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In my last several blog posts,  I covered how to value a 1st page natural search engine ranking by comparing it with Pay-Per-Click costs (e.g. Google AdWords). While that is a worthy method for valuing rankings, today I’m going to discuss how to calculate how many sales and, drum roll… profits can be reaped from a first page ranking on Google.

Estimating the profits that can be attained from SEO is a great way to make wise decisions when considering search engine optimization for various keyword phrases. With these precious estimates, you can ask your SEO company to quote hundreds of possible keyword phrases, and narrow the list down to only the select few that give you the highest possible return. You’ll be able to say with some confidence that for every $1 I invest in SEO for this keyword, I’m going to get $5 back, and for this other one, $15.

So if we all agree that this would be nice information to have, how do we go about deriving it? Well, you’ve probably heard of Nostradamus. Like him, you just take your best guesses, and the ones that you get right will make you look like a prophet, or in this case, profit. Sorry, my mind often wanders off to random History Channel episodes. Lucky for both of us, in modern times there is no need to guess anymore. Google Analytics (the best free software in at least this solar system) can give us all the data we need to estimate profits from a 1st page organic ranking.

SEO Profit

Now I’m going to ask you an important question. Do you know your website’s sales conversion rate? If you answered yes to this question, then some would consider you an Internet marketing expert. Last week while I was having a few beers with some colleagues Taulbee Jackson, owner of Raidious (the experts at creating Content that Converts), mentioned how surprised he is that an overwhelming majority of people he meets don’t know their sales conversion rate. I would have to agree, and I meet plenty of people who don’t even know what ‘conversion rate’ means.

For those of you who don’t know what a website’s sales conversion rate it, don’t be embarrassed, in three seconds you will. A website’s sales conversion rate is the percentage of visitors to a site that become customers. It could also be your lead conversion rate if customers cannot actually buy your products or services on your website.

I hope we all agree that this is a crucial piece of data that we should be monitoring and trying to improve. If you don’t, then welcome to Internet marketing mediocrity.

SEO Valuation

If you don’t know how to get this data for your website, Google Analytics has two great ways to get it, Goal Conversion Tracking and eCommerce Tracking. Both of these methods are not set up by default on Google Analytics, but are not too difficult to employ. The nice thing about Google Analytics is that it allows you to track your conversion rates by keyword phrase (did I mention that it’s free?). This is crucial because different keyword phrases have different sales conversion rates.

For example, if you sell iPods on your site, your sales conversion rate for the keyword phrase “iPod” might be 3%, while your conversion rate for “black iPod nano” might be 5%, and “MP3 Player” around 1%. Further, your conversion rate for “GI Joe” is a shocking 0%. You get the picture. The more specific a keyword phrase is to the products you sell, the higher the sales conversion rate is likely to be because serious buyers are more specific with their queries.

You probably saw this coming, but your sales conversion rate is the main piece of information you need to estimate the sales that can be derived from an effective SEO campaign. If you read my last two blog posts, you can probably guess how this is going to end, but for those of you who haven’t, here is how you estimate the profit you can make from organically ranking for a given keyword phrase.

In this calculation, I am going to estimate the annual profit that can be attained from a first page ranking for an example keyword phrase on all search engines. To stick with my iPod example, I’m going to use the keyword phrase ‘iPod’ as an example. This analysis will determine the annual sales and profit from a first page position 2 through 4 organic ranking on all search engines for ‘iPod’. To be conservative, I chose to not consider a position 1 ranking because position 1 rankings can be extremely difficult to attain.

Here is a list of all of the variables you need to perform this calculation:

  • The Monthly Google Exact Search Volume for Target Keyword (See Google Keyword Tool)
  • The Monthly Google Phrase Search Volume for Target Keyword (See Google Keyword Tool)
  • Google’s Search Market Share (65% in June ‘09)
  • The Average Click-Through-Rate of a Position 2-4 Organic Search Engine Ranking (8.5%)
  • The Average Website Traffic from Long-Tail Derivative Rankings of the Target Keyword (1.08% of Total Long Tail Search Volume)
  • Your Website’s Sales Conversion Rate for the Target Keyword or a Closely Related Keyword (You can run a Google AdWords Pay-Per-Click campaign for the target keyword to estimate the conversion rate.)
  • Your Website’s Average Order Value per Conversion for the Target Keyword or a Closely Related Keyword
  • Your Company’s gross profit margin
  • Your Annual SEO costs for the Target Keyword Phrase

Because I do not own a company that sells iPods, to perform the below example I will be guessing what the bottom four variables are (conversion rate, average order value, gross profit margin, and SEO cost). So please do not go out and start an eCommerce site for iPods because of the gnarly figures within this post. The calculation is as follows.

Profit Calculation

 

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