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Where are we going wrong.
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in a nutshell- lots.
You need ot take a step back and look at the competitors who are in the same sector as the one you are working in and who are ranking for your targetted traffic. This will at least set the baseline.
Then its research into those keywords and content generation against the phrases you choose.
Then its a recode of the site to fit these phrases in properly and the content will need to change for this incorporation.
Then its a review and re- anlaysis.
Plus loads of research into how to prepare the site correctly etc.
Check out
official Google SEO handbook for Googles official guide on the creation of code, thats a good start.
Then check out the article here:
SEO is easy. The article I refer to is on SEOmoz and will help you see the big picture on what is believed to be valued and of more importance than other aspects. etc.
After all that you will need to re-evaluate the design and presentation and navigation of the site to suit your visitors. Again looking at strong competitors sites will give you insight and ideas on how it could or should be implemented and its a serious part to consider and should not be under estimated just as Synook has pointed out.
Read y498s link as well,
Tips and Tricks for Search Engine Optimization its all logical and sensible process hes talking about.
Enjoy!