Calculating SEO ROI – What Would Warren Buffett Do?

Calculating SEO ROI – What Would Warren Buffett Do?

As a search engine marketing professional, I receive numerous questions from clients about organic SEO rankings. Perhaps the most common question is “what type of return should I expect from my SEO budget?”  Unfortunately, there is no clear cut answer to this question – so the answer is that ‘it depends…’

For instance, since it takes an average of seven marketing exposures before the typical consumer purchases, many effective SEO campaigns lead to indirect sales which aren’t reflected in ROI calculations. In a situation such as this, a lower ROI may be preferable to abandoning the keywords altogether.

Unpacking SEO through Analogies

In addition to cautioning SEO clients to shy away from holding themselves to stringent ROI targets, I often find myself using analogies to explain SEO. This is because turning abstract concepts into everyday scenarios has made it easier to help my clients make informed decisions.

One of my favorite SEO metaphors is from an article that an author named Sam McRoberts wrote several years back called, ‘Investing in SEO the Warren Buffett Way’. The article is based upon Warren Buffett’s long-term approach to buying stocks. By making a comparison between choosing organic SEO keywords and deciding on stock buys, the article offers an alternative to using ROI to gauge SEO engagements.

SEO ROI

What makes this particular style of investing so unique is that instead of thinking of stock purchases as short term trades, this approach treats each investment transaction as if it were a long term investment in the company.

Since Warren Buffett typically holds on to his stocks for many years at a time, he only considers investing in companies that he thoroughly understands.  It doesn’t matter how well the stock is doing or how much the analysts like it, if he does not already have a deep understanding of the industry he won’t entertain buying the stock.

What Keywords and Stocks Have in Common

As Sam’s article progressed, he went on to illustrate the factors that make organic keywords similar to stocks. For example, although you don’t buy organic search terms, they are just as central to a brand’s online positioning as stocks are to an investor’s investment portfolio.  Likewise, neither endeavor will make you rich overnight, but each of them can drastically improve your circumstances – over time.

SEO and StocksThe challenge with taking this approach is that as a business owner, you most likely have already been conditioned to expect immediate or near-instant results. As such, the keyword selection process that most businesses employ has more in common with the way day-traders choose their stocks than how long-term investors decide on which stocks to buy. This often means a heavy focus on two or three key numbers and a disregard for the conditions that influence the numbers.

This is not to say that you shouldn’t consider factors such as search volume, keyword competitiveness etc. However, it does imply that it’s difficult to view your search terms as longstanding decisions if you’re only choosing them because a few indicators make them look good on paper.

Fortunately, the reward for doing your homework by learning the user’s intent, understanding the industry as a whole and paying attention to the competition tends to be well worth the wait. This ties-in to Buffett’s comment that, “Over the long term, the stock market news will be good.”

He is able to confidently make these types of statements because they’re supported by evidence. Likewise, the argument could be made that because the Internet continues to grow; those who utilize sound SEO strategy should see strong performance over time.

Adopting Buffett’s Buy and Hold Investment Strategy

Even if you were already a knowledgeable investor it would still be beneficial to pick up new techniques by watching investors who are successful so that you can learn from their victories, while avoiding their mistakes. If done properly this approach should actually lead to you forming your own highly effective strategy. However, none of it will even matter — unless you carry out your due diligence.

Here are a few of the items that investors use to determine the value of a particular investment.

  • Financial Reports
  • Unique Selling Proposition
  • Reputation and Public Standing
  • Investor Updates
  • Professional Recommendations
  • Previous Records

Since there are so many variables that can impact the outcome of an investment, it’s difficult if not impossible to make accurate predictions about how a stock will perform in the future. However, you can certainly use the factors mentioned above to make a “best likely guess” based upon the information that you do possess.  In the same manner, you can make a best guess on your keywords based upon the knowledge currently at your disposal.

Another strategy that can bring clarity to your keyword selection choices is to determine how much risk you’re comfortable taking on – before beginning the SEO campaign. A good way to do this is to take the most common SEO considerations such as search traffic and competition and decide on the minimum values that you’d be willing to accept in each category. Then, as you conduct your initial round of keyword research to build a preliminary keyword list, you can eliminate the terms that don’t meet your benchmarks.

Here are some of the main keyword ranking factors that you’ll want to evaluate:

  • Potential Search Engine Traffic
  • Level of Competition
  • Historical Keyword Performance
  • User Intent (is this keyword used by buyers or tire kickers?)
  • Industry Related Patterns
  • Regional Trends
  • Professional Advice

The Bottom Line

As you can see, this approach is much more holistic than simply attempting to forecast a return on SEO dollars. Namely, this is because similar to buying stocks, SEO requires us to rely upon past and present performance and conditions; while factoring in our future expectations.

Hence, the approach demands someone who is able to stomach the short term disappointments that often precede brighter days ahead. It really boils down to this; if you have both the foresight to choose the right keywords and the patience to stick with them over the long haul, then SEO could easily become the most strategic marketing channel in your tool box.

That being said, the best candidate to lead this type of journey is someone who is well-trained and experienced in managing SEO campaigns. One more thing, although you should avoid setting rigid ROI targets for your organic keywords; you still ought to be aware of your return on SEO-spend. So, if you aren’t sure about the effectiveness of your SEO efforts and would like to see how you’re doing, head over to our SEO ROI calculator today and find out!

2018-04-06T00:56:05+00:00

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