Calculating the value of organic rankings
(Not often do marketing agencies speak directly to the CFO hidden inside each of us, but today, we shall)
Before you pay anyone, any agency, any contractor, or any employee to do SEO for you, you should try to quantify the value of marginal growth in organic rankings. When I say marginal, I don’t mean trivial, I mean growth by the margin, “the next one”.
The difference between calculating ROI from a paid ads campaign and investing in your organic presence is essentially the concept of amortization. Amortization is the idea of spreading something out. In mortgages, the details are typically spread out over a 30-year term. There is a slightly more complicated concept of this being non-linear in mortgages, but for the sake of the analogy, we can assume amortization means to spread something out evenly over time.
If you spend $3k this month on ads, you measure what you get from it, and can easily calculate a return or a loss on that amount of cash invested. In real life, this still requires some assumptions, like pipeline conversion rates, the likelihood of leads turning into customers, etc. but the simplest calculation would say that if you sold $6k in retail value and have a 50% margin, you broke even in the immediate term, and also won some new customers, grew the reach of the business, grew your lists for remarketing, etc. and hopefully you have a repeat customer rate that is more than 1. But, the simplest calculation shows cash spent, things happened, made, or lost money on that activity, in a single period of time.
If the same $3k were able to bring in value (traffic, customers, sales) for say, a year… the accounting principle of tying expenses to their associated earnings would allow you to calculate an amortized $250 per month in cash invested over that year. The value and ROI calculation are the same, but the value that comes in over time allows you to allocate the invested cash over that same period, and in many instances creates a net positive return on the capital. The bar that needs to be jumped over for this to be a valid use of your cash is divided by 12 (assuming the returns come in over that year.) and this is the type of thinking that illustrates the value of SEO.
When we are working to win new rankings for clients, we typically see improvement in the next month and report on it. From there, traffic starts to come in through that ranking and will vary based on search volume, position, SERP features, or any number of things… But, the value earned from the effort continues to drive traffic to the business beyond the calendar month that we did the work. This is how returns can stack, and the ROI becomes closer and closer to obvious.
This is not to say that it pays for itself immediately, and small businesses need to make sure they have the cashflow and runway to afford the effort still, but in time, when done well, the amortization of the expense becomes such that you build a growing traffic channel that is no longer as tied to ad spend. You can start to see advertising as one way to drive new traffic to the site… but no longer the only way.