This page gives a primer on how to calculate your return on investment from a search engine marketing campaign.
Let’s
assume you invest $5,000 on a search engine marketing campaign. How
do you do an ROI analysis to determine what impact this has made on
your bottom line?
Below shows an example of how to calculate this is. NB This example
is for an e-commerce website where customers can directly make purchases,
i.e. conversions are measured as sales made on the site.
For sites that don't sell directly online other "definable actions"
need to be used to measure conversions (e.g. visitors sign up for
a newsletter; provide their contact details; download a file; or some
other defined action that puts them on the path to becoming a customer)
:
SE marketing campaign contribution = Visitors generated
(traffic referred from search engines/directories) X conversion
rate (visitors to your web site converting into customers) X average
profit (sale price minus cost price).
Example:
-
Visitors to web site generated by search engines / directories during SE marketing campaign = 10,000
-
1 % conversion rate = 100 customers acquired
-
Average profit per sale generated by website = $250
-
Based on the above hypothetical figures the SE marketing campaign contribution = $25,000 (10,000 visitors x 0.01 conversion rate x $250 profit per sale)
Provided
this campaign contribution figure exceeds the cost of the SE marketing
campaign ($5,000) then the ROI is positive and the SE marketing campaign
is warranted.
NB If your business has repeat business with clients (i.e. not just
one-off transactions) then a more appropriate calculation is to consider
the lifetime value of the customer. In this case:
SE marketing campaign contribution = Visitors generated
(click-throughs from search engines/directories) X conversion rate
(visitors to your web site converting into customers) X average
customer lifetime value (LTV = net present value of all future
contributions to profit)
Example :
-
Visitors to web site generated by search engines / directories during SE marketing campaign = 10,000
-
1 % conversion rate = 100 customers acquired
-
Average lifetime of a customer with the business in this example is 4 years & each year their spending generates $250 profit.
-
Average customer LTV = $1,000 (4 years x $250)
-
Based on the above hypothetical figures the SE marketing campaign contribution = $100,000 (10,000 visitors x 0.01 conversion rate x $1,000 LTV per customer acquired).
The above is a gross measure of the SE marketing campaign value.
To calculate the net campaign value the ongoing costs of servicing
customers over the 4 year lifetime should be deducted. Provided this
net figure exceeds the cost of SE marketing then the ROI is positive
and the SE marketing campaign is warranted.
NB the calculations shown above are basic examples only and the figures
used are hypothetical. Your conversion rate and LTV figures
will differ & be specific to your business.
By using your own figures
you'll get an idea of how investing in search engine marketing services
can benefit your business.
Investment in professional search engine marketing will generate increased
targeted traffic to your website and so allow you to leverage the
investment you have made in the website.
Please contact us
now to discuss your requirements.
