Search Engine Marketing Math

People seem to overlook the math. They rule on a gut feeling - a promise by a marketer, or their own reluctance to invest in order to see results.

Marketing math helps you to be able to predict what will work, and what won’t, and to pin down a marketer on whether they’ll offer reasonable assurances of meeting your goals.

It starts with some basic understanding of your business. You need the answer to this question:

1. What is your average profit margin on your product or service?
2. What is your average profit per visitor? This means, figure out your average profit per SALE, and then divide that by the conversion rate. If 1 in 50 customers buys, then you’ll take your average profit per sale, and divide that by 50. This will usually be a very low number.

If you are contracting for search engine marketing services, they come in three types, and the way that affordability is calculated is different for each type:

1. One time services, such as optimization. Affordability is calculated by figuring out how long it will take you to realize a return on your investment. Generally, you invest up front on this, and then watch for results. Good SEO should pay off within 6 months to a year, and should show indications long before that. This means that you’ll need to have a reasonable assurance that you can increase your sales enough to pay for the service within a reasonable time frame. 6 months to a year IS reasonable with this kind of service. Longer is NOT reasonable!

   Take your current monthly sales, times your average profit margin. Then calculate how many months it will take to pay off the deficit before you make a profit on it. If you are investing more than 6 months of profits from your business, then your budget may need readjusting. If you are a startup, and have no sales track record, then estimate what you anticipate earning in six months, and base your maximum budget on half of your expected profit margin in 6 months, times 6.

   Good SEO will last for about 1 1/2 to 2 years, before you’ll have to look at doing it again, but it also will typically set up a growth pattern. Results can be FAR more dramatic than this, we’ve seen clients who were in the black within 2 months.

2. Payment for backlinks, article marketing, blogging, or other ongoing services. We are, again, working with average profit margin, and average monthly profits. Knowing your profit per customer can help here, because it can help you know how much more traffic you need to get in order to get a certain amount of profit.

   To start though, take your current monthly profit, and determine what you can afford, and what you want to gain. If you want to gain a profit of $100 per month, you’ll be smart to INVEST $100 per month, and EXPECT to see that in about 4-8 months, depending on how aggressively competitive your industry is. The thing about this kind of marketing is, when it REACHES the point of profit, it then keeps on climbing, even without increasing your monthly investment, so when you reach the profit point, it is straight on up from there. You start with a deficit each month, which declines month by month (if the work is done right), and which reaches the profit point, and keeps climbing.

3. Pay Per Click. It is NOT profitable for most microbusinesses. But you can tell before you even start, whether it is likely to be.

   Start with your average profit per visitor. That is, average profit per sale, divided by number of visitors per sale. If it is less than $.05, stop right here. You won’t even get out the door with Pay Per Click, you’ll be in a losing situation right from the start. In order for PPC to work, you need a profit per visitor amount of at least $5, and even then, it is going to be tight, especially if you are paying for someone else to do the marketing for you.

   Pay Per Click NEVER works for small product industries where you are selling items for just a few dollars, and where the average sale per customer is low - for example, if you sell DVDs for $15 each, and your average customer only buys 1, then Pay Per Click isn’t even an option.

If you need assistance figuring out profit points and affordability of marketing, feel free to contact the author through this website. It can be confusing if you don’t understand how long it takes to work, and what it is supposed to do when it does work. A little math ahead of time though, can help you know what to expect, and how to know if it is working. It can lay the groundwork for spotting trends that will indicate that the method IS working, even before you reach the profit point.

The affordability and math equations are different for every business. You can’t make an assumption, until you’ve actually done the math for YOUR business.