What investment is needed for SEO?

A colleague of mine has asked me to try and explain the ROI calculation when optimizing websites. This question is extremely difficult to answer, but I will do my best and try to explain how I do it in the huge site scenario.

How much is this traffic worth? What type of revenue can you obtain and what is your cost to provide this service or product. For this example I will use something simple, a product that I know very well since I have a site that sells them. “Darts”

High end competition Darts fetch an average price of $100, with an MSRP of $140. These darts cost with all discounts applied $55. Allowing you to have a 45% Gross Margin.

Based on data from Overture, there where 31,921 counted searches for the keyword Darts. If you assume a 1% CTR with a ranking of 1, 2 or 3 you would receive approximately 319 visitors a month. Since we used overture this is only a small portion of what you could receive with Google. But for this instance we will assume that Yahoo is the only source of traffic.

So with this example, you can assume 6 orders a month based on an average 2% conversion rate. We now know that this keyword will bring in a Gross Margin of $270.

Now that we know how much we can make when people land on this keyword you need to understand the factors involved with SEO and how to strike this on a P&L. These are sectioned of in buckets for ease of understanding.

1). Content

How much content do you really need? This strictly depends on the subject. In this case the competing sites that appear at the top of Yahoo contain around 500 pages of content. Most of these pages are very light on content, so we can be assured that 100 well written pages could be enough to move you to the top. The industry price for content is usually somewhere around $10 - $40 per page based upon what type of content you are looking for. Darts are easy to write about, not much to them but a proper explanation of the look and feel could really help. Let’s assume that you can get it done for $20 a page. We now know that an investment of $2,000 is necessary to build good content pages.

2). Optimization of Code

Commonly you need to focus on the following factors when optimizing sites.

META Tags
URL Optimization – or URL Re-Write
Internal Site Linking Structure
Site Accessibility

Let’s assume you actually pay your developer what they are worth, $5,000 a week or so full time. A well built site with a 100 or so pages should take about a week to build and optimize. We know now what the Optimization cost is.

3). Link Popularity

The top sites in the Darts industry have around 50 high quality links, to obtain 50 high quality links assume to pay around $40 a month per link. Your monthly cost for links would be around $2,000.


Now let’s talk about the math and a few other important factors.

We know that our fixed costs to optimize this site will be about $7,000.00. We also know that an extended cost of $2,000.00 is need per month to maintain the sponsorship links to the site. If we spread the cost of the optimization and links across a span of a year our fixed monthly cost is $2,583.33.

$+$270 GM Per Month
$-2583.33 Cost for SEO
$200.00 Per month to maintain the site
In this case you would receive a net loss of $2,513.33

Alone this is not enough to have a viable business model. However there is something that I like to call SEO bleeding, the factor that is very hard to explain. If your links are distributed across multiple categories that are related to Darts you will rank for multiple terms. For instance, you may have a list of different dart types. Let’s say we have 2 main categories and several additional categories for supplies and accessories.

Steel Tip Darts
-Fixed Point Steel Tip Darts
-Moveable Point Steel Tip Darts
Soft Tip Darts
Darts Accessories
-Darts Case
-Dart Shafts
-Dart Mat
Dart Supplies
-Soft Tips
-Flights
Dart Boards
-Soft Tip Dart Boards
-Steel Tip Dart Boards
-Electronic Dart Boards
Etc.

When you examine the “Tail” you can determine that not only are there quite a few big terms that people would type in the search engines but there are a lot of products that people are looking for by name. To know exactly how much your tail is worth can be difficult, many tail related terms are not purchased so search counts can be hard to research. In my general experience a long tail can be worth 3 to 50 times the value of the head. However in this case we only have 100 pages, with a possibility of 2 tail terms per page, on average. Tail related terms have a higher CTR, of about 25% +/- depending on the industry, especially due to being so specific in nature.

In this case I will assume that my tail is worth 25,000 searches per month and that my average ranking is 3. If this where the case there would be 6,250 clicks in per month, usually tail related terms can convert at an average of 2.5 to 5.0% Let’s assume that we are getting a 3% conversion rate in this example. Now we are adding an additional 188 orders per month, however since we are spreading the traffic around multiple products lets lower our average order amount to $50 and maintain a GM of $25.

Our remaining loss from the main keyword of darts is $2,513.33 per month.

Starting balance
-$2,513.33
+$4,700.00
Net Profit $2,186.67 estimated.


If we assume that Google produces 5x what Yahoo does in terms of traffic, the GM skyrockets at the point. I hope this helps, I will write more about the bleeding affect at a later date.