SEO Analytics
Risto RehemägiSEO ROI is incredibly hard to calculate. There are many variables out of our control, so anything more than a back-of-the-envelope estimation is mostly useless.
Still, most SEO ROI calculation models get even that horribly wrong.
They don’t factor in the most important variable in SEO growth - time.
What not to do (by SEMrush)
The example above looks legit, but there’s a big flaw.
It makes the assumption that one month SEO investment is responsible for one months revenue.
This is not the case.
Let’s say your 40k$ SEO campaign generated 200k$ in January. What would happen to the conversions if you would pull the plug on it? Stop all SEO activities.
In paid advertising the answer would be simple - in February you get 0$.
The same is implied in this formula.
But in SEO, things are more difficult. We need to model traffic changes through time to get the correct value.
The three stages of organic traffic growth
Growth phase
The goal of SEO activities is to drive organic traffic growth. You probably have some target you want to hit. If you succeed, it will take you a few months to reach it.
This stage – from the start to reaching your target – is the growth phase.
Success isn’t just defined by reaching the target. Every incremental session you gain in this phase counts towards your ROI in the end.
Incremental is key here. Your SEO efforts need to drive growth, otherwise there is no value.
This is also the only phase where you actually invest in SEO.
Hang time
Unlike with paid advertising, when some monthly organic traffic is achieved, it will continue to bring revenue even when all SEO activities are stopped.
So if you hit your 200k$ target in January, it’s likely that you’ll see 200k$ once again in February. And 200k$ in March.
We call this hang time.
In order to break your hang time, some other domain needs to outranks you. So the typical hang time depends on your market and niche.
It also depends on what kind of keywords you’ve managed to secure rankings in - are they more long-tail and volatile or short-tail and stable?
We’ve analyzed the GSC data in 6 separate cases, where successful SEO activities were carried out across several months and then canceled.
The average time it took for these websites to start losing traffic was 12 months.
This is not conclusive by any means.
But it’s safe to assume that the default hang time is not 0. It also probably isn’t infinity. So a year seems like a plausible middle ground. Again, back-of-the-envelope calculations here only.
Hang time makes a huge difference
Let’s come back to our original example. If we forget about the growth phase for a second and just assume hang time is 12 months then the SEO campaign didn’t just generate 200k$, it generated:
Yes, $2.4 million. So ROI is not 4, it’s closer to 60.
That’s ridiculous, sure, but that speaks more of the example than the formula.
But wait, there’s more.
Your SEO results don’t drop to 0 after hang time either. Instead, it will decay.
Decay
Organic traffic will decay if you don’t do anything.
If hang time is a definitive period then it makes sense that what follows is traffic decrease.
Based on our research, a good rule of thumb for traffic decay rate is 1% MoM.
This means that a website that gets 100 000 organic traffic today will bring in just shy off 90 000 after a year.
But if you previously invested in SEO to reach that 100k from say 95k then you can count every month above 95k towards your results.
Even after hang time, your SEO efforts are still bringing profit.
New formula
To get a realistic estimation of SEO ROI we need to calculate return based on the total additional traffic in a timeframe.
First we need to establish a baseline. This can be the average traffic of last 3 months or last 12 months if our market is seasonal.
Then we draw the traffic projection based on our target traffic and the phases described above.
We also need to estimate the value of this traffic. How much revenue is this going to generate?
The easiest option for this is to use your Google Ads avg. CPC. Then you know how much this traffic would cost in paid advertising, which serves as a decent proxy for value.
A more realistic method is to use organic traffic conversion rate and avg. order value (or avg. LTV for SaaS). Organic traffic conversions are notoriously difficult to measure and attribute correctly, but again – the key is write down some rough estimations that make sense.
Lastly, based on our projection, we sum the additional traffic from every month above the baseline.
So the final formula for return:
Where:
- B = Baseline traffic.
- Ti = Projected traffic for month i in the next X months.
- X = The number of months you're projecting forward.
- V = The value of traffic
If you know the return, the rest is easy.
Use the calculator above for quick projections.
Complications
Throughout this article, we’ve emphasised that these are just rough estimations. What’s stopping us from getting more precise measurements?
Organic traffic projection is a shot in the dark
Any SEO ROI calculation depends on estimating how much traffic you could potentially get, but since search volume data and SERP CTR benchmarks are both highly inaccurate and constantly changing, it is all but impossible. Also, your estimations for your ability to rank for keywords is more a function of your ego than any measurable variable.
Brand vs non-brand traffic is not exact
For SEO purposes we would ideally only measure non-brand traffic, because that’s the thing we directly impact. You can use GSC filters to get a sense of your brand/non-brand traffic shares, but this far from an exact science. The problem is – any time you apply a filter in GSC you cut out some “undefined” data (the queries that Google anonymizes). In other words, filtered brand + non-brand traffic should equal 100% of total traffic, but it doesn’t. It’s more like 50%-90% depending on your site.
How do you define SEO cost?
There are many different roles in a company that are needed to make SEO work, which makes it difficult to assess the time and cost that it actually takes. Do you just count the cost of your SEO agency and copywriters? Or do you also count the time of internal subject matter experts, web developers, project managers and other marketing roles that are working on the website?