Your website is your intellectual real estate. Even though, you bear annual variable cost of maintaining the site, the cost never can be labeled as expense. After finishing your site, Search Engine Optimization (SEO) and Pay Per Click (PPC) to market your site, are they expense or adding value to your website? Let’s start with some definition:
Expense in terms of asset: The portion of the asset given away as variable cost for specific utility that has no reusability and to get the same utility, you have to pay again. e.g. advertising cost.
Asset in terms of expenditure: The expenditure invested as fixed cost for specific utility that has reusability. So with the investment, you get the same utility for a certain period of time. Please note that all assets are perishable, except for real estates. e.g. your computer is an asset not expenditure, but if you rent it, then it is expense.
The accounting formula
Asset = Liability + Equity
i.e. Equity = Asset – Liability
In another analogy, Profitability = Capital – Expense
According to this formula, you can get more profit by decreasing expenditure or increasing capital. Remember that cost on capital is fixed in nature, but expense can be variable. Now, in terms of gaining profitability, how should the expenditure on SEO be labeled? As “Capital” or “Expense”?
Now, investment in SEO an expense or asset?
PPC is somewhat a marketing expenditure. It is instantly perishable and each time you have to buy advertisement to get customers to your site. PPC is a variable cost. So, this affects the expense, not the asset.
But, SEO is not like that. Because, it is not intended for short term marketing. SEO has reusability and brings you customers even after the SEO is finished. SEO expenditure has no attribute to be labeled as variable cost.
So, SEO expense is a capital expenditure which increases your asset and should never be treated as expense that makes your site a marketing machine.
Does SEO Cost influence Profitability?
We have tried to convince some customers that SEO doesn’t affect your profitability. Because, it becomes your asset. And asset is not expenditure that would negatively influence your profitability. The perishable behavior of SEO, may make it seem like expense. But, all assets are perishable. And we own a lot of short timed assets. So, if SEO expenditure is an asset, then you are increasing investment, not giving away money.
Update on Advertising
Goodwill is something that has economic value. So, it is an asset. And achieving this involves much cost on marketing and advertising. Without marketing and advertising good will never can be achieved. If you consider long term affects, then advertising can also be converted into assets.