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
- Marketing, Promotions, giveaways
- Collection expenses (Paypal commissions etc’)
- Communication expenses (Internet Line, Phone)
- Administrative (incorporation, accounting etc’)
- 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.