Return on investment is key to justifying SEO & digital marketing expenses. Can you calculate it?
As an SEO firm, many of your clients likely ask you to break down the benefits of your services and, if possible, quantify the ROI of your efforts. Moreover, you want to be able to do the same thing for yourself: as you market your own business, which marketing channels produce the most value, the most revenue, and the most growth?
These are not, however, easy questions to answer. They rely on a clear understanding of specific variables that you may or may not know.
Further, the performance benchmarks you can find online may or may not apply to your situation and can be misleading. Often, these studies look at ROI from different angles, making it that much harder tofigure out what expectations to set. For example, some calculations break down ROI into dollars earned per dollars spent (see the top chart), but these numbers can vary hugely depending on the unique circumstances of the campaign.1
In other cases, studies look at various marketing channels comparatively; which ones are more effective relative to the others (see middle chart)?2
And some surveys just ask marketers about their subjective experience with various marketing channels (see bottom chart).3 This won’t break down ROI at all, but can help you understand what has worked well or poorly for others.
This paper will look at three types of ROI: the kind that’s easy to calculate (like email marketing and search advertising), the kind that’s more complicated but still calculable (SEO), and the kind that’s multilayered and messy but still bears consideration and analysis (reviews and reputation management).
.png)
.png)
By the end of the paper, you should have a clearer idea of how to think about ROI in these different areas and how to quantify it when possible. Let’s get started.
Calculating Simple ROI: Email Marketing & Paid Search Advertising
The easiest situation in which to calculate ROI is one where every aspect of the campaign can be tracked and quantified. With email marketing, for example, you can track how many emails you send, how many recipients your campaign is targeting, how many emails get opened, how many links are clicked, and how many of those clicks lead to purchases.
Email has historically been one of the most cost- effective marketing channels to use, with an average ROI around $38 for every $1 spent, according to email gurus at Constant Contact.4
Here’s the formula for calculating the ROI of your email marketing campaigns.
|
Simple ROI Calculation |
||
|
Step 1 |
Step 2 |
Milestones |
|
Calculate the revenue generated by the campaign. |
Subtract the cost of the campaign |
Then divide the result by the cost of the campaign. |
|
$38,000 in sales |
Less $5,000 = $33,000 |
$33,000 ÷ $1,000 = 33 times your original investment, or 3300% |
Search advertising, also known as pay-per-click advertising, is similarly easy to calculate because almost all the variables are so easy to control, monitor, and calculate. It doesn’t typically offer quite as high an ROI because PPC means your business is competing directly against others in a way that’s not necessarily true of email; PPC is essentially a bidding process where you try to outbid competitors for the same search terms. That
drives the price up and ROI down. Nevertheless, ROI for PPC campaigns is often significant and has been shown to fall around $8 for every $1 spent on average.5 Some studies put it as high as around $17 per $1 spent.6
Calculating ROI is as easy for PPC campaigns as for email, following the same basic formula.
|
Step 1 |
Step 2 |
Milestones |
|
$8,000 in sales |
Less $1,000 = $7,000 |
$7,000 ÷ $1,000 = 7 times your original investment, or 700% |
One word of warning: to make sure your ROI calculation is completely accurate, don’t leave out any associated costs. For example, a PPC campaign costs more than just
the amount paid for each click; it may also involve work on doing research, crafting ad copy, creating landing pages, and so on. Those costs should be incorporated as well.
This all also necessitates some kind of tracking mechanism. For example, a business can send out a flurry of emails, but if you can’t track sales back to those
emails, it becomes impossible to accurately calculate ROI.
More complex ROI:
Search Engine Optimization
ROI is much harder to calculate for search engine optimization, as most SEOs know well. It can be incredibly difficult to quantify net results from an SEO campaign for a client, especially if the SEO firm doesn’t have access to crucial information like the average revenue per sale or lead-to-sale conversion rate.
Unfortunately, many clients themselves don’t track or know this information either, making it much harder to pin down the relevant variables. It doesn’t help that SEO programs are almost always incredibly individual to the business, which make them notoriously idiosyncratic. As a result, while you can find “average” estimated ROI benchmarks online, they should be taken with a grain of salt. But if your firm can find or approximate the variables, while calculating the ROI may be more complex, it’s doable.
|
Example SEO ROI Calculation |
|||||
|
Step 1 |
Step 2 |
Step 3 |
Step 4 |
Step 5 |
Step 6 |
|
Identify how much organic search traffic has been produced. |
Calculate how much of that traffic converts into leads. |
Calculate how many leads convert into sales. |
Multiply by average revenue per sale. |
Subtract the cost of the campaign. |
Divide by the cost of the campaign. |
|
10k visits |
10k x 16% = 1,600 leads |
1,600 leads x 2.9% = 46 |
46 sales * $50 = $2,300 |
$2,300 - $2000 = $300 |
$300 ÷ $2k = 15% ROI |
Unfortunately, the very first step can immediately cause problems. How do you know how much traffic was generated by the SEO campaign itself rather than other causes? First, make sure you have a good tracking system in place. Second, focus on organic search traffic and ignore traffic generated by paid search, links, etc. Third, set goals in the analytics system to track performance.
MarketingSherpa suggests that 16% of organic traffic should convert into a lead on average.7 Further, the average online conversion rate across industries is 2.35%, although there’s huge variability depending on how well the business converts and in what industry the business operates.8 If SEO leads to offline sales, you also need a way to identify sale sources, if possible.
One thing to keep in mind: SEO firms cannot produce results in isolation. The client influences these numbers, too. For example, if the client underperforms in conversion – perhaps their leads need more nurturing and follow- up than they provide – it will erode the ROI of the SEO campaign through no fault of the SEO provider.
Note that by using this basic formula, you can begin to forecast ROI for improving specific rank position in
Google search results. For example, multiple studies show the percentage of clicks different search ranks get (e.g., the first position gets 33% of search traffic).9 That, in turn, lets you determine how much traffic you’re losing from not ranking higher versus how much you’d gain from moving up.
Multi-layered ROI:
Review & Reputation Management
Quantifying return on investment for reputation and review management activities is extremely difficult, even though reviews and reputation can have an enormous impact on almost every aspect of the sales process.
|
Impacts of reviews on sales |
||
|
Lead generation |
Conversions |
Spending |
|
Nearly three-quarters (71.7%) of organizations say they find third- party review sites to be effective in generating leads.10 After all, as many as 37% of people start their research in products, services, and businesses by going directly to third-party review sites. |
Every 0.1-star rating increase can lead to a 25% increase in conversions. In some cases, the jump is even more pronounced: increasing from an average 3.5- star rating to 3.7 can yield a 120% increase in conversions!11 |
And not only are they more likely to buy, customers also spend 3% more per order after interacting with positive reviews.12 A study from Harvard Business School found that a one-star increase on Yelp would lead to a 5-9% increase in revenue.13 |
However, sales related to review management – while not an especially complex task per se – are much harder to track. Complicating matters, there are an incredible number of variables that can impact performance, like the number of reviews, their recency, their quality, the average rating, where reviews appear, and whether reviews appear under the right categories (e.g., it’s critical to appear under every applicable category, like “best SEO companies” and “best social media marketing companies” if you offer both services).
Calculating Direct ROI
If you can track leads that come directly from various review sites, you can calculate at least basic ROI following the same formula presented for SEO. Many companies use reviews to generate leads and thus new business. This works for anyone who comes to your site directly from a review site and enters your sales funnel. In this case, you’re tracking traffic from a specific source rather than organic search traffic. Again, your analytics platform should be able to help.
Interestingly, you can also use this formula to forecast the impact of changes to your reputation management program. For example, as mentioned above, one study have found that every one-star increase in the average Yelp review rating adds 5% to 9% in revenue.14 Thus, you can estimate the impact of a program designed to boost review ratings by increasing the average revenue per sale by that amount.
Similarly, if increasing the average review rating by 0.1% increases conversions by 25%, that would increase the 2.9% from our example above to 3.625%, and we could recalculate the ROI to forecast the improvement. So, this formula can also be used to justify changes to, or adoption of, a reputation management service that includes review management.
Don’t forget indirect ROI!
For many consumers, reviews may not drive the sale right away, but they may be a necessary component of making a buying decision. How do you calculate that? For example, according to Moz. com, businesses can lose 21.9% of customers if they have just one negative review listed on page one of Google.15 If you can eliminate that negative review, you can update your ROI forecast to show an increase.
|
Impacts of reviews on sales |
|||
|
1. Support marketplace reputation |
2. Strengthen SEO rankings |
3. Support other marketing channels |
4. Turn feedback into improvements |
|
Specifically, the whole point of reputation management is to enhance the overall impression of the company and make future sales more likely. |
Reviews are a major ranking algorithm that Google considers, especially for determining inclusion in the Local 3 Pack for local searches. |
Glowing reviews can potentially be turned into case studies, testimonials, and other forms of content that can enhance other marketing efforts. |
Comments from user reviews can be translated into operational, product, and service improvements that can improve sales overall. |
These indirect forms of ROI may not be possible to quantify with any confidence, but they are indisputable benefits of review and reputation management. Consider item #3 above. A rave review backed by a strong story can, with the customer’s permission, be turned into a powerful case study that showcases an organization’s ability to generate positive results. Case studies, in turn, are a superb format for both lead generation and closing the deal. Reviews can thus have strong knock-on effects that further justify the investment, even if the benefit can’t be quantified. Any ROI calculation is incomplete if it does not acknowledge the advantageous secondary effects of any effort or campaign. In the end, there’s more to ROI than just a percentage.
References
1 https://www.lyfemarketing.com/blog/email-marketing-roi/
2 https://komarketing.com/industry-news/email-social-media-marketing-prove-less-difficult-show-less-roi-3458/
3 https://everything-pr.com/email-marketing-report/
4 https://blogs.constantcontact.com/what-is-the-roi-of-email-marketing/
5 https://economicimpact.google.com/methodology/
6 https://www.lyfemarketing.com/blog/email-marketing-roi/
7 https://www.marketingsherpa.com/article/chart/conversion-rates-organic-traffic
8 https://www.wordstream.com/blog/ws/2014/03/17/what-is-a-good-conversion-rate
9 https://www.searchenginewatch.com/2013/06/20/no-1-position-in-google-gets-33-of-search-traffic-study/
10 https://lab.getapp.com/third-party-review-sites-lead-generation/
11 https://www.searchenginewatch.com/2019/10/23/roi-of-improving-online-reviews-0-1-stars-can-boost-conversion-25/
12 https://www.bigcommerce.com/blog/customer-testimonials/
13 https://www.hbs.edu/faculty/Pages/item.aspx?num=41233
14 https://hbswk.hbs.edu/item/the-yelp-factor-are-consumer-reviews-good-for-business
15 https://moz.com/blog/new-data-reveals-67-of-consumers-are-influenced-by-online-reviews 16http://onlinelibrary.wiley.com/doi/10.1111/j.1937-5956.2012.01394.x/full
