January 3, 2022 •DJ Team
Search engine optimization (SEO) is essential for your digital marketing strategy. Getting your website to rank high in search engine results can lead to more traffic to your website. Organic search drives 53% of all site traffic, according to a BrightEdge study.
However, the ultimate goal of SEO isn't to drive traffic but to deliver revenue. The best way to measure if your SEO keyword strategy is doing its job is to calculate its return on investment (ROI).
Knowing the ROI of your SEO efforts shows you if you are earning back more than what you spend.
You can then compare that percentage with the ROI of your other digital marketing channels, such as email marketing, paid search, display advertising, and social media marketing. You can also check your ROI against a benchmark, such as an industry average.
A Good ROI Marketing Percentage
A common question is, "What is a good ROI for SEO?" The short answer is, "It depends."
Here's the long answer. For one thing, no industry is the same. The ROI for an e-commerce site is different from the ROI of a consulting business. An e-commerce site accepts orders and can directly track sales generated from SEO. For a consulting firm where the sales funnel is much longer, website conversion is usually in leads, not sales.
Even e-commerce websites can't be compared directly. For example, a fashion e-commerce site has a different ROI than an office equipment e-commerce site. The price points, customer demographics, and sales cycles vary vastly.
Then there's the issue of attribution. In many cases, customers are exposed to the same marketing message from different channels before purchasing.
Before adding an item to their cart, they may have seen a display ad on a website, read a post on social media, received an email with a promo on that item, watched a TV commercial of that product, or searched for it on Google before purchasing. So, at what point did they finally decide to buy?
While there's no exact science to determining a good ROI of SEO, there is a rule of thumb for marketing. The golden ratio for sales and marketing ROI is 5:1. This means you should get back $5 in return for every dollar you spend on marketing.
Another way of saying it is you should have at least an ROI of 500%. This isn't specific to SEO, but you can use it as a guideline.
If you wonder if there is any research that shows a good SEO ROI, there is none. However, there are a few digital agencies that have run internal data to come up with their findings:
- Profitworks estimates that the average ROI of its SEO services is $2.75 for every dollar spent, or a 275% ROI.
- FirstPageSage computes its average ROI for SEO at 748% from its campaign data over three years.
- Terakeet shows the SEO ROI for its clients is between 5x and 12.2x (500% and 1,220%).
Another approach to determining a good ROI for your SEO is to compare it with your other marketing channels. If the percentage shows a better or comparable figure to digital advertising, paid search, or social media marketing, for example, then that is a good gauge of SEO’s effectiveness.
Also, track the changes in the ROI over time to see if it is increasing or decreasing.
Measuring SEO ROI
The formula for ROI is straightforward:
(Revenue – Expenses)/Expenses
In terms of SEO, ROI is expressed as:
(Revenue from SEO - Cost of SEO Investment)/Cost of SEO Investment
So if you earned $3,000,000 from organic search and it cost you $500,000 for your SEO efforts, this is how it looks:
($3,000,000 - $500,000)/$500,000 = 5
That means each dollar spent on SEO work brings in five times in revenue or a 500% ROI.
Pretty simple, right?
While the formula is easy, determining the factors "Revenue from SEO" and "Cost of SEO Investment" is not.
Cost of SEO Investment
Unlike paid search or display advertising, where you know exactly what the ads cost, it's harder to calculate the cost of your SEO efforts. Typically, these include the following:
- In-house SEO team. If you have a team dedicated to SEO work, include their total salaries. However, if your digital marketing team does more than just SEO, you have to proportion the cost of their wages to SEO. If you track their time used for SEO work, that makes it easier. Otherwise, you can peg an estimated percentage.
- SEO agency. If you have an agency doing your SEO, include the retainer fee or project fee you pay. Again, if it's a general digital agency that does other things for you aside from SEO, ask for billable hours or an approximate percentage allotted to SEO work.
- SEO tools. Include the subscription fees of all the SEO software tools you use.
- Overhead. You may also want to add the proportionate cost of rent, utilities, and equipment spent on your in-house SEO team. This is optional, as it makes it more complicated, though, more accurate.
Add up all these expenses, and you have your cost of SEO investment.
Revenue From SEO
Determining your revenue from SEO can be challenging. If you accept orders on your website, as in the case of an e-commerce site or ticketing site, you can track the revenue generated from organic search in Google Analytics. If you set up your e-commerce conversion tracking correctly, you can see your total revenue from SEO.
However, if customers make purchases offline and not on your website, which is typical of many B2B businesses, how do you get your revenue from SEO? Your conversion goal should be the number of leads generated from organic search.
To estimate the revenue from those leads, set up a goal on Google Analytics that represents a lead. For example, each download of an e-book or each inquiry form submission can be a lead. Then, assign a dollar value to that goal. That dollar value is your customer lifetime value (CLV).
Customer Lifetime Value
CLV is the total projected revenue a customer generates for you throughout their lifetime. Or, to be more realistic, it’s the average customer life span, which is the number of years customers, on average, stay with you.
Calculating CLV is tricky. You multiply the average purchase value by the average number of purchases per year. Then multiply that by the average customer life span. As you can see, there is a lot of data crunching and assumptions involved. Here's how to break this down:
Average Purchase Value
First is the average purchase value. You get this by dividing your revenue for a certain period, like a year, over the number of purchases. If you generated $1,500,000 in one year from 250,000 orders, your average purchase value is $6.
Average Frequency Rate
Next is your average number of purchases, or average purchase frequency rate. Divide the number of purchases over the number of unique customers who bought during the same period. If 100,000 customers made those 250,000 orders, your average purchase frequency rate is 2.5. Or, each customer bought 2.5 times.
Average Customer Life Span
Lastly, figure out your average customer life span. You can go through your historical data and add up all your customer life spans, which is how long they have been your customers, and then divide the sum by the number of customers. Say you came up with 300,000 years for 100,000 customers. That means, on average, your customers stay with you for three years.
Now you can compute your CLV:
Average Purchase Value x Average Number of Purchases x Average Customer Life Span = CLV
($6 x 2.5) x 3 = $45
In other words, each customer is worth $45 to your business.
Close Rate
Of course, not all your leads become paying customers. So you must account for your close rate, which is the percentage of leads that convert into a purchase. Again, go back to your data to get your average close rate. Let's say your close rate is 20%.
Goal Value
You have your CLV and your close rate. Now, you can come up with your goal value. In this case:
CLV x Close Rate = Goal Value
$45 x 20% = $9
Enter $9 as your goal value when setting up your goal in Google Analytics, which will track all your leads generated from organic search and show you the corresponding revenue.
SEO Statistics Percentage
Remember how crucial SEO is in your marketing arsenal if all this number crunching seems like too much work. If you wonder how much SEO can increase traffic or how much SEO can increase revenue, consider these statistics:
- Organic search generates the highest ROI among different channels, according to 49% of respondents of a Search Engine Journal poll.
- Around 53% of shoppers do research online before making a purchase, says Google/Ipsos.
- Organic search share of traffic is 53% on average across industries, making it the most dominant source of trackable web traffic, based on BrightEdge’s research.
- A relevant search influences 39% of buyers, according to Google/Purchased Digital Diary.
- Google owns 86% market share of global searches, based on Statista.
- The top result in Google organic search results has an average of 31.7%. It’s 10 times more likely to be clicked on than a website in the 10th spot. The top three spots get 75% of all clicks. And only 0.78% of searchers clicked on a link from the second page of Google search results, as revealed by Backlinko.
Improve Your SEO ROI
Now you know how important SEO is in driving traffic to your website and revenue for your business. Writing optimized content for SEO helps you rank higher in search engine results. It's not about writing more content but writing the right content.
Demandjump offers instant and automated SEO keyword research. This saves you time when writing content and ensures you produce pages and blog posts that can boost your organic search traffic.
Moreover, DemandJump’s automated account-based marketing attribution solution tells you which campaigns generate revenue, which pages or posts drive conversions, and which organic search terms contribute to your business.
Get started today creating content that drives revenue!
