In the last installment I showed you how to sort through keywords using the Google Keyword Suggest tool and figure out which are the most relevant and popular. In today's blog I'll expand on that and share with you the formula to determining the total value of a keyword. Determining the total value of a keyword will help you make an educated decision on which keywords to include in your search engine optimization strategies and your ad campaigns.

The basic formula is as follows.

Keyword Searches x Click Through Rate x Conversion Rate x Average Profit Per Conversion = Available Monthly Keyword Profit

So let's pretend I'm selling baseball bats online and run through the formula. A quick search using the Google Keyword Suggestion Tools reveals to me there were approximately 135,000 monthly searches for the term "baseball bats" in the US during the last year.

From years of experience I know click through rates are notoriously low. With a good search result on the first page I can expect at best a 5% click through rate. Keep in mind this is a variable but don't fool yourself into thinking your numbers are going to be much different from what I'm using here. Be sure to error on the conservative side as well. If you end up doing better than expected it will be gravy. If you end up doing worse you'll probably go out of business.

Out of those 5% who click through and come to my site I can use tracking to figure out historically how many people end up being converted to paying customers. From my experience on the web you're doing great if you can convert better than 2% of all those site visitors even when highly relevant to the search result.

Let's assume I make $50 profit on each one of the bats I sell and all I sell are baseball bats. This is how my keyword value formula should look line by line.

130,000 x 5% = 675 visitors to my site each month
675  x  2% = 13.5 people will buy a bat from me each month
13.5 x $50 = $675 total profit each month from the keyword "baseball bats"

So the total amount I should spend on advertising and search engine optimization for the keyword "baseball bats" each month must be less than $675 to turn a profit. Keep in mind that the formula was based on some assumptions and variables. You should be constantly testing and measuring strategies to improve those variables.

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