SEM vs. SEO: Which Has Better ROI for eCommerce?

SEM and SEO have been around for generations.

Both of them drive traffic. Both of them increase your sales.

But what’s the difference between SEM vs. SEO? Which of the two gives a better ROI for eCommerce store owners like you and I? Which one should you use?

We’ll clear that up and more. In this post, you’ll see what’s possible with these two marketing strategies and how to get started using them.

We’ll cover:

• The difference between SEO and SEM
• The ROI of SEM vs. SEO
• How much you should invest in PPC and SEO
• When (if ever) you should change strategies
• The fundamental difference between SEO and SEM strategies

Sound exciting? Let’s dive in.

What’s the difference between SEO and SEM?

I get this question all the time – What are SEO and SEM? What are the differences between them?

(If you already understand these terms and just want to know which one is better for eCommerce, click here to jump ahead.)

Let’s start with SEO.

Search Engine Optimization (SEO) is the process of optimizing your website so that it is more easily understood by web crawlers. As a result, your pages are more likely to rank highly on Google, bringing you free traffic.

SEO can be broken down into two categories. Firstly, on-page SEO refers to SEO “within” your site, and includes:

• Metadata
• Page copy
• Page URL
• Website speed

…amongst other things.

Then there’s off-page SEO, which comprises of:

• Backlinking (getting high authority sites to link to your website)
• Social media marketing

Now that this is clear, let’s talk about Search Engine Marketing (SEM).

SEM used to refer to the process of increasing your website’s visibility on search engines via both paid and organic methods.

Using this definition, you’d see SEO as a subset of SEM.

Having said that, marketers are increasingly taking SEM to specifically refer to paid digital marketing, also known as Pay Per Click (PPC) advertising.

(If you’re not well-acquainted with the term PPC, this just refers to ads on search engines, like what you see in the screenshot below.)

With this new definition, SEO no longer falls under the umbrella of SEM, and the difference between SEO and SEM is much more distinct.

Got it? Great!

Moving along, we’ll be working with this new definition of SEM vs. SEO so that we can compare and contrast their respective strategies more easily.

Let’s jump in!

SEM vs. SEO: Which has the best ROI for eCommerce?

Both SEO and SEM can help you to increase traffic, conversion rates and sales for your eCommerce store.

Let’s start off by looking at what SEO can do:

SEO eCommerce case studies

In this case study, marketing strategist Darren DeMatas shows how he helped a medical eCommerce site increase their search traffic by 1780%.

How did Darren do this?

His strategy was to avoid optimizing the website for transactional keywords such as “Buy {Name of product}”, and to go for information keywords instead.

What does this mean?

For example, if you’re selling shoes online, you’ll want to steer clear of keywords such as:

• Buy shoes online
• Buy cheap shoes
• Buying shoes online

And instead go with keywords such as:

• How to clean leather shoes
• How to choose correct size shoes
• What to look for when choosing leather shoes
• What height is bad for heels
• What to wear with leather shoes

At this point, you might be wondering:

I wouldn’t mind driving more traffic to my eCommerce site, but will this translate into more sales?

The answer is a resounding yes.

Check out this case study which saw eCommerce store White Hat Holsters experiencing a 100% increase in sales.

This was done using a three-step program, with keyword research being first on the agenda.

A bit of backstory here:

White Hat Holsters wasn’t completely new to SEO – they had taken a stab at optimizing their website in the past.

But here’s the problem:

The majority of the keywords they initially chose consisted of the brand names of their holster models (which were self-coined).

As you can imagine, this wasn’t the best strategy.

Because only pre-existing customers would know these terms (and be able to search for them), this severely limited White Hat Holster’s search engine traffic.

After overhauling their chosen keywords, White Hat Holster’s next step was to review their site structure and optimize on-site elements.

(The other alternative was to create a custom, fully optimized site from scratch, but this would take too much time and resources.)

Last but not least, White Hat Holster also created a blog to boost its SEO efforts.

The end result?

A 400% increase in traffic, and 100% increase in sales. Nice.

I’ll move on to share some SEM case studies for now, but if you’d like to take a look at more SEO case studies, the SEO section of NinjaOutreach should be plenty to get you inspired.

SEM eCommerce case studies

You’re probably familiar with running SEM campaigns, but you might not have experimented with all the different bid formats and ad types on Google Adwords.

Go ahead and take a look at these SEM eCommerce case studies, so that you can gain some insights and apply these to your own campaigns.

First up is a case study on The Honest Company, which makes eco-friendly products for babies and families.

If The Honest Company sounds a little familiar, that’s because it’s founded by actress Jessica Alba. Using Google’s In-Market Audiences, the brand increased its conversion rates by 30%, which led to an enormous growth in both sales and subscribers.

If you’re not familiar with the term, Google bills its In-Market Audience as “a way to connect with consumers who are actively researching or comparing products and services across Google Display Network publisher and partner sites and YouTube”.

Google qualifies shoppers as “in-market” based on…

• The number of times a shopper clicks on relevant ads and converts
• How frequently and recently the shopper visits related pages

And other factors. Pretty cool, huh?

Moving on to the next case study, which involves Bebê Store, one of Brazil’s top online retailers of kid-friendly goods.

Bebê Store’s Google Ads strategy is to use Dynamic Remarketing ads to reach out to people who abandoned their shopping carts, and entice them to return to their website and complete their purchase.

To further enhance their remarketing campaigns, Bebê Store also utilizes Google Adwords’ Conversion Optimizer Tool.

By automatically optimizing your placement in each ad auction, and avoiding unprofitable clicks, this tool helps merchants get more conversions at lower cost.

For Bebê Store, this translated into an impressive 89% increase in conversions within two months. Sweeeet.

So now that we’ve taken a look at SEO vs. SEM case studies, let’s move on to talking about…

How Much Should You Invest in SEO and PPC?

In order to determine how much you should invest in SEO and PPC, here are a few questions you need to ask yourself.

• What is your Average Order Value (AOV)?
• What is your average profit margin for each order?
• What is your Customer Lifetime Value (CLV)?
• What percentage of your CLV are you willing to spend on customer acquisition?
• How many new customers do you want to acquire each month?

Crunching some numbers based on your specific ROI potential

Let’s break it down…

Assume you’re an eCommerce store selling electronics, and your shoppers, on average, spend $400 in a single order.

After deducting your Cost Of Goods Sold (COGS) and other expenses, you’re left with a profit margin of $180.

Your Customer Lifetime Value is $1200, meaning on average, your shoppers tend to make 3 purchases before they churn.

Let’s say you want to limit your customer acquisition budget to 10% of your CLV. That gives you $120.

If you want to acquire 10 new customers each month, multiply this by 10, and you’ll have a total budget of $1200.

In this scenario, your ROI will be ($400 x 10 – $1200) / $1200…

…which works out to be 233%. Not bad at all!

Now, this is just an example, so you’ll have to tweak the numbers based on your own eCommerce business.

If your customer retention rate is super high, giving you a large CLV, you might be comfortable spending 20% to 30% of your CLV on acquisition.

After all, once you’ve acquired a customer, you know that he’ll go on to spend a decent amount at your store.

Now that this is clear, let’s talk about how to allocate your $1,200 budget to SEO and PPC.

How much you should spend on SEO depends on a few factors, such as…

Firstly, how established your brand is. (And I don’t mean how long your company has existed – a company that doesn’t pay attention to branding can have zero brand equity despite being around for donkey years).

Secondly, how much organic search traffic you get on a regular basis.

Thirdly, how highly you rank for your keywords.

It’s pretty straightforward:

The less established your brand is, the more you need to spend on SEO (so that people actually start stumbling upon your website, and knowing that you exist).

The less organic search traffic you get, the more you need to spend on SEO. (It doesn’t matter if your PPC campaigns help you achieve 4 or 5 digit sales figures daily – you need organic search traffic to sustain your overall marketing strategy!)

And last but not least, the further you are from being on the first page of Google for your targeted keywords, the more you need to spend on SEO. (This one’s pretty self-explanatory).

As for how much you should be spending on PPC, here’s what to consider:

First, how expensive your keywords are. (Use Google’s Keywords Planner to figure this out).

Secondly, how well-converting your eCommerce store is.

(On this note: if your eCommerce store has excellent conversion rates, it means that you can get away with spending less on PPC. But if your conversion rate sucks, the solution isn’t to throw more money at your PPC campaigns to “make up” for it. You’ll need to fix your conversion issues, before you start optimizing your PPC campaigns.)

Last but not least, how much your competitors are spending on their PPC campaigns, which I’ll elaborate on in this next section…

Looking at your competition for clues

It’s 2017, and gathering intel on your competitors is unbelievably easy.

One free tool that I love using? SimilarWeb.com.

Input the URL of your competitor’s website, and you’ll be able to see tons of useful stats.

For example, let’s look at eBags.com, which I mentioned earlier on.

SimilarWeb tells us that 22% of their traffic is paid, and their best-performing paid keyword is “ebags”.

That’s not all…

We also get to see how much of their traffic is derived from display ads, and the ad networks which they use.

Pretty neat, huh?

Apart from SimilarWeb, here are some other tools that you can arm yourself with…

Google’s Auction Insights, which allows you to see what your competitors are bidding on the keywords that the both of you have in common.

SpyFu, which estimates your competitors’ monthly adwords budget, as well as their most profitable keywords.

And SEMRush, which does pretty much the same.

If you’ve been (unsuccessfully!) trying to steal market share from a specific competitor, and you now know that he or she is spending more than you are on PPC campaigns, it’s probably a sign that you need to ramp up your own budget as well.

On the other hand, if your competitor is spending less than you, and still seems to be doing better in terms of sales, then you need to look at optimizing your campaigns.

For a more in-depth look at competitive PPC analysis, check out our full guide.

Okay, that’s all I have for you when it comes to keeping an eye on the competition. Let’s move on to discuss…

When Should You Change Strategies?

Many eCommerce store owners and marketers ask me these two questions – when can I stop spending on PPC or SEO? Can I stop spending on PPC or SEO?

I’ll address these questions – and more! – in this section.

Should you ever stop doing SEM or SEO?

Many eCommerce store owners face this scenario (and whilst I talk about SEO in this example, it can apply to PPC as well):

They invest heavily in SEO over the course of a year, resulting in their organic search traffic quadrupling in the last 3 months.

It’s tremendously exciting, but after some time, things go back to normal.

Their search traffic is still increasing, but not quite as quickly.

At this point, here’s their thought process:

It feels like I’ve optimized all there is to optimize, and I don’t think I’ll witness any huge jumps in traffic even if I continue spending all this money. Maybe it’s time to stop, and reap the fruits of my labor.

But here’s what you need to know:

Your SEO (and PPC!) performance isn’t contained within an individual bubble – it will always be benchmarked against someone else’s performance.

Let’s say you stop spending on SEO. Your site structure is still optimized – that doesn’t change – but you’re no longer producing new content that Google can index.

Image from Chicago-D.com.

On the other hand, over at your competitor’s company, it’s business as usual. They’re cleaning up their site structure, publishing new (and optimized!) content thrice a week, and getting loads of backlinks.

After three months, do you think you’ll still rank ahead of your competitor for your keywords?

Nope – you won’t.

Now, how about PPC?

Should you stop doing PPC if you rank well for a keyword?

No, of course not. And I’ll tell you why:

According to statistics, supplementing your SEO campaign with PPC efforts helps to increase organic traffic by 30%.

That’s right. Many eCommerce store owners think that with a strong organic presence, they can let their PPC strategy slide…

…while in reality, their PPC campaigns are one of the factors which contribute to their organic ranking!

This is because strong SEM leads to greater brand recognition, which leads to increased trust, which leads to users clicking on the result they know (i.e. you) over the results above you. This higher user engagement leads to better rankings. Win-win!

That’s not all.

Over the last two years, we’ve also witnessed 25% less clicks on organic results displayed on desktop, and 55% less clicks on those displayed on mobile.

55%!!! Are you panicking over this? Because if you’re not, you should be.

And just to drive home my point, check out this case study by Search Engine Land:

In this experiment, the guys at Search Engine Land compared and contrasted a SEO only campaign with an SEO + PPC campaign.

SEO + PPC was the clear winner:

By spending an additional $3,422 in PPC campaigns, Search Engine Land effectively increased its revenue by $10,818 (and its profits by $7,396).

Got it? Great!

Let’s move on to talk about the differences between SEO vs SEM.

The Fundamental Differences Between SEO and SEM Strategies

Both SEO and SEM strategies can help you drive sales, and both require strong research skills, but their similarities stop there.

As I’ve mentioned previously, SEO boils down to a few factors…

…quality content, backlinks from other sites, and proper site optimization.

SEM, on the other hand, is a whole different ballgame.

With SEM, you need to have a high-converting landing page, and a decent budget to work with.

Another major difference when it comes to SEO vs SEM?

How long it takes to get results.

Image from PhoenixWebsiteMarketing.com.

This graph says it all.

PPC, or SEM, is great for companies who need to see results, and fast.

I bet you’ve experienced this before – you create your SEM ads today, and see your sales figures rise within 24 hours.

Having said that, though, your clicks to cost ratio is more or less fixed.

Sure, you can optimize your ads, resulting in higher clickthrough rates and conversions…

But at the same time, bear in mind that new advertisers and competitors will enter the fray. They’ll bid on the same keywords as you do, and drive up your costs of advertising.

With SEO, though, you’ll need to wait pretty long (at least 4 to 6 months!) to see any noticeable changes in your traffic.

Because of this, SEO is often seen as the less sexy option. (Nothing like instant gratification, am I right?)

But the great thing about SEO?

Its compounding effect.

As time goes on, you’ll get more and more traffic (with less effort!), and reduce your cost per organic conversion.

There’s also the fact that SEO is (exponentially!) scalable.

With SEM, to get ten times the amount of traffic, you’ll generally need to increase your budget tenfold. (Unless you get really good with your Google Ads optimization.)

With SEO, once you’ve built up your domain authority, you can simply write a kickass piece of content and have it drive tens of thousands of visitors to your website.

In a nutshell: SEO and SEM are complementary strategies, and you should use both in conjunction.

Some parting words

Now, although I’ve made it very clear that you should be utilizing both SEO and SEM strategies for your eCommerce store, I know some owners will still try to prioritize one over the other.

Maybe you’re working with a limited marketing budget.

That doesn’t mean you need to abandon SEM altogether – just read up on how you can make the most out of a small PPC budget.

Maybe you can’t afford to wait, and you need results immediately.

That doesn’t mean you can neglect SEO – not unless you want to be a slave to the PPC model, and limit your eCommerce store traffic to growing linearly (instead of exponentially).

Take it from me:

No matter how you look at it, the tradeoff is not worth it.

You need both SEO and SEM if you want to super-charge your eCommerce store, get a ton more traffic, and make money off all your new visitors.

It’s time to get this party started, and time to get your eCommerce store on the first page of Google!

If you liked this article, please share it with your entrepreneur friends who are still puzzled over the difference between SEO vs. SEM (and which is more profitable for eCommerce)!