Where do I start looking first if my Organic Search Traffic falls dramatically?

It can happen to you,

it can happen to me,
it can happen to all of us,
I'm trying to see
It's a little too late,
I've made a little mistake,
it can happen to anyone,
so don't be afraid

Volker Hinkel (Fools Garden) wasn't thinking about a Google Penalisation when he first wrote this wonderful song, but it fits perfectly into the case.

When you have an organic search traffic drop, you should use this 5-question checklist to identify the underlying cause of the loss of traffic.
Before starting thought, make sure that the problem is actually an organic search issue. To do this go into Google Analytics and check your last 6 month trend of the organic search traffic in Traffic Sources->Sources->Search->Organic .
Lets get started.

1) Has the website been changed or modified significantly?

A redesign could utterly wipe out rankings, especially if there isn't a valid redirect strategy.

Removal of content, changes in the taxonomy (site architecture) and other big alterations could also affect rankings, negatively or positively.

Last but not least, check if your Google Analytics (or whatever analytics software you are using) is still in place. Seems a stupid thing to suggest, but my experience tells me otherwise.

Check when those changes occurred and see if it matches with the lost of traffic.

2) Has the website been hacked?

This is one of the most difficult questions to answer if you don't have some good experience.

Ingeniously hacking methodology took me away hours of sleep lately, so I know what I'm talking about.

Modern and sophisticated spammy attacks don't necessarily affect the "good" pages.

New directories of content are created, making it very difficult to find.

In other cases, the spammy content is added to the "good" pages but with a cloaking strategy (only search engines see the spammy content, normal users will continue to see the good content).

When a search engine discovers this hacked content, two things could happen:

  1. Your site gets listed as hacked and you get a warning in webmaster tools,
  2. Your site gets de-weighted and the entire website looses rankings, with no warnings.

Use the Google and Bing Webmaster Tools to try to diagnose hacking problems. Another way to diagnose a hack is by doing a crawling report with the Google user agent (Screaming Frog is a perfect tool to use). You will have to look for spammy external links from your content.

Rescue a hacked website could be a nightmare, but if you are lucky enough it would involve loading a clean backup (you have a backup, right?) and changing all ftp, user, and database passwords.

3) Have you been hit by negative SEO?

If you have many enemies you are powerful. At least this is what I've been told.

Negative SEO occurs when a competitor automates a large series of spammy links at your website, which can result in site-wide rankings drops.

How to spot negative SEO? You have to perform a complete link audit. You can use Webmaster tools and external tools like Open Site Explorer, Majestic SEO and Link Assistant.

Google and Bing Webmaster Tools have a Disavow Links Tool which can be used to tell them what links should be disavowed, because spammy. I've done this once for a client and it worked perfectly. The client regained all its rankings in less than 3 weeks.

4) Have you been hit by a Ranking Penalty?

The first thing you should do to see if you have been hit by a major penalty is to perform a site:www.yourdomain.com query. If your site doesn't show up, you have probably been banned.

Use Google or Bing Webmaster tools to check for warning messages. In most cases, if you have been hit by a penalty you would receive a message.

Many penalties typically revolve around a sudden influx of bad links or spammy content.

Conduct an SEO audit to ensure you are following best SEO practices and use the reconsideration request tool (in Webmaster Tools) when you have fixed the problem.

5) Has there been an Algorithm update?

If you didn't spot any problems yet, there is a good chance that your site has been affected by a normal seasonal algorithm update. Search through the major Blogs and Forums (Search Engine Lang and SEO Roundtable are the most updated for Algo changes).

Additionally, have a look at "official" sources like the Google Webmaster Blog.