How to Measure ROI of SEO
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Marketers often struggle to articulate the value of their work and obtain the necessary resources. Web traffic and conversion data have little significance to those in charge of managing budgets. Knowing how to measure ROI of SEO will allow you to engage with and convince decision makers on their terms.
What is SEO ROI?
Return on investment is a fairly simple concept. It consists of calculating the return or the profit of an investment. That is to say, what and how much the business has received, based on how much of the budget has been allocated to an activity. It is crucial information for evaluating or comparing the effectiveness of marketing strategies.
SEO metrics are very important, but, to financial managers, they can be superficial data. So, it is necessary to know how to measure SEO ROI to persuasively argue for the importance of the return on investment.
The figures will enable you to demonstrate the real value, in monetary terms, of digital marketing efforts. Learning how to measure ROI of SEO can help you obtain more resources, having effectively illustrated the correlation between SEO expenditures and results. Moreover, it will allow you to improve the performance of SEO activities and implement a competitive strategy.
Formula to measure ROI of SEO
ROI is the difference between profits and costs, divided by the amount of the investment:
ROI = (Return on investment – costs) / costs
Let’s apply some figurative amounts to understand how this works. You invest €30,000 in a marketing task and achieve conversions worth €120,000. Applying the formula, we would get the ROI:
120,000 – 30,000 = 90000
90,000 / 30,000 = 3
In other words, for every euro invested, you earn a return of €3 which translates to a 300% ROI.
Measuring SEO ROI is not necessarily a complicated process. However, in practice, you will have to overcome some challenges to calculate it correctly.
SEO ROI calculation challenges
Calculating the ROI of any digital marketing action is a complex task. The average consumer has multiple online touch points with products. These include social media interaction, a referral in a blog post or a purchase recommendation, for example. It is therefore difficult to attribute the specific impact each activity has on sales.
This also poses the additional challenge of accurately calculating the cost of investment. How do you measure SEO ROI if you don’t know the actual price of your SEO efforts? A PPC strategy is very easy to quantify. SEO activities are not because the cost relationship is not straightforward. A priori, it is impossible to calculate the price of each organic display.
A step-by-step guide on how to measure ROI of SEO
Although this is a more complex calculation, it can nevertheless be executed. We’ve broken the process down into three simple steps. To measure SEO ROI accurately:
Step 1: Calculation of SEO costs
To quantify the total cost of your SEO investment, you must consider both human capital resources and tools. If your company has a team dedicated to SEO work, first estimate the hourly cost. Then, you should apply that rate to the time spent on each task.
On the other hand, the required tools here are the entire software assortment you use to execute your SEO plan. While some free programs are available, you may need some paid resources. Include the costs of the programs or services you use for:
- Keyword research
- Competitive analysis
- Link building structure
- Follow-up of results
If you outsource the SEO work to an agency, add the contract fee to the investment. A detailed report of each activity is needed to break down the cost. This should be negotiated when you hire the service. You need to calculate this data before asking yourself how to measure ROI of SEO.
Step 2: Calculation of the conversion rate value
A conversion rate is the key value in determining SEO ROI. This is obvious when it comes to e-commerce sales, but it also applies if your goal is to generate leads. You need to be aware of your performance result to efficiently measure SEO ROI.
How to measure the value of SEO in e-commerce?
Google Analytics is an excellent tool for tracking conversions. Activate it in the E-Commerce dashboard to record the data of each online transaction. In the Conversions > E-Commerce > Summary section you can obtain all the relevant information about your sales.
To measure SEO ROI, you must segment the data, using the organic conversion filter. This way, you will get only the revenue results derived from organic traffic.
How to calculate the value of SEO lead generation?
If you are interested in determining the role of SEO in lead generation, you must first define the conversion goals. To configure the function in Google Analytics, access the Administration panel and create custom goals.
Goals are tied to specific events, such as a download or the submission of a contact form. Google will track these behaviors. In order to quantify them, you must assign them a value. Indicate this in the Goal Details box.
Unlike with e-commerce, there is no direct value associated in this case. You will have to estimate this figure based on your previous sales reports. The first piece of data you need is the conversion rate. That is, how many of your prospects convert into actual customers.
Divide the total number of leads obtained by the number of customers to find the conversion rate. For the purpose of this exercise, we will assume that for every 100 leads generated on your website, 10 of them become, or convert, to customers (10%).
The next step is to calculate the average value of past sales and multiply it by the conversion rate. For example, if the average amount spent per customer is €1,000, then the value of the Google Analytics goal would be €100 (€1,000 x 10%).
As in the case of e-commerce, you can obtain the value generated by SEO. Simply filter the results by channel, selecting “Organic Traffic.” Google Analytics will show the total value generated by these conversions. How to measure ROI of SEO will no longer be a problem once you have collected this data.
Step 3: ROI calculation for organic traffic
Now that you have determined both your SEO costs and the amount of your earnings, you can calculate the ROI. Just select the values for a given period and insert them in the formula.
For the financial decision makers, knowing that organic traffic has doubled may be an inconsequential piece of information. It will be much more convincing if you can demonstrate an SEO ROI of 400%. Similarly, a lower cost of acquisition is a powerful argument, and SEO contributes to reducing this indicator.
When considering how to measure ROI of SEO, remember that cost reduction also has an impact on this value.
Furthermore, keep in mind that while you want to generate more traffic to your site, the methods of generating this must be effective. Countless visits have no value if they do not result in conversions. Be aware that this happens relatively frequently when resorting to black hat SEO tactics to increase a site’s visibility. So make sure your methods are producing the desired results.
Finally, for consistency of results, be sure use the same format for reporting your other digital activities. For example, sometimes PPC ROI calculations are calculated based on the net profit from each sale.
How often should SEO ROI be measured?
SEO strategies yield long-term benefits. Consequently, it is impractical to worry about how to measure ROI of SEO immediately. The general recommendation is to perform the first calculations at least three months after the initial execution of the SEO plan.
Once you are up and running and get the first results, you can perform monthly, quarterly and annual follow-ups. You can then accurately monitor the progress of the implementation and make the appropriate adjustments.
One of the most significant aspects of SEO is that its returns are incremental and continuous. Achieving a good SEO ranking and maintaining it is the best strategy to guarantee sales for your business.
What ROI can you expect from an SEO strategy?
This is a difficult question to answer, as there are no standard values. Many factors are in play here. Moreover, differences exist from industry to industry. For example, the ROI of e-commerce is calculated to be around 317%. In contrast, real estate businesses can aim for an ROI in excess of 1,000%.
Knowing how to measure ROI of SEO will help you optimize your strategy and make better use of your resources. Remember to analyze your market conditions before setting your objectives. With these facts, you can also better argue your need for the most suitable resources.