Recently I had a conversation with a niche healthcare e-commerce player about site visits and conversions. The customer let’s call him “A”, has not been able to make any sale. He has about 50 visitors per day on his website. All his website visitors are coming from Google Adwords. So he has 0 organic visitors.
Mr. A is not happy about spending in SEO as he feels Adwords is cheaper and can give him better ROI.
I decided to run up some numbers to show whether Adwords is indeed cheaper or it is just a myth.
Here is my calculation for SEO vs Adwords:
1. Google Adwords Spend
Mr. A pays INR 200 per day on Google Adwords to get 50 visitors. So, in 1 month Mr. A spends INR 6000 and in 4 months Mr. A spends INR 24000.
For the sake of argument, let’s say that conversion rate is 2%. So, Mr. A makes 1 sale (2% of 50) per day. Let’s say the average value of the product is INR 500. So his total revenue in 4 months is INR 60,000
So his net profit after 4 months is INR 36,000.
So with Adwords, spending INR 200/day, Mr. A makes a net profit of INR 36,000 in 4 months.
2. SEO Spend
Mr. A chooses to outsource his SEO work to a company which charges him INR 15,000 per month for 4 months only. So in 4 months, he spends INR 60,000.
With organic SEO, Mr. A can expect to gain 400 visitors per day after 3 months of SEO work.
So from month 4 onwards, Mr. A gets 400 visitors per day.
NOTE: Monthly searches for the keywords related to the user's business is about 230,000 in India. I am assuming that after 3 months of effort, the user can at least rank in #5. Given Rank 5 gets 6% of CTRs according to research, this transcends to 460 users per day. However, I took 400/day for the ease of calculation.
At the same conversion rate of 2%, Mr. A can now make 8 sales per day worth INR 500 each. So his total revenue per day is INR 4000. His total revenue in month 4 will be INR 120,000.
So his net profit after 4 months – INR 120,000 - 60,000= INR 60,000
With SEO for 4 months, in month 4 only, Mr. A makes a net profit of INR 60,000.
Now let us see the numbers after month 5 and month 6.
Mr. A will make a net profit of INR 18,000
Mr. A will spend an additional INR 30,000. But he will make revenue of INR 240,000. So his net profit will be INR 195,000.
This is assuming in month 5 and month 6, visitor count stays at 400/day (which is unlikely because after 6 months of regular SEO, visitor count should easily cross 800/day)
So the ROI for Adwords after month 6: 90,000/36000 = 2.5X
And ROI after spending on SEO after month 6: 360,000/90,000= 4X (minimum, assuming no increase in visitor count in month 5 and month 6)
And these values will grow exponentially with consistent SEO.
Adwords is definitely cheaper in your initial days when you start from zero and you have no organic visitors. Adwords helps you to get few initial customers. However, in the long term, Adwords is very linear and it will only grow based on the amount of money you spend. More the bid you place and more the money you spend, higher the visitor count.
With SEO, your first few months will be slower. As it is organic and takes time to come up the rankings. However after first few months, you will see an exponential growth in your organic traffic. And this will in turn impact your conversion.