Is SEO Expenditure an Expense or Asset? Or Does SEO Cost influence Profitability?

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 incurring expense or adding value to your website? Let’s start with some definition:

Expense in terms of asset: The portion of the asset or capital 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 expense, but if you rent it, then it is an expense.

The accounting formula

Asset = Liability + Equity
i.e. Equity = Asset - Liability
in another analog, Profit = 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 Search Engine Optimization (SEO) be labeled? As “Capital” or “Expense”?

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, since it adds value (not cost) to your site.

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. So, it never negatively affect profitibility, rather it should affect possitively.

Update on Advertising

Advertising and PPC cost as I have said are "Expenses". But this may not be the case. It can also turn into asset if you can make a strong brand out of your business. KFC is still making money from Bangladesh and India and not a single chicken is coming from Kentuky. Their previous advertising has paid off and made their Brand and Goodwill as an asset. So, the next time you advertise for growing your brand, please remeber that you are investing, not spending.

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