SEO pricing model and ROI

I am doing research for my MSc about SEO companies. I need to come up with how to calculate ROI and analyze current pricing models. Any ideas how to calculate ROI, what pricing models do you know ?

With Organic SEO pricing models and ROI calculations are less accurate and more difficult to determine.

With PPC or sponsored search a pricing model and ROI calculation can be very accurate.

It should be noted that proper organic SEO will have very long term results so a $10,000 initial outlay that gives you a top position for 3 years is actually only $277 per month.

A PPC Campaign with similarly positioned results could be $500+ for the same return (these are purely examples not hard and fast fact) and when you stop the investment, you stop your return.

In order to effectively calculate visitors and conversions to sale I would look at something like the following, although this depends on market product and web site site conversion abaility.

This assumes a number 1 SERP position

S = Number of Searches per month
CTR = Click Through Rate expressed as a percentage
CR = Converation Rate expressed as a percentage
V = Number of Visitors
C = Conversions to sale

V = S * CTR
V = 10,000 * 5%
V = 500
Visitors to site = 500 for a 10,000 searches per month term

C = V * CR
C = 500 * 3%
C = 15
Conversions to sale = 15

So a realistic figure for a 10,000 per month search term would be 15 sales.

Now this depends a lot on the market and the web site's ability to convert to a sale.

If you know the average product profit you can then work out the ROI.

Average product profit = $100
So a #1 spot for your 10,000 search per month term would generate $1,500 with those Click Through and Conversion Rates.

If you had to pay an SEO $6,000 to get that #1 spot then you would get a 4 month return.

That is brilliant! Thanks a lot!

good answer tolber, but the question is, how do you get accurate information on CTR and traffic for top positions? Adwords? that's always accurate? maybe a BIT

PPC Campaigns are usually quite accuract and can be specified to +/- 25% with regards to visitors and monthly costs with a fair degree of success.

Organic campaigns are usually less reliable as you have less control over them. I use quite conservative values for CTR and conversion rates.

They are usually reasonably accurate over a whole campaign although there are sometimes individule terms that have extreme values.

Great post there tstolber.

That said: I take a stab...

Use the general inputs that you get from PPC to determine pricing and ROI is a reverse bell curve.

The main diffierences of Organic to PPC is frontal cost to ratioed returns over time.

PPC tends to have a flat rate ROI... your returns are incredibly tied to your willingness to spend more... your return is a fix construct.

Organic tends to be much more of a logrithmic return - the more you spend, the less it costs, and the more you make [but not because you saved money] - the reverse bell

Great explanation tstolber. I also agree on your last statement. To be #1 in ranking is not an easy job. You still need to wait for 3-4 months before you get it.

Maybe you didn't quite understand my last statement there.

When I mention a 3-4 month return, thats a return on investment not a 4 month period to get to the #1 spot.

The time it takes to get to a #1 spot is not a definative amount of time.
If there is very little competition just getting indexed might be enough so it may only be a few days to get to #1 for a non competetive search term.
A very competetive search term will take many months or even a few years to achieve a #1 rank for. Particularly due to the age of links and domains.

My statement was suggesting that based on the numbers I provided in the example that particular keyword would have given a return on investment in 4 months.