Calculating how much to spend on SEO

7 minutes

Calculating how much to spend on SEO

It’s no secret that SEO plays an important role in every inbound marketing strategy. Although most marketers understand how critical it is, for many it is difficult to determine how much should be spent on SEO. 

Although there’s no simple formula for setting an SEO budget, we’ll run though some strategies that your business can use to find a number that’s right for you.

Digital vs Traditional Marketing Budgets

Most marketing budgets typically include a split between digital and traditional marketing activities. B2C businesses spend an average of 5 to 12% of their revenue, while B2B businesses spend 8% to 9% of their revenue on marketing spend. 

Once your team have determined the total or overall marketing budget, it’s then time to consider how much emphasis should be placed on digital strategies. Forrester Research found that companies devote approximately half of their budget to online/digital strategies including SEO, paid advertising and social media. Businesses that are purely web-based were found to spend more on digital.

Determining how much to spend on SEO

There’s no set rule for calculating SEO spend so we’re going to go through a few methods that can be used to budget. 

1. Commit a proportion of your overall marketing budget

In this scenario, you would set aside a percentage of your digital marketing or overall marketing budget for SEO. The amount is based on how reliant you are on web traffic to generate leads or sales. For example, e-commerce businesses will need to spend more on SEO than service-based B2B businesses.

2. Set a flat dollar amount

Here you’ll examine the line items in your marketing budget and determine how much you think you can set aside for SEO. The issue that comes with this is that SEO is seen as a secondary channel and basing your budget solely on what you’ve determined you can afford compared to other activities may mean you are underinvesting and not seeing meaningful results.

A study by Backlino found a direct correlation between spending and customer satisfaction. The reason for this is low-budget SEO means clients walking away with less when compared to those investing more completely in SEO.

3. Match your competition

If your business has competitors aggressively targeting high value keywords, it’s a strong indication that you’ll need to commit more to SEO to maintain your share of traffic. Here you’ll need to compare your current rankings to that of your competition and measure the opportunity cost of losing customers to them. The great thing about this approach is that it helps you decide if SEO should be prioritised. If yes, you’ll then need to speak to an agency and determine how much it’ll cost to outrank your competitors.

4. Consider your marketing objectives

Instead of thinking about dollar amounts, think about your broader marketing objectives and the impact SEO could have. For example, do you rely on increased organic traffic to meet key KPIs like the number of leads? Or are you already meeting revenue goals but looking to expand and gain more authority in your industry? Using this method, you’ll need to ensure you’re setting the right expectations for your investment plus invest enough to achieve the desired results. 

5. Calculate the value of a competitor’s organic traffic

Tools like SEMrush and Ahrefs allow you to see how much organic traffic your competitors are receiving. It works by estimating traffic on a target page by looking at keyword data plus estimated click-through rates. From there, you can take it a step further and attach a dollar value to the traffic. Here’s how:

  • Estimate the conversion rate of visitors to the target site. You can industry averages or your own conversion rate. When doing this, make sure you’re using organic conversion rates and not paid as the numbers are very different.
  • Based on your knowledge, estimate the average value of a conversion. For example, if it’s an e-commerce site you would estimate the average order size. For service-based business, you’ll need to then calculate the close rate and assign a value there.

For example, if a competing e-commerce site has monthly traffic of 50,000 visitors, a 2% conversion rate and an estimated average purchase of $100, the page is valued at $100,000 (50000 x 0.02 x 100).

As another example, if a competing service business has monthly traffic of 10,000 visitors, a 2% website conversion rate, a 20% closing rate and an average deal size of $1,000, the page is valued at $40,000 (10000 x 0.02 x 0.2 x 1000).

This strategy relies on estimation and isn’t highly precise. However, if used consistently it helps accurately demonstrate the rewards of investing in SEO. By simply comparing the value of your site to a competitor, you can identify if there are any opportunities for investing.

6. Look at customer lifetime value (CLTV)

Where the above method focuses on a one-time transaction you could take it a few steps further and look at the CLTV if your business is focused on customer satisfaction, brand loyalty and retention. 

For example, let’s say your business has a page that brings in 10,000 visitors a month and you convert 2% of these visitors. This means you’re getting 200 customers a month. If the CLTV is $1,000, then your page is worth $200,000 overtime.

This $200,000 figure can be used to work how an amount to invest in SEO. For example, if you want to lift traffic by 10%. This 10% increase in traffic at the same conversion rate results in an extra $20,000 in revenue.

7. Compare paid search and SEO effectiveness

Many companies are over-reliant on PPC due to it generating fast results. However, research shows that just over 50% of web traffic is created organically while paid generates about 15%. In situations like this where SEO is more effective at generating traffic, it’s a good idea to shift some of your budget towards SEO as it’s likely to yield bigger returns on your investment.

One thing to keep in mind with PPC is that when you stop running ads, your visibility drops. By investing in SEO and optimising your website, you’ll be able to drive traffic over the long term even if you do stop investing down the line. For most businesses though, we recommend a mix of both as they can be used strategically to supplement each other.

The case for increasing your SEO budget

As you start to crunch your numbers and reach out to agencies, you may find that the amount you should spend is higher than what you expected. Budget stakeholders may not understand why such an investment is necessary so we’ve included some points on how to take it to the top.

Cheap SEO doesn’t deliver significant results

As we mentioned above, there’s a link between SEO spending and satisfaction. Backlinko found that customers who invested above a minimum threshold were 53.3% more likely to be extremely satisfied as compared to those spending less. Our recommendation is that you partner with professionals serious about your success and focused on results.

SEO is extremely effective compared to other digital channels

Instead of spreading your budget thinly across multiple channels, it’s better to prioritise where that money will bring the highest yield. Keep in mind that:

  1. Organic search has a conversion rate of 5% -  this is higher than email (3.9%), paid search (1.6%) and social media.
  2. According to Google, for every one click on an ads a business will receive five clicks on organic search results
  3. SEO generates 1,000% more visitors than organic social medai.

Privacy changes in 2021 and 2022 impacted online advertising

It’s very common to spend on PPC instead of SEO due to the fact you can see nearly instant results. However, there are many problems with this approach but one to keep in mind in 2022 is the impact of privacy regulation across the world.

In 2021, Google and Apple introduced restrictions on third-party cookies. Third-party cookies are what enable sites and platforms to track users as they visit different websites. The restrictions that were introduced have and will continue to reduce the effectiveness of digital ad strategies including PPC and retargeting campaigns.

These privacy changes only affect third-party cookies and not first-party cookies used to track visitors on your own site which is why SEO remains a strong digital strategy.

SEO budgeting that makes sense

As we’ve touched on, the budgeting process can work in many different ways depending on your business. When clients approach us requesting SEO services, we use a mix of the above to determine whether or not SEO is the right investment for their business. If you’re still unsure about how much you should be investing in SEO, feel free to get in touch with us today for a free consultation.

Related Resources