SEO ROI Analysis: How To Calculate Your SEO ROI

Calculating Search Engine Optimization ROI

Last Update May 16, 2021 @ 12:23 pm

We have to think of SEO with the right mindset: first, that it is a valuable marketing investment, and second, it is a long term investment. 

Thus as with any other investment, it is very important to consider two essential elements: the cost, and the ROI.

However, due to the complexity and intangible nature of SEO, calculating both the initial cost and the ROI of the SEO is quite difficult. In this guide, we will discuss how. 

How To Calculate SEO Costs

We can’t determine ROI without first knowing how much we’d have to pay for the SEO campaign. Yet, SEO is actually a very versatile channel that can be 100% free if you want, but at the same time can be quite expensive if you decide to invest in premium SEO tools and/or outsource to an SEO expert. 

Generally, there are two ways to calculate SEO costs depending on whether:

1. You do all the SEO by yourself (or with an in-house team)
2. You outsource to an SEO expert or a digital marketing agency

If you outsource your SEO to an agency or hire a freelance SEO expert, then the SEO cost will be fairly obvious: the fee of the expert/agency. They might charge a monthly fee or by the hour, but it’s going to be fairly easy to calculate them.

However, if you are going to implement your SEO with your in-house team (or by yourself), you have to consider several factors:

1. Cost of SEO tools/software 
2. Content production costs
3. Content promotion costs
4. Technical/on-page optimization costs, you might need to hire a web developer/programmer to help
5. Link building activities (influencer outreach, PR campaign, and so on)

This is not an all-inclusive list and you can calculate all the costs tied to these five activities to figure out the basic cost of your SEO campaign. 

Calculating SEO ROI

How can we calculate the rate of investment (ROI) of the SEO campaign? 

Here is the basic formula:

ROI of SEO= (Revenue generated from SEO- Cost of SEO)/Cost of SEO x 100%

Above, we have discussed how we can calculate the cost of the SEO campaign. So, what’s left is to learn about how we can calculate the generated revenue from the SEO campaign.

Calculating Revenue Generated By SEO

Different businesses can have various revenue models, and there can be different ways SEO can contribute to the sales revenue (directly or indirectly). 

In general, we can differentiate businesses into three different types in relation to how SEO will contribute to its revenue:

1. Businesses that are not selling any product/service directly on the website. Any “traditional businesses” would belong in this category. 
2. Businesses that sell “one-time-sale” products and/or services on the website. For example, if the business sells a physical product on the eCommerce site. Blogs selling affiliate products will also belong here.
3. Business selling products and/or services with recurring revenue (subscription-based) model.

Calculating Revenue for ‘Traditional’ Businesses

In this type of business, SEO and website performance won’t directly contribute to revenue, so calculating generated revenue can be quite tricky. 

Thus, in this revenue type, we mainly calculate the number of generated leads and the potential revenue generated by these prospects. For instance:

• If we can generate 100 leads every month via organic search, and 30 of them end up purchasing the product/service, then we get a 30% conversion rate. 
• Let’s say the customer lifetime value (CLV) for these purchasing 30 customers is $100, then we ger $3,000 of total revenue from them. (we will further discuss how to calculate CLV below) 
• Lastly, divide $3,000 with the total number of generated leads (100), then we can determine that each lead generated from SEO can contribute $30 to revenue

Calculating Revenue for ‘One-Time-Sale’ eCommerce Sites

In this revenue type, website traffic from organic search—the result of an SEO campaign— would directly contribute to SEO. 

Above in the previous revenue model, however, we have briefly discussed CLV or customer lifetime value. In this model, we shouldn’t solely calculate the sale of a single product/service, but the CLV of a customer. 

Although there are various ways to calculate CLV, the common one is to first calculate these variables:

1. Average customer lifespan: the average number of years a customer has a relationship with your business. For example, let’s say based on a customer survey, you’ve found out that the average lifespan is 2 years. 
2. Average purchase value: dividing the total revenue of the business in a specific time period by the total number of purchases during the same period. For example, $1,000 a year divided by 100 purchases, then the average purchase value is $10. 
3. Average purchase frequency: dividing the number of total purchases by the number of unique customers. For instance, 100 total purchases done by 10 different customers, then the average purchase frequency is 10
4. Customer value: the average purchase frequency multiplied with the average purchase value. With the above example, 10 x $10, then $100.

Last but not least the formula to calculate CLV is:

CLV=Average Customer Lifespan x Customer Value

In this case with the above example, the CLV is 2 years times $100, then $200.

So, if the conversion rate of the generated prospect from organic search is 10%, then each generated lead from SEO would worth $20. 

Calculating Revenue for “Recurring Revenue” eCommerce sites

In this revenue type, we will calculate CLV as the basis of our revenue calculation, but since the business model is more complex, how we calculate CLV will be very different. 

In this model, we will deal with two important metrics: monthly recurring revenue (MRR) and annual recurring revenue (ARR).

So, we can calculate the generated revenue from SEO as follows:

• MRR/customer= $1,000/month
• ARR/customer=$12,000/year
• Conversion rate (lead to sale)=20%
• SEO generated leads: 100 prospects/month
• SEO generated sales: 100 leads per month x 20%= 20 sales/month, 240 sales/year
• Additional ARR from 20 sales/month= $240,000/year

End Words

Let’s go back to the SEO ROI formula:

ROI of SEO= (Revenue generated from SEO- Cost of SEO)/Cost of SEO x 100%

Now that we’ve discussed how to properly calculate the generated revenue from SEO and the cost of the SEO campaign, now calculating SEO ROI should be fairly simple. 

With that being said, properly understanding the potential ROI of your SEO campaign can help you to make a better decision on whether you should invest more in SEO or adjust your strategy.

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