Brand Matters: The (Somewhat) Simple Math Behind Search Marketing ROI
Many company presidents and CEOs are puzzled by the effectiveness of search marketing. Some have a “gut feeling” that it’s working, but are not 100% sure. Others have no clear vision as to how much they should be investing in search, and are “searching” for the elusive ROI figure. Many question if it fundamentally makes sense to augment their investment in the performance of their website and associated search marketing program.
SEARCH MARKETING ROI MATH
Let’s start with some basic numbers.
Our company in this example is ABC Co., and the following is a benchmark of where they are today.
- ABC Co. currently receives 1 lead per week from its website.
- 1 (Lead) x 4 (Weeks per month) = 4 leads per month
- 4 leads per month x 12 (months) = 48 leads per year
- ABC Co. converts 25% of these leads into sales.
- 48 (leads per year) x 25% = 12 sales per year
- On average, each of ABC Co.’s new sales equals a $10,000 value.
- 12 (sales) x $10,000 = $120,000 in current average new sales per year from web-related leads.
- Let’s say that ABC Co.’s average gross margin is 40%.
- $120,000 (sales from web) x 40% (average gross margin percent) = $48,000 gross margin.
Now Let’s Look at Some Basic Analytics Data.
Upon reviewing its Google Analytics, ABC Co. realizes that it receives
12,000 unique visitors to its website each year.
- The current annual bounce rate is 50%, meaning half of the current visitors
(6,000) are not engaging in the site.
- The company’s annual conversion rate is .4% (48 leads per year) on total unique visits,
and .8% per year on visitors who didn’t “bounce.”
- ABC Co. has determined that its annual sales closure rate
on conversions is 25% or 12 new sales.
Now for Some What Ifs:
Let’s take a very conservative projection of how ABC Co. could improve
its search marketing program, and resulting return on search marketing investment:
- What if ABC Co, with the help of a web/search marketing provider (like us), was able to
increase the number of annual unique visitors by 50%, or to 18,000?
- What if through reworking key website elements, the bounce rate
lowered by 15% to 35%?
- Finally, with some conversion optimization, what if the conversion rate
on unique visitors doubled, from .4% to .8%?
Results that Pay Off:
Here’s how the numbers would look with a $4,000 monthly investment in an annual
search marketing program of $48,000:
|Bounce Rate %||50%||35%||15%-|
|Conversion to Sale Rate||25%||25%||Same|
|Gross Sales from Web||$120,000||$360,000||$240,000+|
|Gross Margin %||40%||40%||Same|
|Increase in Net Sales||$48,000||$144,000||$96,000+|
|Investment in Search||$0||$48,000||$48,000+|
|Gross Sales after Investment in Search||$120,000||$312,000||$192,000+|
What’s the Return?
The Return on Investment percentage is the Increase in Net Sales ($96,000), minus the Investment in Search ($48,000), divided by the Investment in Search ($48,000).
($96,000 – $48,000) / $48,000 = 100%
With a smart investment in a qualified search marketing provider (like us), and using conservative figures, ABC Co. doubled its money. How do your numbers look? Give us a call or fill out the form, for a complimentary ROI analysis on search marketing for your business. The New Year is well under way. Let’s start making more money now!