The first question to ask before investing in an SEO campaign is “What is the value of the first page organic ranking anyway?” For example, I’ve calculated the annual market value of a first page Google organic ranking for ‘Cosmetic Dentistry’ to be $295,367. For a strategic business decision maker, putting a dollar value on the 1st page organic ranking is critical in determining how much time, money and effort to invest into your SEO campaign. Armed with this information you can perform a pro-forma ROI analysis that compares search engine optimization with other forms of marketing such as PPC or direct mail.

Calculating the fair market value of an organic ranking is a straight forward process that requires a few assumptions. Google gives you most of the information you need with their keyword tool, and the assumptions can be gathered from the analytics data collected from your web site, or from other sources. The fair market value calculation is basically a “comp analysis”, or what would be the price of another comparable source to drive 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 comparable homes recently sold in your area. If you can calculate what the market is willing to pay for a given home, you can determine if the seller’s price is fair. This same type of analysis can be performed before undertaking a search engine optimization campaign by analyzing what your competitors are paying Google Adwords to rank for a given search term. 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. Of course pay-per-click can be extremely effective when applied correctly.

So here’s how I came up with a conservative estimate for the fair market value of the search term “cosmetic dentistry” using Google keyword tool:

The first step is to gather 2 pieces of information from the keyword tool. You will need the Global Monthly Search Volume and the Estimated Average Cost Per Click. In the case of ‘cosmetic dentistry’ search term, the Exact Match values are 40,500 and $7.15 respectively. These figures are outlined in red in the screen shot. Please note that I changed the match type to Exact, so that my valuation will not include any of the long tail derivative rankings. Usually when you optimize your website for a specific search term such as ‘cosmetic dentistry’, you will also attain top rankings for long tail keyword phrases such as ‘florida cosmetic dentistry’ or ‘cosmetic dentistry specialist’. Since we’re working on a conservative estimate, these rankings will not be considered in this valuation.

To complete our analysis we need to know the average click through rate of a top organic search engine position. If you already use a web analytics tool such as Hitslink, you may already know the average CTR for your organic listings. Other sources such as Enquiro/Marketing Sherpa B2B Survey indicate that 52.6% of all search engine visitors click on a top 4 organic listings. Further, the study shows that 27.1% click on the first organic listing. Since this is a conservative estimate, I will drop the top position and will only consider positions 2, 3 and 4. So subtracting 27.1 from 52.6 and dividing by 3 gives us an average click through rate of 8.5% for positions 2 through 4.

Taking all of the figures here is the estimated annual value of the top organic ranking for the ‘cosmetic dentistry’ search term:

12 x (Monthly Exact Volume) x (Avg. Click Through Rate) x (Estimated Average CPC)

or

12 x 40,500 * 0.085 * $7.15 = **$295,367**

As I said before, this is a very conservative estimate, that does not account for long tail derivative search terms and only assumes Google traffic. You can adjust this value by including contributions from other major search engines into the calculation. According to Net Applications, global search engine market share for Google in February 2010 reached 85% of the total search engine market share.

We can use this data to modify our formula and get a slightly better view of the valuation:

12 x ((Monthly Exact Volume) / (Google Market Share)) x (Avg. Click Through Rate) x (Estimated Average CPC)

or

12 x (40,500/0.85) * 0.085 * $7.15 = **$347,490**

Now you have a very simple technique for estimating the annual value of attaining a top organic position for a particular search term. For more in-depth and detailed analysis of your search terms and web site optimization requirements, retaining an SEO consulting firm can lead to increased search engine visibility and consequently ROI.

Great post, Ed. Very helpful. I really like your formula and that you are estimating conservatively. Great approach to valuing a KW-oriented organic SEO strategy vs PPC.

Wow this is a really great formula. I like it. thanks.

Hmm. It seems to me you calculated the value to GOOGLE of the SERP position, that is, you calculated the cost of an equivalent number of pay per click ad clicks. But that is likely to be far different than the value the cosmetic surgeon would derive from those clicks. And that’s the real number any search marketer or small business owner is seeking. If none of the click turn into customers, then the doctor will not put much value in the ranking other than ego boost. If the clicks do turn into customers, then a much more compelling number for the doctor would be the revenue generated by those clicks. Just go a few steps farther and figure the conversion to lead or call and the conversion to actual purchase of costmetic surgery and you’ll have an even more compelling number – a bottom line number that the doctor can definitely relate to.

Outtanames999, thanks for your insightful comment.

Of course knowing the conversion rates is important in determining the ROI, but conversion rates are more of a function of the landing page optimization then the SERP position. I’m just trying to provide a quick method of evaluating SEO vs. PPC costs by doing a comp analysis of the 2 traffic generation methods.

Cheers!

-Ed.

Thanks for the great article…but where and how in the Google keyword tool do you get the CPC bid (in your example the screen shot that shows the CPC for “cosmetic dentistry” is $7.15. I can’t seem to find it working through Google. Thanks!

Dave,

You must use the Show/Hide columns drop down to select the columns you want included in the report. CTR is one of these columns. If you look at the screen shot, you will see the drop down right above the search volume trends column.

Thanks for your question!

-Ed.

Nice topic. I was looking for ideas on trying to value organic search engine results so this is a great start. I found a similar table of click rate statistics for the top 10 positions on page 1 which should make my calculations relatively accurate.

Thanks for the info. I am always trying to figure out how the Local Maps section affects the click through rate of a number one ranking. Do you know of any studies done?

Great formula. Thanks for the help as I begin this new venture.

You should be in the habit of tracking all these metrics for your business. What you measure, you can control. Keep track of visitors, conversion and average order value and you will be better equipped to improve on past performance. Keep a list of the top keyphrases as relevant to your business, and use calculations like those above to decide what to optimize your site for.