For SEO practitioners, it's been quite a bumpy ride over the past few years. Costs have gone up, the broader economy has continued to go south, and margins may have gotten a bit tighter.
Algorithms have gotten more wild, more complex, and Google has continue to trend towards less transparency while increasing their consumption of the SERPs.
The evolution of SEO as a business model is summed up nicely by this quote from Walter Elliot:
Perseverance is not a long race; it is many short races one after another.To me, that quote speaks to the vision and willingness to change with the times needed by people not just in the SEO industry but the broader industry as well.
From a high-level overview perspective, if you practice SEO, you have 2 ways of doing it with respect to revenue generation:
- Self-Publishing
- Client Work
It's more difficult for a self-publisher to prudently spread financial risk across multiple sites given the collateral damage caused by some of the more recent, bigger updates that Google has launched in the last few years.
In the world of make believe (i.e. people who dispense advice without really having any idea what's going on because they are not in the actual game) it's fine to say that a self-publisher should just concentrate on a couple sites, or even just one, and make them "the best site(s) ever!!!"
Well, for those of you that pay attention you understand that the harsher, longer penalties of the last few years apply to those sites as well. I would say it's more risky to have that kind of model than a more diverse portfolio of sites and/or a combo of sites and client work.
Is it Too Risky Now?
Also in the world of make believe are people who will want to chastise you for "relying on Google traffic". It certainly makes sense to develop sites and products that are not solely reliant on organic traffic but to scold folks for having a part of their business reliant on search engine traffic, for an "online" business no less, just doesn't make sense.It's a risk, of course it is, but that's what business ventures are. The key question is whether it's an unnecessary risk or not, the answer to that is clearly no.
As with most things the correct answer lies in the middle. You shouldn't consider your business a bad one if part of it relies on organic traffic but if *all* of it does then yes, you should be very concerned about the long term viability of your business model.
So to scale your business in the face of all of this where should you start (or perhaps revisit)?
Productize and Diversify
If you have had success in the SEO industry (assuming it's more than the point, link, rank stuff of years ago :D ) then you should be able to add other services to your product mix that complement SEO quite nicely. Here are just a few areas you could expand into:- PPC
- Conversion Optimization
- App Development (iOS, Android, etc)
- Social Media
- Email Marketing
The one area that's difficult to "productize" is organic SEO. Some people price by keyword, some have a general retainer, and some just do custom quotes only. I don't see how you could fairly price by keyword given the radical differences in competition, ROI for the client, the actual client, and so on. My suggestion here would be to at least set some kind of floor pricing (Campaigns starting at $999) or whatever.
If you are just doing consulting on organic SEO that's a bit easier, you can just set an hourly rate. However, given how everything is intertwining these days I think you'll find that, for client work, sustainability will be found in doing the actual work for the client to some extent.
Determining Costs Upfront
Once you start adding in hard costs like staff allocated to link building, copy, and so on the ability to package SEO services into a set price becomes exponentially more difficult.Most of the other items can be packaged, sold, and advertised at fixed prices. You'll want to take into account what your overall overhead is (staff, tools, office space, and so on) to determine what part of the cost is for each "product" and develop pricing from there.
You'll also take into account your time if you are involved in the process and if you're not really involved in the process post sale you'll want to make a determination on your cut of the profit (or piece of your salary) from each product and factor that in.
Establishing Proper Margins
In addition to setting up your margins, or reviewing them, being a really good idea for your own management purposes another benefit is that someday you might want to sell your business to another company or person.One of the first questions that will likely get asked will be "What are your margins?"
The importance of productizing your business shows up here in this discussion. Without having some element of set pricing and budgets it's going to be harder than necessary for you to scale the sales pipeline. The 3 types of profit margins to look at are:
- Gross Margin
- Operating Margin
- Net Margin
Gross Margins
Your gross margin is going to be your sales revenue minus direct costs divided by sales. In the non-online world direct costs, or Cost of Goods Sold, generally refers to things like materials and labor costs.So in the online world I generally equate labor costs as staff (freelance or otherwise) and materials as things like tool subscriptions. These are generally fixed costs.
Generally excluded from this are marketing expenses, R&D, and the variable costs not associated with the production of a product.
Operating Margin
Once you start adding in administrative costs, marketing costs, research and development, and so on you get operating margin, which essentially is earnings before interest and taxes divided by sales.Net Profit Margin
Simply put, this is the money left after the costs above and taxes divided by sales.Adapting Margins for Our Industry
You might have a team of 2, 4, 43, or just 1 so the above definitions need not be rigidly followed. For example, you might decide to role in sales costs (sales staff, commissions, etc) into your COGS, which might be perfectly legitimate given that your sales person might also be a link builder, or designer, or yourself.I have a small team, but each has a specific role, so it's relatively easy for me to deal with these figures.
Managing Debt and Expenses
Frugality is a trait that can help you outlast your competitors even in the worst of times. It's easy to think that way starting out but I could show you roughly 5 agencies that are multi-million dollar agencies that do things *drastically* different.Your gross margin should be a good indicator of whether you are pricing things correctly to start; your operating margin should be looked at with an eagle eye towards efficiency and cost-control. Your net margin will determine if the other 2 might need adjusting if, post-tax, you aren't making the kind of money that you want or need to make.
Stay as lean as possible for as long as possible and you are more likely to survive the ups and downs we all inevitably face.
Also, when looking at your pricing and profit keep in mind that as expenses continue to creep up (along with your pricing) you'll have to continue to manage expectations properly.
The client is paying you 10k a month as an example, but if your net margin is 25% then you see them (maybe subconsciously) as a 2,500 per month client. They see themselves as 10k a month and sometimes that can make client relations and results difficult if your margins are too low.
Tracking by Project
If you do any business of scale you probably use Quickbooks or something similar. I like to assign expenses to each job being done or each product being sold. So, for one client you might have multiple products. It's nice to be able to assign costs specifically to each project or product (even under 1 client) to make sure margins are being maintained and can easily be reported on.Resources and Books
Some books that have helped me grow stuff:- Platform by Michael Hyatt Solid read on building your voice online
- Built to Sell A great book about setting things up for your exit
- Rework by JF and DHH at 37Signals I'm a fan of the remote work arrangement and the parts of this book that deal with productivity and such are solid as well.
- Debt is a killer, of persons and companies. When you understand the oppressive nature and origins of debt it really makes it easy to get a handle on it.
We are certainly far beyond just ordering links and handing off ranking reports, have been for awhile (but even that could have made you and your clients a lot of money over the years). This goes back to the quote mentioned at the top, it's a series of short races and twists with some turns.
Pay less attention to "what I wish the world was" theories and attention-mongering posts about how things "should be" and instead focus on what's working for you and make educated guesses, on the back of your data and experiences, on where the puck is going to be rather than where it is or where others in the industry want it to be.
If you look at things that way you'll see that there's a lot of life left for quality SEO's and quality SEO work.
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