Ever wonder if there is a stable, predictable equation for figuring out if your ROI will be worthwhile on your Internet marketing investment? There is!
There are lots of variables and assumptions you’ll have to make, but the more data you make these assumptions from, the better your prediction model will be.
The Pieces of Website Monetization
- Search Volume for Keyword
- Click-through Rate from SERPs
- Site Conversion Rate
- Average Order Value/Value per Customer
If these values are known, you just multiply across to get the amount of profit over the amount of time covered by your search volume number. I use Google’s keyword tool, so my calculations are profit monthly. Many of you will be using other tools like Wordtracker that pull volume by day, so just multiply that times 30 to get your monthly revenue stream.
The keyword ‘puma shoes’ gets 246,000 searches per month on exact match. Exact match is good to use because it gives you a more accurate number of potential searchers than broad match.
Click-through Rate from SERPs
The AOL study that cited average click-through rates of the first page give the following percentages:
Position 1 : 42% CTR
Position 2 : 12% CTR
Position 3 : 8.5% CTR
Position 4 : 6% CTR
Position 5 : 5% CTR
Position 6 : 4% CTR
Position 7 : 3.5% CTR
Position 8 : 3% CTR
Position 9 : 3% CTR
Position 10 : 3% CTR
In my experience, I have found those CTR to be quite a bit higher than actual. For branded terms, expect them to be higher (ie. Searchers for the term ‘google analytics’ will likely give higher CTR to analytics.google.com than to subsequent results).
These percentages are at the very least a starting point for your calculations before you have great data to back up your own decisions. Use the decimal .03 for calculations of 3%.
Site Conversion Rate
However your site converts your visitors, express that as a percentage. If from the past 1000 visitors, 35 converted to your goal (purchased, clicked an ad, signed up for newsletter, etc.), you have a conversion rate of 35/1000 or 3.5%. Use .035 in your calculations.
Average Order Value/Value per Customer
This is the last piece of information needed to know your expected site monetization. If you are selling products, this is a simple calculation: Just take the amount of revenue over the last year, month, or whatever time period you are considering, and divide that by the number of orders received. This will tell you on average how much your clients spend. For instance, if you had $600,000 in sales last quarter, and that represented 20,000 orders, divide 600,000/20,000. This tells you that your average order size is $30, and you can use that in projection calculations.
Value per Customer
Average order value works great for calculations, but what if you have an ad-driven model? Your customers don’t have an order value, right? In this case, you’ll want to find out how much money your ads/affiliate commissions pay per visit. Once you know that, you can calculate without the site conversion rate because your rate is baked into this calculation.
Put it All Together
Let’s go off of the assumptions we have made for each piece. Say we are highly relevant for the term ‘puma shoes’ at the search volume of 246,000. Let’s say we are currently in the 6th position, garnering 4% of clicks. We have a 3.5% conversion rate once the visitor is on our site, and an average order value of $30. The equation is below:
246,000 x .04 x .035 x $30 = $10,332/mo
What amount of money would be worth the investment in SEO to get into the 2nd position? Changing the CTR from .04 to .12 would triple your revenue per month in our equation. This is a very concrete reason to change your marketing budget in anticipation of future profits.
Let’s do the same situation for an ad-driven site. Imagine that we are still targeting ‘puma shoes’ in the 6th position currently. Let’s also assume that each visitor is worth $.002 on a $2 CPM:
246,000 x .04 x .002 = $19.68/mo
I hope this helps you in determining your Internet marketing budget, startup feasibility studies, or whatever else you need to determine monetization for. This personally helps me constantly, so feel free to share it around with anyone else dealing often with websites. Remember that SEO takes time, but is totally worth it.