Why You Shouldn't Pay Any SEO You Can Afford

Recently, there was a question on the Business of Software forums, asking whether someone could recommend a good SEO firm which was not booked solid.  Someone jokingly suggested that the best SEO firms are so busy no one hires them anymore.  That answer, which might have been intended as the equivalent of a Slashdot +5 Funny, gets really close to fingering the actual problem.

The problem is: if you can afford to hire a particular SEO firm, they probably aren’t competent enough for your needs.  This is pretty much a result of how the incentives line up for being a really good SEO who works for clients versus being a really good SEO who also happens to run a business themselves.  (Shoemoney, a noted and successful Internet marketer, recently had a bit of a tizzy with the SEO community, suggesting that 95% of it is worthless for a variety of reasons.  I think he is more right than wrong, but could have used some dispassionate analysis to make the case better.)

This should be obvious to most people reading this already, but SEO is a flowing river of cash if you’re good at it.  Both parts of this equation are important.  I have an unhealthy fascination with bingo cards, seeing as I run a small business focused on them, so let us look at that exact query.  First, observe:

  • it isn’t awash in cash  (not mortgages, pills, adult, etc)
  • it doesn’t have an obvious monetization strategy (4+ different takes in the top 10 results)
  • it isn’t hyper-competitive (at least 2 sites up there have been up less than 2 years)
  • it doesn’t get hundreds of thousands of searches every month

Every day, while you’re eating your breakfast or putting the baby to bed, that query doles out money to about 6 small businesses.

SEO: Winner Take Most

For your reference, the #5 spot on the query is worth about 6k unique visitors a month.  (I bounced around between 5 and 10 on it, so I have a fairly decent idea of what each position is worth.)  We have a rough approximation at what multiple the #1 spot gets of that, thanks to the leaked AOL search data: it is in the ballpark of a factor of 8.5.  We can thus approximate the traffic from the #1 spot as about 50k uniques per month, giving a little bit of a fudge factor.  Now, my effective profit per 1k search visitors is on the order of $40, so if I were in the #1 spot, I would presumably be making something on the order of $20,000 a month.  (I’d probably discount that by 50%, for reasons that go beyond the scope of this post, but $10,000 isn’t much to sneeze at, either.)

So here we have a baseline, using real numbers, for what topping off a search engines result page is worth.  In a wee, little niche, in a wee little section of the Internet, one single, insignificant query can quite handsomely support a small businessman and his family.

Now, pretend you’re the head consultant at Magic Fairies SEO, and you are so good at your job that you have but to flick your SEO wand and Bingo Card Creator will sail to its rightful position at the head of the Internet.  How much should you charge me for the use of your wand? 

Option #1: Charge me $X an hour

No sane person will charge me $X an hour when I stand to gain $20,000 a month from your services.  This is, however, the prevailing billing model for SEO firms.  They take a generous billing rate, oh, call it $100 an hour, spend 10 hours on the project… and then I become crazily profitable in under 48 hours.  Oh, crikey, how silly that is.  (I also think you’re silly to charge on a per-hour basis as a contract engineer if you’re writing things that are going to scale stupidly for the client.  It is a quirky world where you get paid less as you get better at doing your job, but that is what hourly billing amounts to.)

Option #2: Charge me $X0,000 up front

Very few sane clients will accept this arrangement from most unproven SEO firms, because the Internet doesn’t believe in fairies.  Even if I were largely not sensitive to risk ($10,000 a month!!! has a certain intoxicating flavor to it), there is the capitalization problem.  Put simply, I am not in the financial position to pay $5,000 or $10,000 in a lump sum (my business only profited $6,500 last year).  Most small businesses are similarly undercapitalized.

Option #3: Equity Participation

Let’s say the SEO Fairies and I strike up a deal — they get me to #1, I pay them a portion of the money I make from being #1.  This puts a gratuitous amount of risk on the poor fairies — I could fail to monetize #1 successfully, I could conveniently forget about our contractual relationship, I could skim sales off the top, I could screw them in any of a hundred ways.  To the extent that I’m honest about my dealings with them, it is a terrible deal for me, too: after the work is done, I rationally want to terminate their participation in my business as fast as possible.  I’d be constantly on the lookout for ways to terminate our relationship and save me what would surely be my largest business expense.  For example, I’d study what techniques they were using, and show them the door as soon as I was reasonably certain I could copy them.  Thus, the Fairies would be constantly worried that they were going to get their big fat bingo check from me every month.

#4 Cut me out of the picture

We all know what the Fairies contribute to the business: a #1 search rating.  What do I contribute?  Well, a program that can be written in a week, some support, and my own marketing efforts — which are demonstrably worth, oh, about $6,500 a year on the open market.  Being a crafy profit-maximizing Fairy, if you know your wand is going to get you to the top of [bingo cards]… what did you need me for, again?  You can either write your own website/program or outsource somebody to do it for you, rank that, and then start printing money hats.  And then you aren’t dependent on me in the slightest.  You get all of the gain and none of the risk relative to the other options.

Most of the best SEOs in the world have long since done this math for themselves.  Keep in mind that [bingo cards] is sort of the blue collar of the Internet search space.  If you move to the upper middle class sections, like (picking an example at random) student credit cards, and you were good enough to prosper in a Winner Take Most environment, you would laugh in the general direction of $10,000 a month.  And this is, fundamentally, why you can’t find many good SEO consultants for hire: if they’re as good as you need, they don’t need you.

What can you find?

Well, just like in any labor market, there is a wide spectrum of ability.  You can’t afford to hire somebody who can rank for [student credit cards], or even conceive of ever ranking for that term, but maybe you can fall down the curve a little bit.  Maybe the B student in the class is good enough.  The B student probably has designs of being a B+ student, since Winner Takes Most means skill and effort superscale: if you are 1% better than the next guy you get many times the revenues.  Thus, again, why is the B student wasting his time with you, when he could be working on his own projects.

There is also the problem that SEO is a high-skill occupation and you, as the customer, have to worry about the high floor every bit as much as the limitless ceiling.  Any SEO worth his salt is probably employable as a generic web programmer, for example.  $55,000 salary straight out of college, very little risk, relatively unstressful.  Similarly, the more creative ends of the field can be used in classical marketing or copyrighting for, again, not insignificant amounts of money.  You have to be able to beat the SEO’s next best offer, and their worst, risk-free, in-case-of-financial-emergency-break-glass offer, is pretty expensive from the point of view of a cash-strapped small businessman.

So you’re left with the dregs

This shouldn’t be a fairly controversial claim: most people who are interested in making money online, using whatever method (running a software company, being an SEO, filling out surveys), have no particular skill at what they do.  The overwhelming majority will not be financial successes, relative to a very conservative definition of financial success such as “Makes as much online per hour as they would flipping hamburgers or cleaning toilets”. 

(It is entirely possible that they’re externally motivated and wouldn’t mind continuing what they’re doing because, after all, the Internet is more fun than cleaning toilets.  I’m very sympathetic to this and yet, as a fellow businessman, I would want my partners to be successful first and emotionally fulfilled second, because success transfers fairly easily but emotional fulfillment probably does not.)

You can see this same dynamic in the software business, where the overwhelming majority of proprietors make close to nothing.

If you look at any random collection of folks who sell SEO services for money, the overwhelming majority are going to be in the dregs.  It is sort of like a perverse anti-Darwin evolution: successful specimens are the first to die  (i.e. move to greener pastures, in every sense of the word green).  The more successful they are, the quicker they die.  What you’re left with is a mix of both newbies, and folks who just do not have the chops you need.  I suppose theoretically you could hope to scoop up a newbie who is both a) skilled and b) doesn’t know the value of their own skill yet.  However, most newbies are too busy being scammed out of $49.95 so that they can buy e-books to learn how to make $200,000 a month!!! selling e-books and if you act now get our copy of Magic Long Copy Letters, a $79.95 value, for absolutely free… to work for you.  And the ones who aren’t busy are probably, well, untrained and terrible at what they do.  So you’re buying lottery tickets and, as we all know, lottery tickets are just a tax on people who can’t do math.

So is there a way out?

All of the above is specific to SEO services.  SEO products could very well have a different incentive structure — they are also a Winner Take Most economy, so if you can be SEOMoz or Aaron Wall you might actually stand a decent change of making money, and thus it almost makes sense for you to be offering your expertise as a product.  I have my doubts in the generic case, though.

I sometimes shake my head in wonder at both of them, actually.  I won’t tell anyone else how to run their life or business interests – if they’re happy, I’m happy for them.  Nonetheless, Rand Fishkin and the team are clearly near the top of their field, with skillsets that are worth conservatively millions, and yet they do client work for peanuts, relatively speaking.  Rand Fishkin, after years of having a deserved reputation for being insanely good at what he does, makes far under the SEO floor salary.  (Or at least he did before the VC injection — maybe one of the board members will have a facts of life talk with him.)  They could just as easily have sewn up a niche, or a half dozen of them, hire folks to keep it sewn up for them, and do SEO education as a hobby to pass the time between celebratory cash bonfires.  Or, heck, they could find one guy who could open doors to the world of big business and say “Hiya, Bank of America.  Give us a 10 man team and a year, and we’ll increase revenue driven by your website by 3%.  You know that is worth millions, and believe me, you will pay millions for it, or Citibank will.”  (I am reminded of the classic sieve to separate rich lawyers from poor lawyers: look for the ones who work for rich clients.  There is a lot to be said for that maxim.)

I incidentally haven’t purchased either of the above services, but I’m making an educated judgement about their quality on the basis of the information they write for free in their blogs.  Both are likely excellent resources for folks getting past the newbie hump in a hurry.  However, because you can’t really teach what gets folks from a solid foundation in the basics to the B+ region where they are making decently large sums of money, I wouldn’t expect these resources to get you there.  After all, if they could, why would you sell them for $80?  They’d be worth more in future income than a college education at my alma mater, and would be priced to match.  But if you are feeling totally clueless about SEO, and think your time is valuable, I’d suggest buying one or both of the above and, more importantly, start learning by doing.  (As usual, I have no financial relationship with either of the above two products.) 

So that is the cynical economist’s take on the SEO market.  I fully acknowledge that I am, at best, a B or B- SEO, so it is entirely possible I don’t know what I’m talking about.  And I also know that, as a software developer/marketer/CEO/whatever, I’m also a little itty bitty fish in a huge ocean of the Internet.  Here’s the thing, though: being a minorly successful little bitty fish is worth somewhere in the $80+ range an hour.  If I’m absolutely clueless about this field, this implies that someone who has a clue will be dreadfully expensive.

If you have squared the circle and figured out why someone with SEO chops would choose to be a for-hire consultant instead of a business owner themselves, I’d love to hear your arguments in the comments.

No Responses to “Why You Shouldn't Pay Any SEO You Can Afford”

  1. ScottK January 28, 2008 at 6:31 pm #

    Another great post Patrick.

  2. Bryan January 28, 2008 at 6:33 pm #

    I’ve had very bad experiances with SEO companies, which agrees completly with what you’ve said here.

    I’ve found that most successfull sites bring their SEO in-house and hire people to do it. If you get a good employee trained and his skills up to par then you can probably keep him around if you treat him right, or if your worried about him leaving then have an in house SEO team with some redundancy in the skillset.

    While good SEO is very valuable, I don’t think it’s total rocket science. It shouldn’t take more than a few years of full time work for someone to get up to speed on it.

  3. David Blake January 28, 2008 at 6:42 pm #

    To answer the post at the end of your article, I counter with a question.
    If Software is such a high-profit industry at the top, then why doesn’t everyone who knows how to code start a software business?

    Many people are risk averse. A smart businessperson would look for SEO folks at the top of their game who can’t imagine taking the risk themselves and have them build high revenue sites in good markets.

    Isn’t this how a lot of the most successful software companies operate? You have a person with good business skills pick the strategy/niche, and then you get the best people you can find to give you a real advantage. If you are smart, you pay the top performers very well and do whatever it takes to keep them. This is the opposite of the “developers are a dime a dozen” mentality, but in the right market with the right technical challenges, having a very good team is the secret to success.

  4. Clay January 28, 2008 at 7:34 pm #

    This all assumes that an SEO expert who gets a site to the top Google’s results has an instant way to monetize it. I question that presumption.

    Merely getting a site to the top of the list only gets the eyeballs to your site. You have to do something with/for them to monetize it. Yes, you could sell Adsense, but I don’t think you’d get a lot of clicks unless you give the browser a reason to stick around. For that you need good articles, a good blog, useful information, something. Even your own website (wich doesn’t have to be “sticky” per-se, b/c you’re selling a product) has to be a well done site that communicates and sells.

    But I’m happy to be proven wrong here. I have a friend who has some pretty good SEO skills and is quite interested but our area doesn’t have a lot of opportunities for him to sell his SEO ability. If he could monetize it directly, he could skip the intermediaries and monetize that ability.

    So…. what are some options for monetizing that top position?

  5. Clay January 28, 2008 at 8:02 pm #

    I did some back-of-the-envelope calculations and figured that i unique visitor might be worth $.01 (figuring 10% of visitors click an ad, avg ADsense revenue of $.20 (split 50/50 w/ google). Then wondered if I was on target. Found a Blog by the HowThingsWork founder that substiated that:

    YOU CAN CREATE MORE VALUE FOR A PRODUCT SITE THAN YOU CAN FOR GOOGLE (VIA ADSENSE)

    From your post :(paraphrasing)’…#1 spot, 50k unique visitors per month would be worth $20k’

    According to the blog for the HowThingsWork.com owner (see below), he figures that 1k visitors/day (30k/month) is worth $435 in AdSense (based on his experience and looking at a friends site).

    So 50k visitors woudl be about $725/month.

    Even if that’s wrong by an ORDER OF MAGNITUDE, then adsense would earn you less than half what you’re getting. (Granted, you have a cost to develop a product, provide support, etc. But that’s my point: you *could* make more money finding someone w/ a good product but terrible marketing skills and just splitting it 50/50. In fact you’d make 10x as much in this example.

    If you were an SEO expert you can add a lot more value to BingoCardCreator than you can create for Google.

    There is the tricky issue of how to share the increase in revenue or what to charge, etc., which you so eloquently described.

    HOWTHINGSWORK.com blog
    Caveat: this fellow below make be full of BS. I dont know.
    http://webkew.blogspot.com/2005/04/lesson-3-how-much-money-can-you-make.html

  6. David Blake January 28, 2008 at 8:11 pm #

    Clay, I think you have the process upside down.

    If you read shoemoney’s blog, you see that you start with a winning market that you think you can turn into a high ranking position. You don’t start with a high-ranking site and then try to monetize that.

    How do they find good markets? They look at Commission Junction (aka CJ) to see which affiliate segments are bidding the highest. You look at the keyword inventory sites to compare query volume with advertiser competition.

    You then do link baiting with several domains and test content. You run these in parallel until one of them is a clear winner. You then invest, say 18 months of 12 hour days–according to shoemoney–before your start to turn a profit. After 18 months in the right market, you start making the big money.

    It’s not for the faint of heart.

  7. Patrick January 28, 2008 at 11:19 pm #

    Clay, HowThingsWork is absolutely right: you make more money selling products than you will selling advertising in the same niche, for the simple reason that advertising has to work for people.

    Example: I personally pay, essentially, $2 CPM for bingo card related traffic. That means, when they’re on hypothetical content site A, they’re worth $2 per 1000 visitors. When they’re on my site, they’re worth $40 for 1,000 visitors. (It is actually higher than that these days, but hey, factor of twenty is high enough for comparison purposes.)

    So if you’ve got the skills to develop a niche site for teachers, you could either monetize it with fairly poor paying ads, or you could monetize it with a product. And even if your website doesn’t convert as well as it could, hey, that factor of twenty business is pretty hard to overcome.

    And if you have no skills in product development or web site design to create sales, all you have to do is buy them. 1 week of an intermediate Indian engineer’s time will run you about $500-$1,000. 1 full web design template will run you another $500 or so. There, you have your own bingo card program and a website to sell it.

    (18 months of 12 hour days is a gross exaggeration, I think, especially if you’re going for only good money rather than obscene money, and ringtones are pretty close to obscene money. Most of the 18 months is wall calendar time — what would you be doing for the 12 hours?)

  8. Math Checker January 29, 2008 at 12:32 am #

    ( 50K/1K ) * $40 = 50 * $40 = $2,000 (not $20,000)

    ;-)

  9. Patrick McKenzie January 29, 2008 at 6:09 am #

    Oof, poor editing at 2 AM in the morning combined with poor ability to proofread and proofmath. Thanks math checker.

    There was originally a sentence right between the factor of 8.5 and the ballpark estimate which explained the imputed factor of 10: other search engines and ancillary queries. I edited it because it was longwinded and forgot to put the shortwinded version back in. Then when I skimmed over the post I probably mentally lost my count of zeroes.

    I’ll correct this when I get a moment.

  10. David Blake January 29, 2008 at 3:26 pm #

    I think this is interesting for companies that already develop software, but I have seen affiliate based businesses fail at trying to leap from reseller to creating their own products. Both Handango and Motricity have attempted this in different ways and failed. These resellers have all of the data on which apps are selling the best, but when they created their own products in the same space, which were either developed from scratch or just a re-branding of existing apps, it didn’t meet their expectations. There is something to be said for the strength of a brand/product name. If you are used to the marketing aspect of it, then it will probably work out in the long term, but cloning a successful app won’t result in overnight success. I don’t know if affiliates and resellers have the patience and optimism to succeed at doing this.
    I believe there is an old post on BOS where someone said that they use the download numbers for non-free apps from download.com to figure out what kind of app to make next. This is somewhat like the tactics discussed here.

  11. Clay February 4, 2008 at 6:26 pm #

    Your point that any good SEO doesn’t need to hire him/herself out assumes they have other *easy* options for monetizing thier skills. I don’t think that’s the case.

    -AdSense dooesn’t pay well, as you pointed out.

    -Ccreating a successful product is a non-trivial matter.

    Iit requires:
    - Knowing enough about programming to make lots of cost/benefit decisions (which features to include and sometimes what approach to take with the program). I’ve tried an outsourced Indian programmer and it didnt’ go well (he wrote unbelievably bad code). I do know someone who has succeeded in doing this but he pays $20/hr or more now for this programmer as a full time employee. Much less expensive than a comparable US programmer, but now he has an ongoing expense.

    My point is that if someone is a truly good SEO expert they might not want to do all of the above.

    UISV’s are different bunch of people. Patrick, Andy Brice (of PerfectTablePlan.com) and myself are all jack of all trades. We can do all of these things reasonably well. And if that’s the case, then yes, my SEO skills are more valuable to my own company than they would be to somone else *because I can monetize* those skills. Not everyone can.

    Most SEO experts can’t readily monetize thier SEO skills (beyond selling Adsense, which, as Patrick confirmed, is worth maybe5 to 10% as much as if you monetized it with a product.

  12. Clay February 4, 2008 at 6:42 pm #

    David,

    I was illustrating the process for an existing SEO expert. I.e., someone who can get a site to #1 Google Position.

    Patrick started with product-creation skills and created a product. He then developed SEO skills (as I understand it). I agree with you 100% that this is the way to succeed.

    But Patrick was saying that ‘SEO is awash in cash’. I’m just saying there should have been a caveat ” if you have a good product to monetize that SEO.”.

    Just look at ShoeMoney’s site to see how difficult that is. He’s got a 99% failure rate
    http://www.shoemoney.com/2006/09/04/my-top-10-worst-ideas-to-make-money/

Loading...
Free video + email advice on making & selling software:
(1~2 emails a week.)