How To Calculate SEO ROI|How To Guide
Getting a realistic valuation of the results from achieving top rankings from SEO efforts is difficult to say the least. Clients ask all the time how much revenue they will generate from ranking for a certain target keyword phrase. While this is incredibly difficult to estimate. We will show you a good way that has been fairly accurate for our clients. This guide will also give you a strong guide for how you should develop your keyword strategy build out overtime.
Step 1: Identifying 3 Core MDKW (Market Defining Keywords)
These are the keywords that would be bring massive amounts of traffic as well as revenue to your websites if you were to ranking #1 for them. These are most often 2 word phrases. If you were in the Timeshare industry, it may be sell timeshare, or timeshare sales. We will come up with longer tail more defined keywords later on. I recommend limiting to 3 core keywords for link building and development purposes at first because you will not be able to immediately target all the searches you want to rank for and still be effective. Focusing on link building for your core MDKW’s will help you gain more long tail traffic as your website builds authority, even though you may not be directly targeting those keyword phrases.
Step 2: Identify the exact match search traffic for your phrase.
You can do this in Google keyword tool. For this test we will use “Amish furniture” which has 74,000 phrase matched search terms and 22,000 exact match searches (You need to make sure that you check phrase and exact in the match types to get the numbers you need. Always use exact match numbers to make your estimates.
Step 3: Apply click through rate data to est. traffic from search.
Click data leaked from AOL a couple years ago estimates the top position to get about 3.5x as many clicks as second place. 56% of searchers click the top results. I believe that these numbers have probably changed with the integration of universal search (inclusion of images, news, discussions, videos, and products into the search results) and other factors, but we can use 40% of the search traffic as a safe estimate. So now we know that there are 22,000 searches for amish furniture and a top result would give us 40% of that market share, or 8,800 searches. Were getting there.
Step 4: Establish long tail keyword phrase vs. core keyword phrase ratios
In the campaigns that I have been a part of, rankings for core keywords are achieved long after traffic starts developing from our efforts. By link building for core keywords you are also building the overall authority and relevancy of your website. It is fpr this reason that article directories like Ezine articles has no trouble ranking on the first page for a long tail keyword phrase 15 minutes after it is published. Ezine has strong overall authority which is transferred to the new page through internal links. For our clients, we use google analytics advanced segments to track the difference between traffic coming from 2 word phrases compared with organic traffic from long tail keywords. One of our larger clients in the printing industry get 800% more traffic from long tail than from their core keywords. These ratios are different for each industry and client so please do not use these. It is my experience that service industries will always have more long tail traffic (3 or more words) due to the inclusion of an action verb. In the case of the printer is often “printing”.
To be generally conservative, let’s say long tail traffic will bring an equal amount as the short tail core keywords. In the case of “amish furniture” that is going to bring us to 17,600 searches a month (8,800×2).
If you have advanced experience with Google Segmentation in analytics. Check out this post by David Naylor on the issue. http://www.davidnaylor.co.uk/google-analytics-short-taillong-tail-segmentation.html
Step 5: Estimating conversion rates of your traffic
This can be tricky if you are just starting out and have no data. If your company has been doing pay per click and tracking conversion rates it will be a lot simpler. If you know your average conversion rate, multiply the percentage by the traffic number from step 4 to get the number of conversions you can expect from your SEO efforts if they are successful. These numbers vary wildly. A good estimate to use as a proxy if you do not have this data is 10% if you are a local service provider like a plumber, and 1.5% if you are a larger online retailer or service provider.
Warning: These are only proxy number that I believe to be a good starting point for a website that has not had strong conversion optimization. Also, conversion rates are not the same across all searches. If your company has a large enough budget, it may be economical to look at subsets of your keywords and determine the conversion rates of them. Once we have a significant amount of traffic data, we always begin link building to achieve number one rankings for high conversion long tail keywords.
Step 6: Estimating revenue from SEO efforts
In order to do this you have to have a strong idea of what a client is worth to you. You can choose different ways to measure this, but you need to clearly identify the number. Are your customers one time only buyers, or are they likely to buy again in the next few months? Questions like these are essential to determine what a new customer is worth to you. The simplest way to do this is to average the purchases of all your customers and remove any outliers that would have a significant impact on your data (I.e. you have one client that is half your business). You now at least a basic idea of what your new clients is going to bring in terms of revenue. Note: New clients mean new potential referral chains and new opportunities that are larger than just a purchase, but at this point you always want to bias your data toward caution and known, direct factors. Let’s say our Amish furniture maker has an average order size of $100 and customer rarely ever reorder. Now we can use this, our 1.5% proxy conversion rate, and our organic traffic expectations to come up with some real numbers. A number one ranking for the term would bring in 17,600*1.5%*100=$26,400/month in new revenue. I think that this is a fair cautious number. The reason you want to be cautious on these numbers (particularly conversion rates and long tail ratio) is because they can change your revenue potential drastically. Changing the conversion rate to 2% changes the revenue project to 35,200. This is a large change. Combine that with saying you will get a 2 to1 ratio of long tail to core keyword and the number grows $52,800. Doing this type of best case scenario can get you in a lot of trouble. It is based to be conservative in your estimate and then blow it out of the water. Once you have more data you can begin to refine your numbers.
This process is a relatively basic stripped down version of the in depth process we do with larger clients but the principles are the same. If you have data, you can get a lot more accurate information by categorizing your buyers by product types and keyword groups and run these analysis separately for various keyword initiatives.