So you’ve decided that you want the free, relevant traffic delivered by SEO, but how much should you invest? That’s one of the toughest questions you’ll ever have to answer, for it asks you to predict the ROI of SEO vs. all other web marketing. By mining in-house and industry data and by using predictive tools, you can arrive at a good allocation. But before you do that, I would like you to step back and consider the 80-20 rule in SEO investments.
This blog post is derived from DISC’s Rob Laporte’s more extensive article, The 80-20 Rule in SEO, CRO, and Social Media, published in the Winter 2009 edition of Visibility Magazine.
The 80-20 rule is another name for “The Pareto Principle,” which was coined by the business management thinker Joseph Juran in the early 1940s. It is based on mathematics, and has been applied in economics, in such business management programs as Six Sigma, in The 4-Hour Workweek by Tim Ferris, and even in wardrobes, where often 20% of one’s clothes get 80% of the wear. (Thanks to Wikipedia.com for the facts in that summary). Business people often hear the 80-20 rule in connection with sales, where 20% of the prospects or clients bring 80% of the business.
What many marketing managers don’t understand, especially in small and medium-sized businesses that are less rigorous in managerial accounting, is how to apply this rule when allocating web marketing dollars and time and when choosing the services of web marketing firms.
The 80-20 rule is merely a rule of thumb, and it is difficult to know (1) how much more or less than the 20% of maximum you should invest and (2) what activities should be part of that 20%. Is it worth paying for and taking time to use the more expensive SEO keyword research tools offered by the likes of Hitwise, comScore, and Enquisite? Will you earn positive ROI by going beyond giving a good copywriter a day or two of training, and instead hiring a dedicated professional or spending several thousand dollars in training? The answers differ in each web marketing activity and require long experience with the marketing ROI for diverse web sites. This requirement adds value to the wise and honest council of well-established search agencies.
The 80-20 Rule in SEO
My Visibility Magazine article, “Is KEI Useful?” (Fall 2009), explains: “Keyword research follows a variation of the 80-20 rule: the last 20 percent of perfection can take 80% more time. If your potential ROI and your order fulfillment capabilities are sufficiently high, then it’s worth finding the funds to factor KEI, or even to spend the tens of thousands of dollars on the more expensive keyword research tools.” The mirror image of that statement is, the first 20% of the enormous, maximum amount of time one could spend in keyword research generates 80% of the value in the final keyword lists. The 80-20 rule applies to SEO copywriting as well: the final 20% of perfection in lacing in both key phrases and conceptually related phrases according to optimum frequency, density, and distribution can take 80% more time, and the first 20% of labor can deliver 80% of the results.
Implications and Applications: SEO, as opposed to PPC, has much less predictive data by which to ascertain the reasonable maximum investment and thus the amount of labor cost comprised by the first 20% in the 80-20 rule. As in PPC, the tide of competition is rising, although several studies reveal a dramatic lag in SEO investments relative to PPC and relative to the clicks and conversions delivered by organic vs. PPC listings. Given the saturation in the PPC market, and given the “New Normal” economy, firms have been flooding into SEO during the last two years or so. While I still see plenty of low-hanging fruit in this field, I’ve also observed SEO proliferating. Like conversion rate optimization but unlike PPC, the first 20% of SEO will almost always produce positive ROI because there are no click costs and probably most of your competition has under-invested in SEO. For more about the content and costs of this first 20% of SEO, please see “One-Time vs. Ongoing SEO” in the December ’08 Visibility Magazine. If you have already done the first 20%, then, in order to ascertain how much more SEO is worth doing, you’ll probably need consulting by a pro with long experience doing SEO for many different businesses.
Does the 80-20 Rule Suggest Pay-for-Performance (PFP) Deals?
In a longer blog post I would include examples of spreadsheets by which my firm evaluates PFP and revenue share deals. Such deep analysis often shows that, while a modest 20% investment is certainly worthwhile, one would make much more profit, even if less marginal returns, by investing more like 60%. Yet many marketing managers are reluctant to spend even the 20%, especially in this economy. This situation creates enticing opportunities for agencies to do what great capitalists have always done during depressions or “great” recessions: take more ownership of businesses, in this case by deals that claim a few years of results in exchange for non-paid work up-front. This helps the clients too, by reducing their risk and up-front cost and by aligning incentives, though at the cost of probably paying more in the end.
Search agencies, enriched by experience and data from all kinds of client histories, are well qualified to ascertain the first 20% in the 80-20 rule and how much more than that 20% is worth doing, while prospects and clients are likely to under-invest. This situation, together with sophisticated software and analytic spreadsheets, creates enormous opportunities for both agencies and clients to reap rewards from an optimum investment point between the 20% and the 100% within the 80-20 rule.
