Lately, we have seen some attempts to calculate the net worth of some successfully blogging ventures. As I believe this is an interesting matter, I developed a more realistic and quantitative approach based on the well known Profit and Loss statement, that you can use in order to assess the real value of your blogging venture. I also built an online tool , named the Blog Valuation calculator, that you can use to actually implement my valuation model.
First and foremost, I would like to clarify that although this is an empirical model (as it was validated using actual traffic figures published by authoritative blogs), it doesn’t apply to all the Blogsphere. However, I have the feeling that my model is relevant to the big majority of the blogs.
How blogs make you money?
For simplicity, I identified 7 possible revenue sources which can be leveraged by bloggers (I am sure that others exists, but these seem to apply to the mainstream):
- Contextual Advertising (Google Adsense, Yahoo Publisher Network etc’)
- Inline Text Advertising (Vibrant, Kontera)
- Banner Ads (Burst, Tribal Fusion, BlogAds etc’)
- Affiliate Sales
- Feed Advertising
How blogs spend you money ?
Here the list of main expenditure items the blogging venture has:
- Blogger salary
- Hosting and Domain
- Web Design/Programming
- Advertising
- Marketing, Promotions, giveaways
- Collection expenses (Paypal commissions etc’)
- Communication expenses (Internet Line, Phone)
- Administrative (incorporation, accounting etc’)
Assumptions
- I believe that leveraging the Price / Earnings ratio applicable to SP 500 companies in order to valuate a blog is fundamentally wrong. The basic idea behind the P/E ratio is that in general, a high P/E suggests that investors expect higher earnings growth in the future compared to companies with a lower P/E. Most blogging ventures are “solo flights”, and have no patented intellectual property, therefore they have no much room to grow. Therefore I propose to use a modest P/E ratio of 3, in order to valuate blogs.
- A blog revenue is primarily tied to three main factors:
- The number of unique visitors it receives, and consequently the number of page views. The model assumes 2.1 page views per unique monthly visitor.
- Its PageRank
- Its average Contextual Advertising eCPM (Earnings per thousand page views).
- As far the other revenue sources, I made the following assumptions:
- Affiliate Sales: Large blogs can make around 4$ per thousand views in Affiliate Sales.
- Banner Advertising: Large blogs can expect to earn around $2.5 CPM from Banner ads. Blogs with less than 200K are seldom accepted to banner Ad networks.
- As far as spending is concerned, I made the following assumptions:
- Communication and administrative expenses (if you operate in an official manner) will cost you around $70 (varies from country to country).
- Blogs with more than 100K unique monthly visitors will need an upgraded hosting package.
- I assumed a $30/month expense for Web design consulting services.
The Blog Valuation Calculator ™
I built the pretty basic Blog Valuation Calculator ™ in order to help you plan the expected profit from your blogging venture. You can also use it to assess the value of your blog. BTW -The tool is built using Zoho Sheets (hey, I didn’t forget we are a Web 2.0 blog 🙂 ).
How to use the Blog Valuation Calculator ?
- Open the Blog Valuation Calculator
- Enter your blog’s monthly number of unique visitors your blog into cell B5
- Enter your blog’s PageRank into cell B6
- Enter your contextual advertising average eCPM into cell B7
- Cells B32 and C32 respectively will show your projected earnings
- Cell B34 will show your blog valuation
OK, I hope you’ll find my model useful. Will be looking forward to hear your thoughts.
Great post and superb article, but your estimation on expenses seems to be too high, it may be sometimes because I’ve just started it on my new domain. I have an yearly expense of some 100$. 🙂 (maximum)
Thanks Nirmal.
You are right. I believe that’s given your strong technical background, you can do Web design stuff, that not all bloggers can.
As far as the other expenses – like i said, they can sharply vary between country to country, and be related to fact whether you are incorporated or do blogging as a side kick.
Yea I agree with you. It varies from country to country and person to person. 🙂 Anyway it was a nice model.
I have to say I’m not sure what this fuss is about knowing how much an other blogger makes. Some have already shared their income, so we know what we COULD be making. So why is it ever so important to know people’s net income from blogging?
Focus on your blog get traffic to it etc etc, just use that energy on finding ways to better your blog.
Great tool…and yeah the outcome differs as everybody may not have used all possible ways to monetize…
The only ads I use on my blog are google ads. I am was surprised to know the other blogging revenue sources your model predicted..may be i can give them a go..thanks a lot for the tool. I agree with Nirmal above that mostly we don’t spend money to promote our blogs..i was a layman when i started using WordPress but slowly I have learned to play with the theme
Interesting tool Gili. I’ll have an article about this post by tomorrow my time heh.
It predicts I have 10 times what I’m having now. It’s because my source of income is only Google AdSense while it include others – but this gave me inspiration to do better. Thanks for your great tool.
Very much realistic to what I m earning now
Good work GIli 😀
A really nice too and a great effort.
Thank you very much. I will write a post about this tool on my blog!
It gave me yet another goal to achieve on my blog.
While I was a little bummed about the outflow, I was surprised at the profits my blog is generating. Thanks for the sheet. It was really handy.
Good effort. Although too many assumptions are being made, especially operational costs which go up rather quickly as traffic increases exponentially.
An interesting post.
I think you have missed out some basic factors – such as page views per visitor, but I’ll blog about it if I have the chance.
Matt
Revenue was only off by 30%, which ain’t bad. Mind if I take this and tweak it to include longer-term valuation, growth of CPM / traffic, etc, to build a longer-term valuation model?
“The basic idea behind the P/E ratio is that in general, a high P/E suggests that investors expect higher earnings growth in the future compared to companies with a lower P/E.”
That’s not entirely true. Earnings growth is only one factor that determines P/E. It actually has more to do with investors’ required return on investment. If someone has a required return of say 10%, then they’d be willing to buy something at a P/E of 10 (assuming zero risk, and no earnings growth/decline). This makes sense because, if you view the corporation that is being purchased as a perpetuity, you will be earning 10% of your initial investment annually, and thus be meeting your required reserve.
So: P/E = Earnings (usually before interest, taxes, amortization, and depreciation) / Required Return. If there is earnings grown then you’ll usually factor it into the equation by subtracting the growth rate from the required return rate, which inflates the P/E.
Bottom line: I think a P/E of 3 is too conservative. That would mean a required return of 33%, which is really unreasonable. Something between 5 and 10 would be much more reasonable, perhaps even higher depending on the quality of the blog and the security of the income streams.
FYI, I’m currently just about done constructing a new model, complete with IS Yearly / IS Monthly, Revenue Sheet, etc.
My plan is then to do a bit of research into valuation multiples in the blog / social media space based on specific net income levels.
Ultimately, any purchase is based entirely off a balance between the seller’s criteria (desired return) and the buyer’s criteria. In some cases, the buyer’s criteria when expressed as P/E is either extremely low or extremely high.
Either way, though, using the S&P average is misleading, as it has little to do with the blogging world.
If anyone wants to see my current model (up to the Valuation Sheet), feel free to email me: jeremy@b5media.com.
Alrighty, mine’s up, love comments, and thanks for the inspiration Gili 🙂
http://www.ensight.org/archives/2007/05/17/how-much-is-your-blog-really-worth/
@ Matt, the model makes an assumption of 2.1 page views per unique monthly visitor. Will update the post with that.
Thanks,
Gili
@ Jeremy,
Thanks for taking the time and enhancing this quick little exercise i did, i am sure your model will inspire v2 of my tool.
I guess my only comment is that although they are tough to predict, Paid reviews and Affiliate sales should also be considered when projecting a blog’s revenue.
Thanks,
Gili
Gili, paid reviews and affiliate sales are impossible to predict. There simply isn’t enough data to effectively project what any individual blog willearn this month, nevemind 2-5 years from now.
I blog at work, so can I put my salary in with that? 😉
Good question. Let me ask my boss 😉
Great work. You now need to benchmark against real figures 😉
Sales figures I have seen tend to be rather less than one year’s revenue.
Jeremy will know better, as he’s bought and sold some blogs.
Good work!
I really appreciate that!
Keep UP!!!
Excellent Blog!Very well designed and focused.
A great read, very informative
Been looking for a blog like this one for a while
Keep up the good work.
thanks for the insight.. at least I have more source of income for my blog now..