This is a guest post by Sahil Kakar, Co-Founder & CEO, Rankwatch
There is no arguing the fact that if you want to be among the top listings on Google, search engine optimization should be an indispensable part of your online marketing. That is why every year we see businesses increasing their SEO budgets.
This increased investment, however, comes with certain expectations. And it leads to the question every SEO agency should be able to answer their clients:
How much ROI are we going to generate from our campaign?
Why calculating your ROI is not as easy as it sounds
Measuring ROI is not a light breeze for marketers for several reasons. The first one being that there is often confusion over what constitutes ROI on SEO. Some believe it is traffic, others – rankings or simply conversions.
Another difficulty is for businesses to understand and accept that SEO is a long-term investment. Sometimes we might even see returns after more than a year’s time while modern-day companies are used to receiving positive ROI in weeks or months.
Lastly, there is absolutely no report that you can pull through Google Analytics which will automatically give you the ROI on your SEO campaign. Therefore, you need to extract the relevant data and then make the calculations of your ROI manually. It is a multi-step process.
So buckle up! In this article, we will shed light on all these issues and show you how to measure your ROI.
How to calculate the ROI on your SEO campaign
The standard ROI formula goes like this:
SEO ROI = (SEO Revenue – SEO Cost)/SEO Cost
But before we can go ahead and calculate the ROI we need to find some of the key elements that comprise SEO revenue: organic non-branded traffic, conversion rate, conversion revenue and keyword rankings.
Furthermore, we need to estimate the breakeven point so that we can set the right goals for our campaign and adjust our targeted keywords if necessary.
Organic traffic from non-branded keywords
While it is important to generate a good amount of organic traffic, perhaps it is even more crucial to get traffic from non-branded keywords.
Let’s say you have a footwear business (Jon’s Easy Feet) based in California. Instead of just trying to rank for Jon’s Easy Feet California, you should also target “non-branded” keywords like Men’s blue running shoes California.
The “branded organic traffic” usually consists of your existing customers or people who are already aware of your brand. The traffic from non-branded keywords is generally comprised of people who are unaware of your business but are looking for products and services which you offer. That’s why you need to ensure this particular traffic increases over time.
Now, to view traffic from Google Analytics, you need to visit the “Acquisition section” and click on Organic Keywords. Then to extract the non-branded data, click on “Advanced” and then select the following from the three drop-down menus: “Exclude”, “Keywords”, “Containing”.
Enter the various versions of your brand name in the text box to remove these keywords from the report.
Record the number of non-branded organic visitors at this point because we will need it later when we are calculating the revenue your SEO efforts generated.
Conversion rate and conversion revenue
The conversion rate should already be a measure of success for your SEO campaign because it shows how many of your visitors performed the action you wanted them to perform. This action could be anything from making a payment online to playing a video on your page.
In order to calculate your revenue, you would need to assign monetary value to the conversions. That value would depend on the nature of your business and the type of action that you are asking for.
Let’s take a SaaS product site for instance and define the conversion as signing up for its service. Then, the conversion revenue would be the average price of your plans.
There is a very simple way to ensure Google Analytics is tracking your conversions.
First, to set up the conversion type and its value, go to admin and click on goals under your profile. Create a goal and select your conversion type from the template. One of the common types is ‘create an account’.
Then proceed to set up the goal description. There are several option on the menu but the most frequently used one is ‘destination’. This would mean that Google would count an action as a conversion once people get to a particular page on your site. For example, this could be the ‘thanks for signing up’ page they would be directed to after completing the registration.
In the next step, you need to add the URL of your destination page and set the monetary value per conversion. Finally, click on ‘Create Goal’.
Now, you would want to see your actual stats. From your Google Analytics Dashboard go to Conversions Overview which will show your goal conversion rate.
Once you have identified the parameters you should track, you need to calculate your absolute revenue.
Revenue = (non-branded keywords traffic x conversion rate) x (conversion revenue)
Let’s assume for the sake of this example that your revenue out of each conversion is $3, your organic non-branded keywords traffic is 30,000 and your average conversion rate is 5%.
Then, your revenue would be:
Revenue = 30,000 x 5% x $3 = $4500
Now that you have a clear SEO revenue figure, you can easily calculate your ROI provided you know your costs.
Can you reach the breakeven point?
In order to set the right goals for your campaign, you need to know at what point you break even. In this example, let’s assume your SEO costs amount to 5000 USD. So your campaign needs to generate at least 5k in revenue to avoid loss.
SEO cost = SEO revenue
First, let’s calculate how many conversions you need in order to reach this number
Number of conversions to breakeven = SEO Total Revenue / Conversion Revenue
Number of conversions to breakeven = 5000 / 3$ = 1667
So in our case, we need 1667 people to sign up for our service to justify the cost. Getting fewer sign-ups would mean a negative ROI.
But, how much traffic do you need to get this amount of sign-ups?
Organic traffic* to breakeven = Number of conversions to breakeven / Conversion rate
*From non-branded keywords
Organic traffic* to breakeven = 1667 / 5% = 33 340
So with the current conversion rate, we need at least 33 340 visits to our site before we can start generating profit.
How do we get there?
The latest study on click-through-rates from Google’s SERPs reveals that the number 1 spot will secure around 31% click-throughs while the number 2 and 3 positions around 14% and 10% respectively.
Of course, click-through-rates will vary depending on the industry and the search query (branded vs non-branded keywords). Branded keywords tend to perform better than non-branded in this department.
Therefore, this data is meant to give us just a rough idea of how much traffic we can expect from each position on the SERP.
Next, we need to evaluate our targeted keywords by the amount of traffic they can bring us. We can do that by checking the search volume for each keyword and estimating the position we can rank for.
A tool like RankWatch can be instrumental at this stage of the calculations because you’ll be able to see your current ranking position for each keyword and also past changes in the rankings. This can help you evaluate your chances of obtaining a higher position in the SERPs.
Now, based on the search volume and ranking data you can decide which keywords and positions to target further. In our example, we can probably aim that our website goes up to the 2nd position for the keyphrase “cheap hotels”. As we discussed earlier the 2nd spot on the SERP would bring us approximately 14% click-throughs.
So now that we have all the information we can calculate the potential traffic the keyword will bring.
Traffic from this keyword = search volume x position ctr
Traffic from this keyword = 74 000 x 14% = 10 360
The traffic from this particular keyword will be 10 360 visits to our site. That is one-third of our goal right there. Now we need to do the same for the rest of our targeted keywords and strive to cover our costs.
But a successful business should not stop at the breakeven point. Instead it should set its goals high and aim to get great returns of its investment.
Do you remember the formula from the beginning?
SEO ROI = (SEO Revenue – SEO Cost)/SEO Cost
Go ahead and set your SEO ROI goals now!
About the Author:
Sahil is the CEO and Founder of RankWatch – a platform, which helps companies and brands stay ahead with their SEO efforts in the ever growing internet landscape. Sahil likes making creative products that can help in automation of mundane tasks and he can spend endless nights implementing new technologies and ideas. You can connect with him and the Rankwatch team on Facebook or Twitter
Disclaimer: This is a guest post. The statements, opinions and data contained in these publications are solely those of the individual authors and contributors and not of iamwire and the editor(s)