If you’re a business person, I’m sure you often talk about ROI. Return on Investment (ROI) is an important metric used to evaluate the success of an investment based on the net profit generated from the investment.
Did you know ROI is more important than sales and conversions?
Yes, I’m being serious here. This is because ROI takes into account the cost of the investment (the real value of money)!
In most businesses, if a particular investment doesn’t yield a positive ROI, the decision-makers will withdraw their remaining investment and channel them to other channels that generate higher ROI.
This scenario often happens to SEO campaigns. If you’re an SEO service provider, I’m sure you’ve seen a huge number of clients cancel their SEO contracts and invest in other digital marketing channels.
The truth is it is not an easy task to calculate ROI for SEO campaigns. As most companies run multiple campaigns on various marketing channels, it is common to see other digital marketing channels like paid search, paid social media, and email marketing to perform better in terms of revenue generation compared to SEO.
In this post, I’ll be writing from an SEO service provider’s perspective and it will be also beneficial if you’re having an in-house SEO team.
Calculating ROI for SEO campaigns is important even if your clients are not asking for it. If you fail to do so, your client will end up calculating it inaccurately and decides to discontinue your SEO service.
When you provide ROI report for SEO, you’re providing undeniable solid reasons to your clients to continue investing in SEO.
For your clients:
- ROI means the returns from their investment (in the form of money)
- ROI has nothing to do with organic traffic, conversions, search engine rankings, number of links acquired and etc. Most businesses are less bothered about these metrics though it matters the most to SEOs like us.
- They want to know exactly what they will get when they invest X amount of money. What they are getting in return in the form of money? Will they get 2X, 3X or 10X of the money they’ve invested?
You got to do the math and show the ROI to build a long-term relationship with your clients.
Types of ROI for SEO
There are two types of ROI which are extremely helpful for SEO campaigns:
- Anticipated ROI
- Actual ROI
Anticipated ROI is the ROI we can expect from the SEO campaign. It’s a data-oriented analysis that includes few SEO metrics. And the Actual ROI is the one you will be reporting when you’re aggressively implementing SEO strategies to their website.
You’ll be using Anticipated ROI when you pitch new clients. If you’re able to provide realistic expected ROI for your clients, stay assured, they’ll be more than happy to work with you.
So let’s get started with the calculation part.
Anticipated ROI = [Anticipated Revenue from SEO campaigns – Proposed Cost of The SEO Campaign] / [Proposed Cost of The SEO Campaign]
Before calculating the anticipated ROI for an SEO campaign, you need to collect three important metrics from your client:
- Average monthly organic search visits
- Conversion rate of their website
- Average order value or customer lifetime value (CLV)
If you’re unable to get this information or the client is just starting off with their SEO efforts, then you can’t do anticipated ROI calculations.
Let’s say you’re able to get the values from your potential client, then proceed with the calculation:
- Average monthly organic search visits: 20,000
- Conversion rate of their website: 0.79%
- Average order value or customer lifetime value (CLV): RM 300.00
The proposed cost of your SEO service is RM3,000 x 12 months = RM36,000.00
Now, you need to justify your potential client’s investment. You need to help your client to make additional sales of RM 36,000.00 during your contract period.
But, you need to be aware that getting RM36k in sales is a break-even point where there is no loss or gain for your potential client. You need to buckle up and generate much more than RM36k through your proposed SEO campaign to generate positive ROI.
It’s all about numbers.
Now you need to calculate and determine the number of orders or customers the business needs to generate additional sales of minimum RM36k.
Number of additional orders or customers required for RM36k sales = [Cost of proposed SEO service] / [Average order value or customer lifetime value (CLV)]
RM 36,000.00 / RM 300.00 = 120 orders
If you’re able to generate an additional 120 orders from your client’s website with your SEO campaign, it will be break-even for your client’s investment.
You might end up with negative ROI if you’re unable to generate at least 120 sales with your SEO campaign within the contract period.
Now you know that you need to generate at least 120 orders. The next thing you want to determine the additional organic search traffic required to generate the 120 sales from the client’s website.
Additional organic search traffic required to break-even = [Number of additional orders or customers required for RM36k sales] / [Conversion rate]
120 / 0.79% = 15,190 organic search visits
From the calculation, you need to generate at least 15,190 visits from search engines to break even with the client’s investment.
We will assume that the conversion rate of the website stays constant. In most cases, the conversion rate will increase over time if you’re implementing the right SEO strategies.
You don’t want to deliver the break-even results for your client. You need to focus on delivering positive ROI. In order to improve the ROI, the organic search traffic needs to be increased.
For this example, let’s say we double the search traffic estimates which will be 30,380 visits.
When we double up the traffic, we can expect the following increases:
- Number of orders = (120×2) = 240 orders
- Total sales (RM) = (RM36k x2) = RM72k in sales.
The Anticipated ROI = [Anticipated Revenue from SEO campaigns – Proposed Cost of The SEO Campaign] / [Proposed Cost of The SEO Campaign]
[RM72,000.000 – RM36,000.000] / [RM 36,000.00] = 1 or 100%
1 or 100% ROI means that the client gets 2X the return from the investment.
The ROI often depends on the industry. You can see huge returns from education industries as the lifetime value of students are extremely high. If let’s say it takes RM1,000.00 to acquire 1 student with the course fees of RM20k. It’s an ROI of 20X. But, we need to consider other expenses the colleges need to bear. However, they still make a relatively higher ROI.
If you’re unable to deliver at least 2X in ROI for your client, there’s no point in hiring you for SEO service. I understand that it depends on the level of competition in the industry. If it is extremely competitive, you need to increase the timeframe and make sure to deliver the expected results within the timeframe.
You need to decide whether you’ll be able to increase the search traffic for your potential client within the time frame with your SEO strategies. You will need additional calculations to determine whether you’ll be able to achieve the required numbers. I won’t be covering that part in this blog post.
But let me give you a hint. You can calculate the estimated organic search traffic that you could generate by looking at the volume of targeted keywords and the time frame you’ll be taking for the SEO campaign. And make sure you’re targeting keywords with the right intent. Choosing keywords with the wrong intent can lead to negative ROI.
So, now you know how to provide data-oriented anticipated ROI for SEO to convince your potential clients that you’re talking about money and not rankings, traffic, bounce rate and etc.
We just need to get down to the basics and speak things that business owners understand.
I will 2X your investment with my SEO strategies. Talk about money and nothing else. They only want to know the money value you can offer them. You just need to justify them by increasing their organic search traffic, improve their conversion, and BOOM!
If you want to know how to price your SEO services, check out my post:
Let’s move on to Actual ROI.
The actual ROI of your SEO campaign will determine whether you’ll be having a healthy business relationship with your client or get your contract cancelled without renewal.
Actual ROI = [ Total Revenue through SEO Campaign + Total Goal Value through SEO Campaign] – [Cost of SEO Campaign]
Calculating the Actual ROI is slightly complicated. If you don’t have sufficient knowledge in Google Analytics and Goal setup, you will have thought time calculating the Actual ROI.
I take into account of these both goal values because I focus on multi-touch attribution for Actual ROI. Have you ever realized that the role of SEO is not limited to organic visits and sales, but it also helps the completion of sales/transactions with other channels like PPC. Display Ads and Direct Traffic.
For Actual ROI you need to consider the role of organic search campaigns contributed to the overall conversions or sales occurred on the website.
I’ll be covering more in-depth calculation on the real value of SEO in my next post.
Always remember this important aspect of SEO.
“SEO is different from other digital marketing initiatives. It not only helps in driving organic search traffic and complete a conversion but also contributes in providing assisted conversion through other digital marketing channels like Social, PPC, Direct, Referral and etc.”
When we talk about Actual ROI, it’s all about what you intend to report. You want to show the value of your SEO efforts. The client will know nothing until you show it to them. Never ever assume that your client is aware of your great efforts.
With more than 8 years of experience in the digital marketing industry, I’ll be able to prove business owners that neglecting and avoiding SEO can affect other digital marketing channels like social media, email marketing, and PPC. I hope you’ll be able to do the same and justify why SEO is indispensable.
Should you start with Actual ROI reports right away?
You want to avoid reporting negative ROI. I’m sure you understand the nature of SEO which takes time to show the real results. So you might want to wait when you start seeing a positive ROI from your SEO campaigns.
If you choose to show an ROI report for the first few months, you can do it but make sure you have data and insights to support the report. You can use it to educate your clients in advance to show that the SEO strategies you’re implementing have started to show improvements.
Once you start getting a positive ROI, report it right away. Don’t worry if it’s just 5% or 10%. As long it is a positive ROI, it’s absolutely worth it.
So, what do you think of my post?
How do you actually justify the ROI from SEO campaigns?
Please feel free to share your thoughts by commenting below.