Complete guide to calculating your SEO ROI

This article will give you all the keys to calculate the ROI (Return on Investment) of your SEO strategy.

ROI is an indicator that allows comparing investments by measuring the ratio between the money invested and the money gained or lost in return for the investment.

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ROI thus answers the following question: how much did a given use of your money allow you to earn? 

SEO, or natural referencing in French, aims to position your site in the first spot on Google for queries that are strategic for your business, without having to pay for Google Ads or other advertisements. 

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Calculating the ROI of implementing an SEO strategy can seem complicated at first glance. The goal of this article is to help you assess whether SEO is a profitable activity for your business. 

Please note, this article only deals with financial profitability.

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Some companies may primarily want to do SEO to strengthen their brand image, especially online, and not to immediately acquire new clients. This does not generate money in the short and medium term.

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Therefore, this article is exclusively intended to help you assess whether implementing an SEO strategy has earned you more money than it cost you. 

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To estimate this, you need to follow 4 steps. 

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I. Determine the number of new customers generated by your SEO strategy 

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First, you need to determine how many customers your SEO strategy has generated for you. 

To do so, we recommend you download Google Analytics. Google Analytics is free software developed by Google that allows you to track your traffic with great precision.

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This tool allows you to understand your visitors and study their behavior. 

Specifically, it will help you answer the following questions: 

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• How many visitors did you have during a specific period?

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• How did they get to your site?

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• What is their profile (age, gender, etc.)?

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• Which pages did they visit?

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• How long did they spend on those pages?

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• What did they click on? 

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This gives you access to an overview of your traffic history. This way, you will be able to precisely identify the impact the SEO strategy will have on it. 

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In this first step, the goal is to identify what proportion of traffic has been converted into customers. 

This can be easy for an e-commerce site. You just need to observe what proportion of visitors who landed on a page purchased at least one of your products.

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All of this can be tracked by Google Analytics. You then just need to compare the figures before and after implementing the SEO strategy. 

However, it can be trickier if you've tried to give visibility to a free service like a newsletter, which itself aims to convert.

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In this situation, you need to determine how many new newsletter subscribers your SEO strategy brought you. Then, determine what proportion of your newsletter users became your customers. This way, you can estimate how many new customers your SEO strategy brought you. 

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Practical example:  

Your SEO strategy brought 5,000 new visitors per month to your newsletter landing page. 5% of users who arrived on this page via search engines subscribe to your newsletter each month.

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You therefore gain 250 new subscribers per month. (5/100 * 5,000 = 250) 

Assuming your newsletter converts 5% of subscribers into customers monthly, your SEO brings you between 12 and 13 new customers per month. (5/100 * 250 = 12.5) 

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II. Understanding and Calculating Customer Lifetime Value (CLV) 

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Customer Lifetime Value, or "valeur vie client" in French, is an indicator that allows you to calculate the total revenue a company can expect to generate over time from a single customer. 

To calculate a customer's CLV, you need to follow 6 steps. 

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1. Calculate the Average Order Value 

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The average order value is obtained using the following formula: 

Revenue / Number of Orders 

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2. Calculate average purchase frequency

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The average purchase frequency is calculated using the following formula: 

Number of orders / Number of customers 

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3. Calculate customer value 

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Customer value is calculated using the following formula: 

Average order value x Average purchase frequency 

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4. Calculate the retention rate 

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The retention rate is expressed as a percentage and is calculated using the following formula over a given period: 

(Final customers – new customers) / initial customers x 100 

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In this formula:  

Initial customers are those you have at the beginning of the period studied. 

New customers are the customers you acquired during the period studied. 

Final customers are the customers you have at the end of the period studied. 

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Practical example:  

You offer subscriptions with a one-year commitment period.  

In year 1, 5 out of 10 committed customers renew their subscription for the following year (which we will call year 2). 

You therefore start year 2 with 5 subscribers. 

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In year 2, 8 new customers subscribe to your service. You therefore have a total of 13 customers in year 2. (5 + 8 = 13) 

You calculate your retention rate as follows: (13 – 8) / 10 x 100 = 50 

Your retention rate is 50%. 

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5. Calculate the average customer lifecycle duration 

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The average customer lifecycle duration is calculated using the following formula: 

1 / (1 – retention rate) 

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Practical example: 

Your retention rate is 50% over a given annual period. You calculate the average customer lifecycle duration as follows: 

1 / (1 – 50%)  

= 1 / (1 – 0.5)  

= 2 

The average customer lifecycle duration is therefore 2 years. 

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6. Calculate the Customer Lifetime Value (CLV) 

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CLV = Customer Value x average customer lifecycle duration 

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As a reminder:  

Customer Value x average customer lifecycle duration = average order value x average customer purchase frequency x average customer lifecycle duration 

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Practical example: 

You've calculated that a customer's value to you is €30,000 and their average lifetime is 2 years. 

You find the CLV using the following calculation: 30,000 x 2 = 60,000 

Your customer lifetime value is therefore €60,000. 

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III. Understanding and Calculating Your Customer Acquisition Costs (CAC) and Customer Retention Costs (CRC) 

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1. Calculating CAC: 

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Your Customer Acquisition Cost (CAC) is a metric that helps you assess the marketing & sales budget needed to acquire a customer. 

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CAC is calculated as follows: 

(Marketing Expenses + Sales Expenses) / Number of Customers 

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2. Calculating CRC: 

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Your Customer Retention Cost (CRC) is an indicator that allows you to evaluate the budget required to retain a customer. This often refers to your customer service costs. 

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CRC is calculated as follows: 

Expenses to retain your customers / Number of customers 

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IV. Calculate your SEO ROI 

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You now have all the tools to calculate your SEO ROI. To do this, simply use the following formula: 

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Number of customers acquired through SEO strategy x (Customer Lifetime Value – Customer Acquisition Cost – Customer Retention Cost) / (Customer Acquisition Cost + Customer Retention Cost) 

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Customers acquired through SEO x (CLV – CAC – CRC) / (CAC + CRC)

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Practical example: 

The SEO strategy implemented allowed you to acquire 3 clients per month, totaling 36 new clients over a year. Your Customer Lifetime Value is €5,000. You pay your SEO agency €1,500 per month, or €18,000 per year. Your CAC is therefore €500.

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Your customer service for these 36 clients alone costs you €1,080 per month, or €12,960 per year. Your CRC is therefore €360.

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Over 1 year, your SEO ROI will be calculated using the following formula: 36 (new clients) x (€5,000 (CLV) – €500 (CAC) – €360 (CRC)) / (€500 (CAC) + €360 (CRC)) = 173%.

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Your SEO ROI would therefore be 173% in this specific case. This means that for every €1 spent, you get back €2.73. Your added value is therefore €1.73 per euro spent (2.73 – 1 = 1.73). 

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To achieve a good return on investment, it's important to work with a quality SEO agency.  

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Indeed, a quality agency will know how to generate more traffic to your site. A portion of these new visitors will become clients. 

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If you'd like more information on SEO, we invite you to read our article that outlines how an SEO engagement should unfold. 

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You can also check out our articles on the General SEO tools that we recommend and on the target SEO query.