Calculating CPM and CPC for SEO Campaigns

Sean Mulholland, JWTSC SEO Group

EXECUTIVE SUMMARY

As Search Engine Marketers at JWT Specialized Communications we've noticed a few shortcomings in organic search engine optimization (SEO). For one, organic search is harder to measure compared to other search engine marketing methods such as Pay Per Click (PPC) advertising. Second, success is usually measured in your rank position and the number of Top 30 rankings on the search engines. But rankings don't really mean anything in and of themselves, and we've found that measurements of success rarely dig deeper than rankings. We feel that more depth is needed to really prove our value to our clients.

And speaking of clients...if you're on the client side keep reading! Not only will you learn a way to measure the value of your search provider, but you'll also be able to measure the value of search against other marketing and advertising methods. The results may surprise you.

So what is it that we've found? We've found a way to estimate the Cost per Mil (CPM, with 'mil' being Latin for 1000), Cost per Click (CPC), and ultimately Return on Investment (ROI) of organic search campaigns. At first glance this might appear to be nothing new. After all, can't a high powered analytics suite accomplish this? It can...for those who can afford such a service. Even entry-level in house analytics packages cost hundreds of dollars and usually require the additional costs of a dedicated server and setup expertise.

Another shortcoming is analytics packages can't predict the value of SEO beforehand, it can only report on results after the fact. Also, analytics do nothing to predict the visibility you have on search engines - a key element of your online brand strategy (and branding is an often overlooked value of search engine marketing).

WHAT ARE WE TALKING ABOUT?

We're talking about a formula that takes into account your rankings on the major search engines, broken down to the level of whether you rank on Page 1, 2, or 3, and also factoring in your position on the page. We also factor in the market share of the search engines you rank on, and the estimated searches per month of the keywords you've optimized for. The result is an estimate of the impressions per month your site is getting on search engines in terms of the number of people who actually see your listing. This number can then be further refined to estimate CPC and ROI for a campaign. This makes for a valuable method of justifying the value of SEO to clients, and from a client perspective it allows you to better audit the worth of your SEO provider.

Confusing? You bet. But don't worry, we have a knack for making things like this simple, even if you're not a stats major.

Let me give you an example of the formula's power. A client of ours had a large organic SEO campaign, and the average monthly costs for the campaign came to $5,000. We took one of their recent reports and applied our formula to it. These are the results.

Estimated Impressions	585,285
Cost of Program per Month	$5,000
Estimated CPM	$8.54
CPC, Assume 2.0% CTR	$0.43
CPC, Assume 1.0% CTR	$0.85
CPC, Assume 0.5% CTR	$1.71

As you can see it proved that SEO was very competitive with PPC advertising and much more affordable than more traditional online marketing methods, such as banners. Even assuming a low 1% clickthrough, the CPC doesn't top $1.00. Were this a PPC campaign those CPC estimates would be very competitive, but it doesn't even consider the project management costs associated with running such a campaign, nor does it factor in media markup if outsourcing to an agency. For those of you in competitive industries we're sure you're familiar with the rising costs of PPC advertising, and studies by comScore show that over 80% clicks go to the organic results - not the paid results. Perhaps it's time to consider SEO.

HOW DOES IT WORK?

The following is just a summary of how it works. For a full dissertation, read our CPM & CPC for Organic Seach - Full Dissertation article. First of all, you'll need access to some data, specifically:

1. Search frequency data for your keywords (we use WordTracker's 'count' figures).
2. Rank reports for your site across major search engines (we use Web Position Gold).
3. Search engine market share data.

We should preface the following by saying that we will assume you have a working knowledge of the above data and the tools used to get the data. If not, you'd probably be better off reading my [full dissertation] as it goes into much more detail than this summary and explains the process step by step.

So now that you have that data for your selected keywords, let's put it all together into something a bit more useful. To begin, run a competition report in WordTracker (or similar) on all your keywords. It doesn't matter which engine you choose to run the report against, the only really important figure to us is the 'count'. This represents WordTracker's tally of the number of searches for this word over the past 110 days (at the time of this writing).

We then calculate the estimated monthly searches across all search engines for a particular keyword. Based on WordTracker's published [WordTracker 'Predict' Figure article], we've broken down the estimated monthly searches for a particular keyword to this simple formula:

Monthly Searches = Count x 31.712

This formula gives you the keyword searches per month. Because WordTracker constantly updates its data, this figure will change slightly from time to time.

With the monthly searches across all search engines, we now apply the search engine market share percentages to the total. For example, Google has a 36.4% market share. For a keyword that totals 100 monthly searches, we can assume 36.4 of them were performed on the Google search engine. By applying the search engine market share data to your keyword searches per month you'll have your keyword searches per month per search engine.

After that, we have to weight the keyword searches per month per search engine by your website rank on that engine. Before we do this, let's look at some data from studies by Enquiro. The two studies are ['Inside the Searcher Mind'], which gives some interesting figures relating to how many users click to the second and third page of search results. The second study, ['The Golden Triangle'], used eye tracking technology to track where users actually looked on a search page.

The results of 'Inside the Searcher Mind' were that only 20% of users went to the second page of search results, and only 1% went to the third page. The results of 'The Golden Triangle' report were averaged for above the fold and below the fold results, and they show that 96.25% of users will see the Top 4 results on a page (Ranks 1-4, 11-14, 21-24, etc) while only 40% will look to the next six results (Ranks 5-10, 15-20, 25-30, etc). Putting it all together, we get this table:

Rank	Percentage of users who view the result.
1-4	96.25%
5-10	40.00%
11-14	19.25%
15-20	08.00%
21-24	00.9625%
25-30	00.40%

By applying those percentages to your keyword searches per month per search engine you'll have a pretty good estimate of how many people viewed your listing on a search engine. By summing the result for a keyword across all search engines you'll have a good idea of how valuable that keyword is. By doing this for all your keywords and aggregating the results you can get some pretty nifty numbers that allow you to look at your SEO campaign from a completely different angle.

We bet you're wondering how such a long and involved process can be automated. Well, we've developed a series of scripts that integrate with Microsft Excel that factor in changes in search engine market share, searches per month, rank, etc. [Contact me] if you're interested in learning more about it.

Again, this is just a summary and a long, detailed dissertation is available here. We welcome any questions or comments, and would be glad to help you understand the formula more completely. Feel free to contact the author or comment on our blog with questions about the formula.

ABOUT THE AUTHOR

Sean Mulholland (Click here to contact him) is a Cybernaut, Innovator, and Problem Solver at JWT Specialized Communications, where he has been developing strategies for marketing and recruiting through search engines since 2002. Please email him or visit http://www.jwtsc-seo.com/ for more information regarding SEO and SEM related topics.