How to Measure and Report the ROI of SEO

Cara Bowles    By under SEO.

Stakeholders invest in business operations hoping to see results. Return on investment (ROI) is one of the most popular methods of measuring that because it boils everything down into dollars of profit earned for every dollar spent. SEO's cumulative nature can give it a very high ROI in the long run.

Unfortunately, measuring the ROI of SEO is not an easy task, and sadly, most guides will give you bad advice on how to calculate it.

Stakeholders are sometimes willing to go along with popular methods of measuring the ROI of SEO, but they usually do so begrudgingly.

Let's talk about the right way to measure the ROI of SEO, one that will leave stakeholders satisfied and less skeptical of the results of SEO efforts.

Why It's Important To Measure The ROI Of SEO

missed target

According to a study conducted by BrightEdge, organic search traffic is responsible for 53.3 percent of all trackable web traffic. SEO is valuable because it influences the amount of traffic, and the profitability of the traffic, from the web's most important channel.

But for stakeholders to continue investing in SEO, it isn't enough to sell them on the self-evident value of search traffic. Rightly, they need to be convinced that the resources they invest in SEO are actually impacting the revenue that they generate from search traffic.

Unlike paid channels such as social media ads and paid search, it isn't possible to directly measure how SEO efforts impact search traffic. Paid digital channels can be said to sell certainty: it's the main reason these channels are as successful as they are. Paid channels can, typically, guarantee a specific amount of traffic for a specific amount of dollars.

SEO is, by nature, less certain. But what it lacks in certainty it makes up for in longevity. SEO is a cumulative channel. Every dollar invested impacts traffic for years to come, rather than traffic for that month.

It's important to get the cumulative nature of SEO across to stakeholders, but it isn't enough. You are up against the certainty of paid channels, and it's part of your job to make SEO as certain a method of earning profit as possible.

The principle "what gets measured gets managed" is important to stakeholders. If you aren't measuring the ROI of SEO, you will instead optimize the other things you are measuring: rankings, traffic, and so on. It's possible to do these things and still lose the company money, and they are keenly aware of this.

This should all make it clear why measuring SEO is so important. Unfortunately, measuring the ROI of SEO is hard.

Why Measuring The ROI Of SEO Is Hard

difficult puzzle

At first glance, it might seem like the task of measuring SEO ROI should be relatively easy.

ROI is just profitability over cost, and it's easy enough to measure revenue from search traffic.

While tracking is never perfect, analytics programs can attribute what channel most visitors came from, and in any case, unless there is bot traffic, it will always be a conservative estimate. As long as you have ecommerce tracking setup in Analytics, or something similar, you can then easily measure how many dollars are earned each month from search traffic.

There are some complicating factors with measuring search revenue, but none of them are the root of the problem with measuring SEO ROI. For example, decisions will need to be made about whether to measure revenue generated that month, or to measure the projected customer lifetime value of conversions earned that month. You will also need to make decisions about how to attribute revenue, such as whether the first channel to send a user to your site gets credit for the ultimate purchase, or the channel that sent them when they actually make a purchase gets credit.

These aren't trivial questions about how to measure search revenue, but the data is all there in Analytics as long as ecommerce tracking is set up. The only question is which figure everyone will agree is the one most worth measuring.

The costs of SEO aren't all that difficult to measure either. It's easy enough to measure the cost of an SEO agency and any SEO employees, as well as SEO tools and services. Again, there are nontrivial complications, such as how to attribute SEO costs when the SEO team demands labor from developers and employees outside of the SEO team. But, once again, the only challenge here is deciding how to measure that labor and the costs associated with it. This isn't always straightforward, but it isn't the fundamental problem with measuring the ROI of SEO.

So what is the problem?

The general formula for ROI is simple enough:

ROI = (revenue - costs) / (costs)

It's tempting, then, to use this simple formula to calculate SEO ROI:

SEO ROI = (search revenue - SEO costs) / (SEO costs) [DO NOT USE THIS FORMULA]

But this formula is wrong.

The mistake can be subtle, but it's a glaring mistake once you see it. Stakeholders will often catch it almost immediately, since they are already skeptical of the value of SEO.

The problem is this:

search revenue ≠ SEO revenue

It really isn't fair to claim that revenue from search engines is SEO revenue, and the correct formula must use SEO revenue:

SEO ROI = (SEO revenue - SEO costs) / (SEO costs)

It's easy to see why we must use SEO revenue, and not simply search revenue if we ask ourselves how to get the highest SEO ROI. If we use the wrong formula, it's simple. Just cut SEO costs to near nothing. The site will still earn organic search revenue, and the SEO ROI will approach infinity. This is obviously wrong: if nobody is investing in SEO, none of the revenue is coming from SEO, and the SEO ROI should approach zero, not infinity.

So search revenue and SEO revenue aren't the same. Search revenue exists even without SEO investment, which is why stakeholders are always so skeptical of SEO in the first place.

Even if stakeholders can't spot the error in the formula directly, or agree to ignore it, the principle "what gets measured gets managed" takes hold, and in an effort to keep increasing this wrongly measured "SEO ROI," SEO costs will keep getting cut.

The way around this, is to come up with a meaningful definition of SEO revenue.

But what is SEO revenue?

Defining SEO Revenue

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It seems self-explanatory that SEO revenue is revenue earned as a result of SEO efforts. The question is how is that measured?

Another way to phrase this is to say that SEO revenue is revenue from search engines that wouldn't have been earned if it weren't for SEO efforts.

Hopefully, it's getting clearer by now just why stakeholders can be so skeptical of SEO. A question about SEO ROI is a question about a counterfactual:

"How much money would we have earned from search if we didn't invest in SEO?"

And, of course, the big problem here is that it's impossible to answer this question with certainty. There's really no way to measure exactly how much revenue would have been earned from organic search without investment in SEO.

In order to get a measurable figure for SEO revenue, then, we need to redefine it in a way that can be measured.

This is done by replacing the impossible-to-measure "organic search revenue earned without investing in SEO" with some sort of benchmark organic search revenue, and using this definition:

SEO revenue = search revenue - benchmark search revenue

What can we use as our benchmark search revenue?

What To Use As A Search Revenue Benchmark

A useful search revenue benchmark will act as a good proxy for the hypothetical search revenue a business would have earned without investing in SEO. This usually amounts to using a metric that could loosely be defined as "the search revenue a site earned before SEO costs were invested."

What makes this complicated is the fact that previous SEO investments continue to generate revenue years afterward. This is undoubtedly a good thing, but it leads to important questions about reporting.

Let's use an example.

Suppose that a business invested nothing in SEO in 2018, and the search revenue for 2018 was $10,000. Now suppose that in 2019 they invested $4,000 in SEO, and their search revenue increased to $18,000. Using 2018 as a benchmark search revenue, the SEO revenue for 2019 would be:

$18,000 - $10,000 = $8,000

The SEO profit for 2019 would be:

$8,000 - $4,000 = $4,000

So the SEO ROI would be:

$4,000 / $4,000 = 100%

This is straightforward enough, but how do we report SEO ROI in 2020?

Suppose that in 2020 the business continues to invest $4,000 in SEO, and suppose the total search revenue for 2020 is $26,000.

What do we use for our search revenue benchmark? Do we continue using 2018 as a benchmark? Do we shift to using 2019 as a benchmark?

The answer to that question depends on whether we are reporting SEO ROI for 2020, or if we are reporting SEO ROI for the two year period since we started investing in SEO, the period from the start of 2019 to the end of 2020.

If we are reporting the SEO ROI for 2020, we must use 2019 as a benchmark, even though 2019 was a year we invested in SEO. This is because the SEO spending in 2020 can't be responsible for all of the gains since 2019, only the gains in 2020.

If we were to calculate SEO ROI for 2020 only, we would start by finding the SEO revenue for 2020 using 2019 as a benchmark:

$26,000 - $18,000 = $8,000

So the SEO profit for 2020 would be:

$8,000 - $4,000 = $4,000

And the SEO ROI for 2020 would once again be:

$4,000 / $4,000 = 100 percent.

While this is accurate, you would be right to feel like you are underreporting your success if stakeholders are only seeing two years with an ROI of 100 percent. This is because, in 2020, the SEO investments made in 2019 are still paying off. This is why it's important to make sure to zoom out and give stakeholders a big picture of the overall ROI of previous SEO efforts, rather that simply giving perioding updates of the ROI of small periods. The cumulative nature of SEO means that it's ROI is best measured in the long term. If you were to report only monthly ROI, for example, it would be easy to give the impression that SEO investments are losing money.

Using the same example, let's find the SEO ROI for the two year period including 2019 and 2020.

In this case, we would use 2018 as the benchmark for both years. The SEO revenue for 2019 would still be $8,000, but the SEO revenue for 2020 would be:

$26,000 - $10,000 = $16,000

So the total SEO revenue for the two year period would be:

$8,000 + $16,000 = $24,000

Since $4,000 was invested each year, the total SEO cost for the two-year period is $8,000 and the total SEO profit for the two-year period is:

$24,000 - $8,000 = $16,000

And the total SEO ROI for the two-year period would be:

$16,000 / $8,000 = 200 percent

This draws attention to the fundamental difference between cumulative and linear promotional methods. If a company earned an ROI of 100 percent from paid search ads two years in a row, the overall ROI for the two year period would be 100 percent. But since SEO efforts have cumulative impacts, the previous year's efforts continue to pay off the next year, and the result here is an overall ROI of 200 percent that would only be measured as an ROI of 100 percent on a yearly basis.

Conclusion

The ROI of SEO has a cumulative effect. The SEO costs of previous years continue to earn profits in the following years. But the revenue generated from SEO efforts can only be measured against benchmarks from the past. SEO ROI is easy to overreport in ways that make stakeholders skeptical, and easy to underreport by failing to account for its cumulative effects. Use this guide to arrive at a definition of SEO ROI that will please both stakeholders and the SEO team.