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How to get the most out of your SEO budget

How to get the most out of your SEO budget Craig MacDonald

For large advertisers -- companies with more than $100 million in annual revenue -- the opportunities presented by search engine optimization (SEO) continue to be significant and largely unexploited. Since the economies in the U.S. and Europe began to slow down in the third quarter of 2008, the majority of surveys conducted with senior marketers regarding their focus in 2009 and 2010 reveal that:

  1. Large companies are focused intently on lead generation, which means concepts like branding are moving down the list of priorities.

  2. SEO is considered the leading program by which to drive these results.

The reason SEO is gaining traction in the downturn is that some marketers think SEO is "free" due to the fact that, unlike display or paid search, there is no impression or click-based transaction cost (i.e., it doesn't hit the media budget, which is getting cut by 10 to 30 percent in most companies year-over-year).  

For large advertisers, however, there are a series of strong internal barriers that need to be overcome, making SEO anything but free. In conversations with literally hundreds of companies, here are the top barriers to driving results in SEO:

  • The changes necessary to drive SEO -- particularly technology changes to the templates for the site -- cannot be executed by the IT department in a timely fashion.

  • Getting financing for SEO is difficult. Many organizations think SEO is free, and there is insensitivity to the investment necessary, as well as the continuity of the investment required to develop and maintain SEO leads. 

  • Ensuring that the web analytics system is configured to provide information on how effective SEO is performing is complex. Most organizations under-invest in their analytics systems, depriving marketing of key data necessary to optimize the driving of leads.

  • Getting FTEs (full-time equivalent employees) to do SEO work is difficult in the "Age of the Hiring Freeze." Talented SEO people are available on the market in increasing numbers; however, the justification for bringing them in-house continues to be a challenge.

  • And last, but most important: Hiring freezes drive organizations to rely more heavily on their agencies to drive SEO. The majority of agencies lag in the usage of technology to build scalable SEO programs, making their pricing models increase linearly with the number of site sections or sites being optimized. It takes five people to optimize one site, and 10 to optimize two sites, etc. 

Forrester Research recently conducted a study that found 45 percent of all companies rely on their agencies to do SEO, and the percentage increased to more than 60 percent of larger organizations. It is this last point that is of great interest, as the fundamental economics of SEO have to change between advertisers and agencies for the potential of SEO to be exploited.

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The economics of SEO
Most agencies charge between $100,000 to $250,000 per website/site section per year for a project or retainer-based SEO program. To put this per-site fee in some context, imagine a consumer packaged goods company that may have 50 to 500 brands, and 20 or more international incarnations of each brand site. Paying $100,000 per site is what is known in corporate America as a "non-starter." 

At a high level, this investment in SEO is allocated as follows:

  • Keyword discovery. The process of determining which keyword on which to focus consumes approximately 10 percent of the fees paid to the agency. This process includes trying to figure out the total potential for each keyword related to a brand, and whether the brand can actually "win" on that keyword or not.

  • Site audits. The second step in the process is an initial audit of the website(s) to identify issues that are preventing a site from being optimally ranked for a given set of keywords determined during the keyword discovery phase. The delivery of this step is a large PowerPoint or "desk-breaking" Word document with actions the advertiser should take in order to drive results. This is usually 30 percent of an agency's efforts, and 30 percent of the billings.

  • Site changes. The third step is making the changes from the audit to the site (to the extent that changes can be made in conjunction with IT). This is the work that actually results in changes on the search engines themselves and is where the majority of the investment should go. Site changes usually comprise 45 percent of the investment or the fees paid to agencies. This includes technical changes, content changes, and link-building efforts.

  • Ongoing monitoring and reporting. The last step is the ongoing monitoring of the site (to ensure that optimizations are not unwound) and ongoing identification of SEO health (rank changes, conversion analysis). Included in this step is the reporting necessary for the advertiser to track SEO performance and results. This usually consumes 15 percent of the investment or fees paid to agencies.

For a large advertiser, any model that does not dedicate more than 75 percent of the resources (ideally 80 percent or more) to the site change process simply will not scale. That means that 30 to 40 percent of what agencies are currently charging has to be streamlined or brought in-house by the advertiser themselves. That is a tall order.

Recrafting the agency model
So what does this mean for the advertiser and the agencies that provide SEO services? SEO agencies, in the U.S. alone, will make $2.4 billion on SEO services in 2009, and this number is projected to grow at 16 percent per year, according to Forrester Research. However, the advertisers are requiring two things:

  • Automation. Marketers want the keyword analysis, site auditing, and reporting processes -- the administration processes that currently consume 55 percent of the fees and are very headcount intensive -- to become automated. The scalable SEO model requires no more than 25 percent of fees go toward SEO administration, meaning that 30 percent of the fees will be transferred to independent software firms or investments in technology by the agencies that will automate this work.

  • Refocusing of service delivery. The "change process" will move from 45 percent of the fees to 75 percent of the fees, where the deliverables will be a) link building, b) content development and deployment, and c) technical issues around the website development work. 

Most agencies, particularly holding company agencies with SEO practices, will fail at this automation strategy. They simply lack the business model and talent to build software of any sort. And with the issues around refocusing of service delivery, agencies will find themselves more and more in competition with a new class of competitors: content management system vendors like Autonomy (through Interwoven), Microsoft, Vignette, and others. Managing the placement of SEO-friendly content on the site will become a more and more natural part of the content development and management process, with the agency being relegated toward pure content creation (which only accounts for about 10 percent of the current fees being charged). 

As for the advertisers, it had long been predicted that the drive to in-source this work will become more and more powerful. It's clear that technologies are becoming available to allow them to automate much of what they are paying their agencies to do now with people, but at a fraction of the cost. In addition, the ability to take custody of their own data regarding SEO performance, and in fact performance of all digital advertising channels, is another factor driving in-sourcing. 

SEO is irresistible to advertisers. A high rank on Google for a high-traffic keyword is the gift that keeps on giving. It is worth gold. It is leveraged and lucrative. And the process by which large advertisers craft a plan to take advantage of SEO is becoming far more efficient amid a far more diverse ecosystem.

Automating the administrative aspects of SEO strategies, namely keyword research, site auditing, and reporting, provides an opportunity to drive down costs by 30 to 35 percent. Advertisers can take advantage of a host of new software vendors focusing on building systems to automate these processes.

This is a challenge to the traditional agency model, which is being refocused on managing the actual on- and off-site content development and link building. This work is done at lower margin than those aspects of the processes that are being automated. There is also increasing competition from content management systems, which are starting to incorporate SEO content creation concepts into their workflow. 

With the economic downturn spurring a slew of innovation in this space, advertisers are seeking to take advantage of SEO in a far more economic and scalable way via automation technologies.

Craig Macdonald is chief marketing officer and senior vice president of products at Covario.

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