The Business Case for SEO

Introduction and Disclaimer

American business dallied for a while with a model that ignored profits for the sake of market share, convinced that if the enterprise attracted enough attention, profits, if they were necessary at all, would be sure to follow. The World Wide Web, with its gargantuan reach and information efficiencies, would be the vehicle we would ride into this new economy—or so went the common wisdom.

But profits followed less surely than predicted and were indeed necessary. Unable to produce enough traffic or to figure out how to turn traffic into revenue, many pure-play "dot.coms" ran out of money, and many ceremoniously-launched Independent Internet Divisions were pulled back under the corporate cloak.

The Internet did change things enough that we can speak of the "new economy," but now we understand that the "frictionless" exchanges enabled by exploding information technology don't isolate practitioners from the profit requirements of the "old economy", and we've learned, yet again, that speculative frenzies end.

Integrate the Enterprise

At Top Dog Strategies we believe that a web site should be integrated into the enterprise and should be subject to the same bottom line accountability as every other area of operations. The criteria of accountability differs depending on the nature of your business and the purpose of your Web site, but you should be able to do the same sort of Return on Investment calculations for your web presence as you do for marketing expenditures or capital investment. You ensure overall profits by ensuring that each investment provides a return.

Search Engine Optimization has one of the best returns available for increasing targeted traffic to your Web site. We know that because we've done the analysis, and we offer you examples of ROI calculations for a search engine optimization project to prove our point.

Our analysis focuses on a fictitious service business with a low-volume promotional Website.

We created this scenario using real data from existing companies, then generalized the analysis by researching and then employing "typical" values for the variables used in the calculations. Those typical values derive from assumptions. We make lots of them, and have tried to be very explicit about that fact. So you can identify our guesses, whenever we make an assumption or employ a questionable or arguable variable, we highlight it in a box, like this:

We hope this is not too irritating. We would like you to adjust these calculations to fit your own business, and we include this amount of detail to make that easier.

The Disclaimer

The numbers we use in calculating these returns are realistic, and in most cases were derived from the actual experience of our clients. However, businesses differ, and we cannot guarantee that your investment in Search Engine Optimization (or banner ad placement, for that matter) will produce results like those we describe. The results we publish should be considered typical, and you should take some care to modify the calculations so that they relate more directly to your business conditions.

The Scenario

The scenario we'll build for figuring ROI on a Search Engine Optimization project involves a small service business—a design firm, maybe, or a group of technical writers. We assume they can provide their service remotely so that their geographical market includes the entire planet. The average charge for their service is $1,000, and we assume they have a gross margin of 50% and that their sales force is able to close on 5% of their qualified leads.

Their Web presence is a simple 10 page promotional site, where they introduce their company and explain the service they provide, and with which they collect leads by requesting visitors to complete an email form. They get 800 user sessions a month, and 5% of those sessions result from search engine referrals.

SEO Project Assumptions

Imagine that this service company undertakes a Search Engine Optimization project costing $2,500. Over 12 months that project increases the percentage of referrals from search engines from 5% of their total user sessions, to 20%. Further, search engine referrals constitute 85% of the new visitors to their Website, a percentage that remains constant throughout the project, and 75% of all search engine referrals are new customers. Half of their new visitors never come back; the rest join their regular customers, who visit the site once a month. 5% of all visitors submit the email form, and each submission is a qualified lead.


Comparison of Results

The following tables project the growth of traffic to the site (measured in user sessions) if nothing is done and if the assumptions we made in the previous paragraphs hold, compared to the growth in traffic if the SEO project is undertaken and if those assumptions hold.

Without SEO Project
Month % SE Referrals New Visitors Total Visits
0 5 800
1 5 35 818
2 5 36 854
3 5 38 873
4 4 39 911
5 5 40 933
6 5 41 972
7 5 43 996
8 5 44 1038
9 5 46 1064
10 5 47 1108
11 5 49 1136
12 5 50 1180
Total 12685
With SEO Project
Month % SE Referrals New Visitors Total Visits
0 5 800
1 6.25 44 844
2 7.5 56 878
3 8.75 68 940
4 10 83 995
5 11.25 99 1080
6 12.5 119 1163
7 13.75 141 1281
8 15 170 1403
9 16.25 201 1567
10 17.5 242 1746
11 18.75 289 1976
12 20 349 2239
Total 16912

Comparing the two tables, you can see that implementing the $2,500 Search Engine Optimization project increased traffic to the site by 4,227 user sessions over the course of the year. That figure together with our earlier assumptions lets us calculate the project ROI. We assumed that 5%, or 211, of those visitors would submit an email form, and that the sales force would close 5% of those email generated leads, for a net increase in sales of 10 (10.55 actually, but we'll round down). At $1,000 per sale, that results in $10,000 in increased revenue and a gross profit of $5,000.

The initial $2,500 investment returns $5K, realizing an ROI of 100%.

That is a substantial return, and a realistic one because the assumptions used throughout the calculation fall well within the ranges we have seen with our clients. We don't guarantee this kind of return, but we see them often.

Next, we'll calculate ROI on a banner advertising campaign, again using realistic assumptions gathered from our client's experience and industry rules-of-thumb, and we'll compare those returns with this one.

A Typical Banner Ad Campaign

We just ran through a Return on Investment calculation for a $2,500 Search Engine Optimization project applied to the Website of a small service business. Using realistic (though fictional) assumptions, we calculated an ROI for that project of 100%.

Now, we'll figure the ROI for a banner-advertisement campaign, an alternative way to promote a Website. We'll again use typical numbers, and again will indicate why we chose particular assumptions so that you can adapt these calculations for your particular case.

We start with a $2,500 budget.

At the typical price of $10/CPM, the $2,500 budget will buy 250,000 page views of your ad. With click-through rates at 0.5% (that is a generous figure--the average rate is now well below that), those quarter-million ad-views will result in 1,250 new visitors to your site (250,000 X .005).

Using the same assumptions as in the SEO calculations, we'll figure that 5% of the visitors to the site will end up as qualified leads and the sales force will close 5% of those leads. Then we can calculate the following:

  • 250,000 = number of ad views
  • 1,250 = number of new visitors (250,000 ad views X 0.5% click-through rate)
  • 63 = number of new qualified leads (1,250 X 5%)
  • 3 = number of new sales (63 X 5% close rate)

Those 3 new sales will generate revenue of $3,000 (3 X $1,000) and profits of $1,500 ($3,000 revenue X 50% gross margin). Subtracting the $2,500 campaign cost, the project loses $1,000. Compare this to the $5,000 profit resulting from the SEO project on the previous page.

The Return on Investment values for the two projects are:

  • SEO = 100%
  • Banner-ad = -40%

Obviously, in this scenario the SEO project offers a far better investment of the promotional budget than the banner-ad campaign.

We took considerable care to make all of our assumptions in these calculations realistic, and to ensure that they accurately reflect current data regarding Web advertising and SEO promotion. We didn't tweak them to give us the desired results because we didn't need to; our initial set of assumptions resulted in calculations that showed SEO to have clear advantages over a banner advertisement campaign.

Had it come out the other way, you wouldn't be reading this, and we'd be looking for a new line of work. However, we want to point out that "typical" calculations of this kind have no relevance whatsoever for your particular business. You'll have to do the calculations yourself, using data from your own business, to optimize your promotion investments.

For a quote, a question or just to shoot the breeze:
stevec@topdogstrategy.com
303.818.8590