ROI and SEO – Calculate the profits of SEO

In this article, you will learn how you can calculate the profits of taking your business to the top of Google. This will help you understand whether it’s worth it to invest in SEO or not.

Before we do a deep dive into the value of SEO, we need to have a short mention of Google Ads. Many people spend money on ads because it is easy to calculate the return on investment (ROI), and the results are immediate. You know the approximate conversion rate, average order value, and how much the ads cost. By having these numbers at hand, you can easily understand how much you’re making on the bottom line.

Similar principles apply to calculating the value of SEO, albeit with a few additional indicators. There is going to be a lot of numbers and calculations, but stay tuned and we’ll explain.

What is ROI?

ROI is a calculation to measure the financial return on an investment, often expressed as a percentage.

ROI can be positive or negative, depending on whether the effort generated more or less money than it cost. The formula is simple and looks like this:

(Profit – Investment) / Investment * 100 = ROI

Positive ROI

If you have spent € 100.000 on a marketing investment and generated € 230,000 in profit, this is your ROI:

(230,000 – 100,000) / 100,000 * 100 = 130

Thus, you have a positive ROI of 130%.

Negative ROI

With a revenue of € 80.000, the ROI would be:

(80,000 – 100,000) / 100,000 * 100 = –20

That is, a negative ROI of -20%.

In which time frame is ROI measured?

ROI can be measured over the time interval most relevant to the investment, but in marketing, ROI is often measured on an annual basis. For search engine optimization, a longer time horizon is required as SEO has a delayed effect. We will get back to this later.

Why do you need to measure ROI for SEO?

For most businesses, organic traffic is the largest source of traffic. This is key in order to understand how much money you invest and what you ultimately get out of it.

SEO costs

Usual costs for search engine optimization include:

• In-house resources – The time employees spend on SEO efforts and the costs involved.
• External resources – Consultants and agencies helping you with content, PR, link building, or other SEO activities.
• Tools and software – The cost of external tools or self-developed software to measure/improve your SEO.

You probably have a good understanding of these costs if you are already doing SEO.

Revenue generated by SEO

You’ll need a measuring tool, such as Google Analytics, to grasp the value of digital traffic. Then you can measure your website’s conversions. The definition of a conversation and its value varies between businesses:

• E-commerce/direct sales: It tends to be easy for e-commerce vendors to measure conversions, as the sale and its value are registered at the time of purchase. The same applies to any site where you buy the product or service directly through the website, such as cinemas, etc.
• Leads-driven conversions: Companies working with lead generation need to estimate the value of each generated lead.

To calculate this, you will need to know:

• The conversion rate from leads to customers
• The average Life Time Value of your customers. With an average conversion rate from lead to customer of 20%, where the Life Time Value on average is € 100,000, the estimated value of a generated lead is 0.2 * € 100,000 = € 20,000.

The current SEO ROI of your business

If you know how many resources you’re currently spending on SEO, and you have set up metrics for conversions, you can quickly and easily figure out the value.

You might be at the beginning of your journey and, as mentioned previously, SEO has a delayed effect. In this case, it’s important to stay cool and trust the process. In other words, you will start to see the real fruits of your effort when you reach the top of Google for your critical keywords.

You will need to perform a keyword analysis to understand your potential and how close you are to reaching it if you haven’t already done so.

Keyword analysis and Click-Through Rate

You generate traffic to your site when people type in keywords on Google, and your business shows up in the search results. This is the case regardless of whether you have a paid ad or an organic position. The higher your page is visible, the more traffic you get.

Click-Through Rate (CTR) measures the percentage of visitors who click on a particular position on Google. More than 50% choose to click on any of the first three organic results (source).

We have established that it’s important to reach the top with your keywords. But…

…not all keywords are equally relevant. You want to reach a top position on keywords associated with a commercial search intent. This refers to searches people make when they are interested in a purchase or contacting you as a lead.

You will need to perform a keyword analysis to gain an overview of your most relevant keywords. We have an entire article about keyword analysis, which you can read here. But to keep it brief, you will need a tool, like Eye10, where you can insert the keywords you think your customers. The results will show:

• Search volume per month – The number of searches per month on the keyword
• Ranking – Your current position for the keyword

Then you need to pinpoint which of those keywords has a commercial search intent. This is, in many cases, a simple task with keywords like “buy tires.” But you can also reassure yourself by doing a search yourself and examining the current top results on Google. If the top pages are commercial, there is a good chance that the search intent is as well.

Example – Used Cars Dublin

Let’s take a concrete example of a used car salesman in Dublin. They knows their:

• Conversion rate (CVR): They get contacted by 2% of all the people visiting their website. So the conversion rate (CVR) is 2%
• Lead value: Every tenth person (10%) that contacts them buys a car for a price of € 20.000. Thus, the estimated value of a lead is € 2.000.

We have figured out that the keyword “Used cars Dublin” has 2000 searches per month. If he gets position 1 (CTR 27.6%) on Google, his revenue would look like this:

Calculate increased revenues on your own

In order to do the above calculations on your own, you’ll need:

• Google Analytics with conversion tracking
• Keyword tools
• To know the value of a lead/conversion

For the sake of simplicity, you should create an Excel/Google Sheet and insert the most important keywords as well as their respective. Then you will have a simple overview.

Note: You can use the standard average of 2.1% for BTC and 2.6% for B2B if you’re not sure about your conversion rate (source).

What about ROI?

If we assume that the car salesman above has an contribution margin of 30%, they would have a net profit of € 79.488.00 if they manage to keep pos. 1 over a year. We need to know the cost of getting to the top before doing a preliminary ROI. But here is the conundrum:

• There are no guarantees for achieving a particular position on Google organically.
• There is no way of knowing exactly how long it will take you to crawl up the rankings organically.
  However, you can make an estimation of this through a thorough competitor analysis.

SEO competitor analysis

You’ll need to do a competitor analysis to understand what it takes to reach the top of Google for a given search. This entails:

• Domain and page authority: How many backlinks the competing pages have.
• Relevant content: How competent are the competitors at helping customers, and how relevant and conversion-friendly is the content.
• Technical optimization: How quick and user-friendly the pages of the competitors are.

If this all feels overwhelming, you can ask an SEO expert or a digital agency to perform the competitor analysis for you and assess the needed scale of your SEO effort. Some projects, such as correcting technical issues and creating a good site structure, only need to be done once. On the other hand, tasks like link building and continuous content production require a long-term effort.

Estimate ROI (includes example)

Let’s stick with our used cars salesman in Dublin. An SEO agency has estimated that he’ll need to spend €2,000/month for the initial two months to set up the structure and the technical elements. To crawl up the rankings, he’ll need to spend € 1.000/month on link building and content creation. The agency also estimates it will take approximately a year to reach the top of Google as the competition is very stiff.

After reaching a top 3 position, they estimate he will oscillate between pos.1-3, depending on how the competitors do and shifts in Google’s algorithm.

The first year is estimated to have generated an average CTR of 3%, as the site will not have achieved a good position yet. So, the profits for the first year are estimated to be:

The efforts for the first year have yielded a profit of € 8.640 on an investment of 2.000 * 2 months + 1,000 * 10 months = € 14,000.

This gives a negative ROI of:

(7.200 – 14.000) / 14.000 * 100 = -38,3% ROI

But! In the second year, the site crawls to the top rankings of page 1, while spending € 1,000 per month. We assume it will fluctuate between the top positions of page one and have an average CTR of 18%.

This provides an annual profit of:

With an annual ROI of:

(51 840 – 12,000) / 12,000 * 100 = 332% ROI

Keep in mind that these are just estimated figures and results may vary based on factors, including:

• Your individual or the agency’s competency in SEO.
• How well your competitors are doing.
• Changes in Google’s algorithm or in the interface of the search engine results page.
• How the search results look like, with ads, Google Maps et cetera (which influences CTR of organic positions)

A long-term investment with positive side effects

You’re likely to crawl up the rankings when you start doing SEO, and the further up you get, the more traffic you will receive. It’s hard to estimate exactly how long this will take, but your existing traffic is set to benefit regardless since your website will be:

• Optimized for search intent: Your pages will be better at helping users and increasing conversion rates. Read more about keyword optimization here.
• Faster: Your website will load faster, which is positive for the user experience. Slow websites risk losing visitors who get tired of waiting for the page to load in the browser.
• More user-friendly: Your website will have a more user-friendly layout and structure, directing visitors to relevant content.

To summarize, this will improve the overall user experience and increase traffic conversion rates.

As people trust websites that rank high on Google, there is also brand-building value in being at the top.

Your traffic doesn’t stop if you pause SEO

It’s worth pointing out that working on SEO has value even if you stop investing in it. Unlike with ads, you won’t lose positions and traffic if you put the project on hold.

You may find that your rankings slowly start to drop as your competitors work on their SEO, but you can pick up the baton and continue when it suits you.

Do you need help?

If you don’t have the time or resources to explore your potential, we’re happy to help. Contact us for a free analysis of where you are right now and your potential to get to the top.