by Kevin Bailey
One of the first important questions to ask yourself before investing in an SEO campaign is, “What’s the value of a first page search engine ranking anyway?” Below I have calculated the annual value of a 1st page Google organic ranking for ‘Health Insurance’ to be $7,471,194. And yes, I’m talking over 7 million US dollars here, not Kazakhstan Tenge. As strategic business decision makers, putting a dollar value on what a first page ranking is worth is crucial to deciding how much time, effort and money to invest into your SEO campaign. Further, you can compare the value of multiple keyword phrases and start performing pro-forma ROI analyses that compare search engine optimization with other forms of marketing, such as direct mail.
Estimating the value of a 1st page ranking on any search engine is a straightforward analysis that requires a few minor assumptions. I consider this analysis straightforward because Google already gives you most of the information you need within their keyword tool. When I value a ranking I’m trying to calculate the ranking’s fair market value, or what I would have to pay another comparable source to get the same amount of targeted traffic to my website.
You may have had to perform a fair market value “comp analysis” the last time you purchased a new home. When performing a home comp analysis, you average the price of other homes recently sold in your area of comparable square footage, age, location and features. The theory is that if you can calculate what the market is willing to pay for a given home, you can determine if the seller’s list price is fair or not.
You can perform this same type of analysis before undertaking a search engine optimization campaign by analyzing what your competitors are paying Google AdWords per click to rank for a given keyword phrase. Similar to the home comp analysis described above, if your SEO campaign is going to cost more than paying a search engine directly for the traffic, SEO may not be the optimal solution. Although, this is rarely the case, and the vast majority of SEO campaigns end up being five to fifteen times more cost-effective than pay-per-click campaigns. This is before considering that once top organic rankings are attained, they often persist into the future with very little ongoing investment (think compounding ROI). Needless to say though, pay-per-click can be extremely effective when applied correctly.
One thing that was drilled into my head in business school when performing financial analyses is, “Always be conservative.” Politics aside, being conservative with your assumptions when considering marketing investments will ensure that you and or your boss will always beat the estimates. This can lead to good things, like raises, promotions, new cars, and the avoidance of divorce proceedings. Therefore, the first SEO valuation I’m going to describe to you will be conservative because it will not consider organic rankings on search engines other than Google, long-tail derivative search engine rankings, and the perpetual nature of organic rankings. This analysis will determine the annual value of a first page position 2 through 4 organic ranking on Google for ‘Health Insurance’. To be conservative I chose to not consider a position 1 ranking because position 1 rankings can be extremely difficult to attain.
The first two figures you need to start the analysis are the Google AdWord’s average cost-per-click for ‘Health Insurance’ and the global average monthly exact search volume. These figures are outlined in red in the keyword tool screen shot below. Please note that I changed the Match Type to Exact so that my valuation will not take into consideration long-tail derivative rankings. Technically, when you optimize your website for a specific keyword phrase, such as “health insurance,” you will also attain top rankings for a number of long tail keyword phrases, like “affordable health insurance” and “individual health insurance.” For the sake of being conservative, we will not consider these rankings in this valuation.
Now that we know that the average monthly search volume for “Health Insurance” is 823,000 and the average cost-per-click is $8.90, the final figure we need is the average click through rate of a position 2 through 4 organic ranking on Google. The most reliable figure I’ve seen for this statistic is within the Enquiro/Marketing Sherpa 2007 Business to Business Survey. Within this extensive study they found that 52.6% of all search engine traffic clicks on a top 4 position organic ranking. Further, they found that 27.1% of searchers click on the first organic listing. Because we’re not considering the first organic position in this analysis I will take 52.6% minus 27.1% divided by 3 to get an average position 2 through 4 click-through-rate of 8.5%. I trust this figure because Slingshot SEO’s client base’s average click through rate for those positions is 8.9%, only a few tenths off. Below is the simple math required to derive the annual value of a first page Google organic ranking for “Health Insurance.”
Step 1:
823,000 Monthly Exact Search Volume for “Health Insurance”
x
8.5% Click-Through-Rate of a Position 2-4 Ranking
69,995 Visitors per month
Step 2:
69,995 Visitors per month
x
12 Months
839,460 Visitors per year
Step 3:
839,460 Visitors per year
x
$8.90 Google AdWords Cost-Per-Click
$7,471,194
Now you may be asking yourself, “I’m trying to optimize for all search engines, so what’s the value of ranking on all US search engines?” Below is how I would calculate the value of organically ranking on all search engines. Please note that for simplicity I’m using Google AdWord’s average cost-per-click as the cost-per-click for all search engines. The only extra figure you need to perform this analysis is Google’s search market share. comScore calculated Google’s search market share for June of 2009 to be 65%.
823,000 Monthly Exact Search Volume
/
65% Google Search Market Share
x
8.5% Click-Through-Rate of a Position 2-4 Ranking
x
$8.90 Google AdWords Cost-Per-Click
x
12 Months
$11,494,145
Now you have a simple technique for estimating the value of an organic ranking. In part two of this post I will discuss some other valuation techniques and take a closer look at the cost, effort and time involved in attaining a 1st page organic ranking on Google. Regards.
For part 2 of this two-part series, please Click Here