How-To
The Value of a Keyword
More on finding the right keywords for your site by Chris Genge
Feb 02, 2004
Is there a way to determine the value of a keyword before you actually go ahead and spend money on a pay-per-click (PPC) campaign? Yes, there is. It won’t be an exact answer but it will provide something tangible that you can use to gauge the value a particular keyword holds for your business. Understanding the value of a keyword is important because relevant keywords can generate LARGE amounts of revenue for your business!
A keyword or keyword phrase is a word or combination of words that people type into search engines to find what they are looking for. The search engines retrieve pages relating to the search query from their databases and then rank them using a mathematical formula or algorithm. The results are displayed to the user as a list in order of most to least relevant.
Properly utilized keywords can provide a great return on investment (ROI), therefore it is very important to gauge the costs associated with marketing a keyword to its potential value to your business. Money spent on a keyword should be proportionate to its perceived value (either monetary or knowledge based) to your company. You do not need to spend a lot of money on a keyword phrase, but its value to you and your competitors is proportionate to its potential income.
Determining the value of a keyword ahead of time is very difficult, and its value will change as your markets and competitors change. A quick guide would be to take the average bid of the top five listings on Overture or Google AdWords. These are a good starting point since both are very popular and a higher percentage of businesses make money by using them. There are also tools (like KeywordTool and ClickTracks) available that can you can use to get a more accurate gauge for the value of a keyword but the one of the drawbacks of these is that they can only be utilized once you have already implemented a SEO or PPC strategy.
The following formula can be used as a guide to calculating keyword value, but keep in mind that the first three variables are estimations/ judgments. Nonetheless, the results can be used to compare one keyword against another to gain a grasp of its worth. Examples are provided later in the text.
((estimated number searches per month) X (average cost per click on Overture) X (average click potential percentage)) = (cost for 1 month).
Profits and visitors
Increasing the number of visitors does not guarantee increased sales. Thus, getting high rankings based on generic keywords may not actually be beneficial to a business. Keywords need to be specific to your business so that the right customers are directed to your website. Generic keywords deliver a higher level of value to certain businesses and much less to others. For example, a search for "community college" would result in higher keyword value for colleges that have campuses all over the US or offer on-line courses than for a local college in say, Grand Rapids, Iowa, or any other local college. The reason is simple; very few people living outside of the local college's specific region will actually be looking to attend there.
In the above example, the keyword phrase "community college Grand Rapids" would hold a much greater value for the college because it’s more focused and directed towards the people who are mostly likely to attend the college. This becomes apparent when you look at the actual conversion rates of visitors to the website. The rates will show that the greatest numbers of conversions were for the people who lived in and around the Grand Rapids area. As such, the college stands to reap greater profit from the targeted keyword than from the generic one. Hence, it is very important to look at the value a keyword holds for your business than just the number of people searching for it.
This is what the numbers look like if we apply the previously mentioned formula to the case of the above college. Say there were 13,956 searches for "grand rapids community colleges" on Overture with an average bid of $0.10 per-click. Its calculation would be (13,956 X $0.10 X 5% = $69.78 per-month). For "community colleges" there were 80,244 searches on Overture with an average bid of $0.85 per-click. Its calculation would be (80,244 X $0.85 X 5% = $3,410.37 per-month). Now, that value looks ridiculously high! Could it possibly be worth that much? That's difficult to say...it could be...to the right business.
When you consider that there are hundreds of colleges in the US, it is easy to understand that the conversion rate for the keyword phrase "community college" is going to be fairly low while its marketing cost is going to be much higher. On the other hand "grand rapids community college" is very targeted, making its conversion rate much higher and its marketing cost much lower. Therefore, it would cost less to promote the more targeted keyword, and at the same time get better conversion rates than using a generic keyword.
Relevancy is the key!
Be careful of chasing extremely popular keywords. Sure they will deliver lots of visitors, but are they the right kind of visitors and really popular keywords tend to expensive. So the cost-per-acquisition per-visitor will be very high. This translates to a poor ROI. On the other hand, promoting specific and relevant keywords allows businesses to promote more keywords, achieve a better ROI, and make more profit...and that’s why determining the value of a keyword is so important. Do your research and select your keywords carefully, the payoffs can be great!