, change your mindset about SEO: it’s useless to have a high SERP ranking if you have a low CTR.
There can be various reasons for a low CTR: your title might not be catchy enough, your snippets might be uninteresting, our you CTAs might not be prominent enough, among other reasons. Conduct various analysis if necessary to figure out why your CTR is not high enough. This will tremendously help in determining a proper strategy to improve your CTR. Sometimes, changing just one word in your copy is enough. Other times, you might need to improve in several different areas.
Also, consider implementing schema markup (link) to be able to use rich snippets , which can dramatically improve CTR.
Conversions, Not Traffic
No matter how high your traffic from SEO is, you will get zero revenue if none of them converts. So, SEO doesn’t stop after you get a high enough ranking on SERP. Instead, focus your SEO activities on how to engage visitors and how to encourage them to take actions. Nothing improves your SEO ROI more than when your conversions increase.
There are many different approaches you can try to align your SEO activities with encouraging more conversions. Improve the user experience (UX) of your site, use catchier headlines and subheadlines, utilize various media from images to infographics to videos. Check out a case study of Moz that improves their sales by 52% by optimizing their landing pages.
Content As Education
Content marketing is now the center of SEO activities: without contents, you simply can’t target the focus keyword(s). Yet, that’s not the sole benefit of contents. Your contents should be able to educate your users about your product benefits and its key features, which in turn can improve conversion rate.
You can use various content forms to educate your users, from simple blog posts, ebooks, infographics, videos, to more technical forms like white papers and research reports. Your contents should be able to fulfill at least three main values: targeting keywords for your SEO, generating traffic, and educating your prospects.
Another effective tactic to increase your SEO ROI is to utilize influencers. In this saturated digital world, it is very difficult to get our voice heard amongst all the noise. Yet, influencers can promote your product to their loyal followers with a relatively low resistance. Influencers are generally perceived as experts in their industry, and so have gained trust and credibility.
The key here is to choose the right influencer(s) according to your niche and especially according to your audience. Yet, even after you’ve found the right influencers, there’s no guarantee that they will want to promote your business. Here, you will need to slowly build a relationship, as well as your own credibility. Check out this guide by Kissmetrics on influencer outreach.
Guest blogging can still be an effective way to improve your SEO results, and thus increasing ROI. The key here is to choose the right site with enough authority, and with a similar audience as yours. First, guest blogging can often be a good method to build backlinks (although you shouldn’t focus on backlinks alone, but also reputation). Guest blogging provides you with a chance to be noticed by the audience who haven’t heard of you before.
Guest blogging often requires you to first build your own credibility, as well as building relationships with the authority sites in your industry. This can be a slow, painful process, but can be really worth it when you do this right.
There are many different factors that can affect your SEO ROI, and you will need to control all those factors to effectively improve your returns. Yet, it is best to avoid focusing on too many of them at once, but instead, you should focus on the most important aspects as we have discussed above.