Is SEO Worth It? Here’s How to Tell

Before we dive into this post, we need to set a few operational definitions and assumptions.

We’ll assume that you know that SEO is not free. Unlike the Yellow Pages where there is a direct dollar cost for getting listed in certain sections, SEO has no such direct cost. You “buy” listing in certain search results by modifying your site’s code, structuring your site properly, producing a metric ton of content in the form of articles, video and images and getting other sites to link to this content.

You have three choices to accomplish this:

1. Do it yourself
2. Dedicate some of your company’s resources to doing it
3. Pay someone else to do it for you

The first two cases carry with them an opportunity cost; that is to say, if you or your staff is spending time doing the tasks listed above, that is time they could be spending doing other things. Both of these are valid options provided that, one, you have the skill set and, two, that SEO Marketing provides more value than the projects that would be forgone by reallocating resources.

If you or your company don’t have the skills or are dedicated to more valuable projects, your only chose is the pay someone else to do it for you. Again, there are two choices here.

1. You could hire staff (full-time or part-time) with the necessary skills. This, of course, could mean stuff above and beyond salary such as unemployment insurance, new equipment, more office space, increase in benefits pay, and so forth.
2. You could contract with a professional agency, such as us (*wink, wink) to handle the campaign and the project and step out after the project has run its course.

So, our next assumption is that you choose that last option.

This option also happens to be the easiest to analyze because it has a straight-forward cost.

So what is that cost?

Generally, if you talk to 10 different SEO agencies, you’ll get 10 different answers.

But here is how we estimate cost:

1. We talk to you to build an ideal customer profile. In essence, what we’re looking for is to understand your customer, client, etc better. How old are they? Where do they live? What are they into?
2. We get a list of competitors from you.
3. We take this information and use it to guesstimate some key phrases. When we start the campaign, we actually conduct exhaustive, week-long research to nail down the best key phrases, but to get a price for our client, we use the customer profile and competition to get a smaller subset.
4. These key phrases are what your ideal custom is using to find you. For example, if you’re a car dealership, you don’t want to be listed in the floral section of the yellow pages. It’s the same with SEO. You need to appear for the right searches. So with these key phrases in hand, we do research to see how strong the competition is on these key phrases and where you currently stand against the key phrases. If your key phrase is “plastic surgery consultation,” and you’re a new company, you’re going to have a lot of work to do because a lot of other companies are listing themselves for that key phrase. On the other hand, if you have a low-demand key phrase or are an established company, you may already rank really high for the key phrase and our work is much easier.

Based on this information, we have a pretty good idea how much effort we will need to plan to help you reach your goal, which brings us to our last assumption.

Your goal is to get ranked as highly as possible for key phrases that are relevant to your brand message(s), product(s) or service(s)

The effort in this case refers to:

• How much content we’ll need to produce
• What level of quality the content will need to be
• How much research we’ll have to do to find “hidden” key phrases
• How closely we’ll have to analyze trends and reports
• How many links we’ll have to produce back to your site
• How large of a Social Media following we’ll have to generate to spread your content

We have this part down to a science. We know how much it costs us to produce 40 articles or varying length and quality. We know the man hours required for key phrase and analytics research. We know the direct and indirect costs that go into generating 10 links, 20 links, 30 links, etc. We know the direct and indirect costs of boosting your Twitter following to 5,000 or 10,000 or 100,000 followers.

Now we’re ready to give you a price.

For this exercise, let’s assume your a small to medium sized business in a niche. For number’s sake, we’ll say the cost of a three month Marketing campaign to rank you for your key phrases will be $5,000.

Your job is to decide: Is SEO Worth It?. That is to say, you need to ask yourself, will undertaking this project add value to your entity?

If the answer to that question is ‘yes’ — even if by $1, your should fund the project. If the answer is ‘no’ then no matter what, you should turn down our offer.

But how can you answer that question?

Fortunately, with a little help from the Net Present Value formula or NPV and some information from you, we can make it easy for you.

If you’re not familiar with NPV, the first step is to get the present value of the project. That means, how much revenue the project is expected to generate in terms of today’s dollars. It looks like this:

PV = R(t) / (1+i(t))^t

where:

• t – the time of the cash flow
• i(t) – the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk.)
• R(t) – the net cash flow (the amount of cash, inflow minus outflow) at time t

To get the NPV, we simply add our required investment to the PV. However, note that the investment is almost always a cash outlay, so it may help to think of it as subtracting from the PV.

NPV = PV – initial investment

That will work for one time period, but what if the project is expected to generate revenue for multiple periods as is the case with an SEO project?

In that case, we need to add up the PVs from each of the periods and then subtract the initial investment from that sum.

That is:

NPV = PV of year 1 + PV or year 2 – initial investment

So, at this point, we have some knowns and unknowns.

We know the required investment is $5,000. We don’t know:

• How many years it will produce cash inlays
• What the discount rate is
• What the net cashflow will be for each of the years

Let’s start with the easy stuff first.

We know from experience, that on average SEO projects that lasted three months with no subsequent maintenance have produced cash inflows for about two years. So, ‘t’ in our formular would be 2.

We also know that this is a small risk investment. Not to toot our own horn, but we’re pretty good at what we do. Provided people actually want what you have to offer, we’re able to provide positive return on the investment.

Typically, U.S. Treasury Bills have the lowest risk of any investment. The mean real interest rate of US treasury bills during the 20th century was 0.9%.

We’re good, but we’re not that good. So again, depending on what your product, service or message is, there will be variance here, but it’s generally in the 4 to 8% range, so we’ll use .05 as our ‘i’ for both years.

We also can figure out about how much traffic you can expect from ranking on the front page of Google for your key phrases.

It looks something like this:

We can also use our research tools to find out how many people per month search for your key phrase.

So let’s say that there are 1,000 searches for your key phrase, which you rank somewhere on the front page of Google for.

That means there is about a 10% chance, on average, that the person searching will click through to your site.

That is the equivalent of 100 pre-qualified prospects.

That leaves two things we need from you to complete our formula:

1. What is your conversion rate?
2. What is the annual incremental value of one of your customers?

Let’s say that one new customer is worth $100 net and your conversion rate is 10%. That means you’ll be getting 10 new clients a month for a total net profit of $1,000.00 a month or $12,000.00 per year in year one.

Now, let’s assume you don’t do any maintenance work on your SEO ranking and you start to slip in year two. Your click through rate falls to 5%, but your customer value and conversion rate remain consistent.

That means in year two, we’d be looking at five new clients a month for an annual profit of $6,000.00.

Now we can complete our formula

PV = (R(t) / (1+i(t))^t = (12000/(1+.5)^1 + 6000/(1+.5)^2) =$1,0667.00

NPV = PV – initial investment = $1,0667.00 – $5,000.00 = $5667.00

In this case, NPV is positive, so you should take our offer and run the SEO Project.

This was a very simply use of Net Present Value. We didn’t have to worry about depreciation, salvage value or inflation.

We also assumed that your customer value was an after-tax evaluation.

But you can see that, deciding if SEO is worth paying for doesn’t have to be a mystery.