All businesses need to control their finances by calculating their SEO’s return on investment (ROI). ROI is also essential for digital marketing agencies who want to show clients that their expertise is a worthwhile expense.
The simple answer is yes, you can measure the ROI of SEO and in this article, we will explain why it is essential and how you can calculate it accurately.
Why is measuring the ROI of SEO important?
The ROI of SEO is vital because it quantifies whether the revenue generated by your SEO strategies is more than the cost. It should be a crucial KPI in your SEO strategy evaluation.
What you really want to know is how much you earn for every pound spent on SEO.
Whether you are formulating your own SEO strategy or hiring an expert agency, ROI is the first question you should consider.
How we measure the ROI of SEO
You will be pleased to learn that there is a straightforward formula for calculating the ROI of SEO.
ROI of SEO = (Conversions value – Cost of investment) / Cost of investment
Let’s break this down into some easy-to-follow steps:
Step 1 – How to Calculate your SEO Investment
Add together all the costs associated with the channel, including:
- In-House Resources such as any employees who work on SEO full-time. Include the correct proportion for employees who spend some time on SEO, such as copywriters. It’s best to work out hourly rates and track their task load to make the calculation accurate.
- External freelancers and Agencies. Include any monthly fees in your calculation.
- Tools and Apps. If you subscribe to any tools, work out the proportion of costs that relates to SEO.
Step 2 – Track your Conversions.
Tracking and measuring the value of any conversions is vital to calculating the ROI of SEO.
Google Analytics is a valuable tool for measuring your revenue from organic searches.
Now you will need to alter your calculations depending on the type of business as below:
- E-commerce – Set up data collection of sales via Google Tag Manager. This will provide a detailed report showing your monthly transactions. You will find the conversion value under ‘Insights’.
- Lead Generation – In business models with no direct sales from the company website, placing a value on conversions is more challenging. It would be best to assign a value to Google Analytics leads by creating events. Include actions such as form submission, sign-ups or visits to particular pages on your website.
The hardest thing is deciding on an appropriate value for each action. The crucial factor here is Customer Lifetime Value (LTV). Ask yourself what amount you expect each customer to spend over the lifetime of their relationship with you.
Next, multiply the LTV by the conversion rate to give you the figure for the value of your lead conversions. The conversion rate is the percentage of leads that convert into sales.
Step 3 – How to Calculate your return on investment.
Go back to the original formula for the ROI of SEO.
ROI of SEO = (Conversions value – Cost of investment) / Cost of investment
You can input the figures you have calculated in steps 1 and 2 to find out your ROI of SEO.
Example Calculation
Take a business that has generated £200,000. The cost of investment was £40,000.
200,000 – 40,000 / 40,000 = 4
For every £1 spent on SEO, this business earned £4.
Remember you can choose any period for these calculations, e.g. one month, one quarter, six months or one year. By tracking this monthly, you will see patterns and trends that can inform your SEO strategy over a year.
Can you forecast the ROI of SEO?
Once you have got the hang of measuring ROI, it is time to have a go at forecasting. Predicting future trends will help you decide on an effective SEO strategy. It will also help agencies develop the ability to assure clients of their worth.
The three factors required for forecasting the ROI of SEO are as follows:
- Your site’s previous performance
- Traffic potential
- Average conversion rate
Compare your performance with competitors using a domain overview or a traffic analytic tool like Semrush.
How are your competitors driving traffic – organic or PPC? Look for trends, seasonal changes, and performance differences.
The results of your analysis will provide you with data to predict a conversion rate dependent on various changes in SEO strategy. Use this alongside conversion values and investment costs to give you the predicted ROI of SEO.
If you want help boosting your conversion rates and improving your ROI on SEO, don’t hesitate to contact us at SEO and Web today.
