SEO vs. SEM - Which one to choose from?

Thursday, 5 July 2007

Many marketers and media buyers has demonstrated their preferences for SEM (PPC Advertising) over Search Engine Optimisation (SEO). In June, the Australian has revealed that Paid Search represents around 47% of total advertising spend as a result of a 51% growth rate in the last 3 months.
The frenzy of SEM has contributed to leave SEO (Search Engine Optimisation) behind in the race for online results...

However, is it the right strategy? To answer this question, let's examine both options using the popular

SEO vs. SEM - Generating Traffic

One way of evaluating online marketing initiatives, is to look at their repsective ability to generate traffic.
A study conducted byIProspect has demonstrated that 60.5 % of search engine users find the natural search results more relevant than paid search. If we consider relevancy as the only factor responsible for clicking on a listing ( there are obviously more than one), the natural search, generated by SEO, is highly likely to win the battle. The study also reveals that experienced internet users much prefer natural search.
Another studyby OneUpWeb reveals that search engine users are 6 times more likely to click on natural search than paid search.

For generating traffic, natural search and therefore SEO is the winner

SEO vs. SEM - Generating Sales

Generating sales is what every marketers and webmaster want to achieve and is often the reason for choosing to spend some money on online advertising. To compare both options on their ability to generate sales, lets look at the conversion rate.
A study by WebSideStory has demonstrated that Paid search (SEM) has an average conversion rate (US market for B2C ecommerce websites) of 3.40%, whereas natural search has a conversion rate of 3.13%.
Paid Search is therfore 9% more likely to generate a sales from a visitor than natural search.
No wonder why SEM (Paid Search) is more appealing for marketers...

SEO vs. SEM - R.O.I

Another interesting indicator to look at is the profitability of each alternative. After all, that what it is all about. Looking at the profitability, lets look at costs.
In theory, natural search traffic is free.. it is not really true as SEO has a cost, which should therefore be considered. However SEO is one initial cost that will bring results for many years.

On the other hand, SEM brings paid traffic and sometimes highly expensive traffic. For example in the finance industry in Australia, the average cost per click can easily reach $4 sometimes even more.
The domination of Google over Paid search, also contribute to create a high level of competition and therefore push the prices up.

Let's consider an example:

A company X runs a PPC campaign and brings 2000 visitors a month at a $2.00 CPC. Over 6 months, the company will spend $24,000 on advertising.
Based on the above conversion rate, the company is expected to generate around 408 sales.
If we consider the average order value of $100 the company will generate $40 800 in revenue with a Cost per Sale of 58.8%

The company Z considering SEO, will have to invest around $12 000 for a good seo campaign. If we consider that the SEO is successful, the search engine users are 6 times more likely to click on natural search. Based on paid search figures, the comapny Z should be able to attract 6x more traffic than paid search less just consider X3, which represents around 36 000 visitors. With the conversion rate of 3.13% teh company Z is likely to produce 1126 sales and therefore a revenue of $112
600 with a cost per sale of 10.6 %

No doubt that the SEO win in terms of profitability


SEM might be more profitable in particular industry, where the value of sale is more important. Moreover SEM is still highly popular and results are there. The profitability of SEO also depend on the success of the SEO project and the ability of the website to rank high for high volume keywords.
However, the cost of SEO is way lower in the long term and will therefore prove to be more profitable than SEM.

Both Alternatives should therefore be recommended, but a long term perspective should highly consider SEO as a strategic competitive advantage.


Anonymous said...

Nice post. We find that using a combined SEO, SEM, and link building strategy to attack all angles works the best over the short and long term. But if the client has a limited budget and we have to pull the plug on one of them, we'd choose SEM almost every time.


Alban G. said...

Hi Big SERP,

Thanks for sharing your experience. Your observations reflect what i am thinking at the moment. Most online marketers foster SEM towards SEO, for budget, results and time constraints... It seems to be a trend and SEO is most often used with clients having a bigger budget or which do not need to drive sales straight away...

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