Estimating the Value of Search Engine Optimization

12:28 2007

Search Engine Optimization (SEO) is the holy grail of Internet marketing because of the allure of 'free' traffic.

There’s no doubt… achieving a number one ranking in Google or Yahoo for high traffic volume keyword phrases can be extremely profitable for any business.

Because of this, SEO may be the most competitive and difficult areas to achieve online success in. Think about it… there can really only be one website ranked number one in Google or Yahoo for each country!

But how much is a top ranking actually worth?

One way of estimating the value of a top ranking in Google or Yahoo is by calculating the cost of a top position for a particular keyword phrase in the Pay-Per-Click (PPC) engines.

For example...

Let's say you want to estimate the value of a #1 ranking in Yahoo for 'car insurance'. Here's one way of estimating the value of this ranking:

1. First we research the number of people searching for 'car insurance' on Yahoo Australia. We find that there were 26,210 searches last month for that phrase.

2. Next, we research how much the top position is costing the advertiser per click (CPC) for the keyword phrase 'car insurance'. We find that the top bid is \$4.49 per click.

3. Next we take the average Click-Thru-Rate (CTR) of an advertiser in the PPC engines, which is 1%, and we calculate the estimated value of the #1 position.

Here is the formula:

(number of searches per month x CTR) x CPC = estimated value of #1 ranking

or...

(26,210 x 0.01) x \$4.49 = \$1,176.83

So, from this calculation, the estimated value of a #1 position in Yahoo for 'car insurance' is \$1,176.83 per month.

Now if you were able to get a 2% CTR (which is very possible if you know what you're doing), then the estimated value would double to \$2,353.66 per month.

And if you were able to get a 3% CTR (which is possible if you're very good), then the estimated value would triple to \$3,530.49 per month.

The reason we estimate a #1 ranking using this formula is because we can automatically get a #1 position for ANY KEYWORD PHRASE by bidding the highest amount.

Importantly, getting a top ranking for any keyword results in 'free' traffic... but it does cost time and money to get that position.

SEO is only viable when the estimated value of the #1 ranking is higher than the total cost of getting that position through PPC advertising.

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