Thursday, 16 October 2008

How much is my blog worth?

How much is my blog really worth? US$100? US$500? Or maybe even US$5,000? Now this may not be something that has ever crossed your mind, but it should really, especially since the buying and selling of websites – and even blogs – is becoming big business. So the question is no longer “how much is my blog worth?” but “how much would I sell my blog for?”

But before you shoot the gun and say there are websites that already have a widget that you can post on your blog to guestimate the value of your site, let me say they are likely to be very inaccurate indeed at estimating the true value of your blog. This is because they have no sound basis for their calculations.

Instead what you need is a far more analytical way of calculating the value of your blog than that.

But do not fear! Because such a method already exists. It’s called modern investment theory and it is used for valuing the worth of any sort of business – from a large manufacturer like General Electric to a Mom and Pop grocery store.

But can this method also be used for valuing blogs? Well, sure. Why not?!! Because when you think about it a blog is really just a miniature business but without any of the components like sales or expenses or costs. The only thing a blog has is the only thing that matters: profits (i.e. earnings).

For most people, this will mean adsense – or the amount of income that you receive from people clicking on ads placed on your blog. But it could also be income from sales merchandise or whatever other way you have of monetizing your blog.

So how to calculate the value of your blog?

Well, first of all let’s assume that you have developed your blog over time – maybe 2 to 3 years – and have reached a fairly steady number of hits – with most of these probably coming from Google searches.

Now for most listed companies with a sustainable business – i.e. not a tin firm whose reserves will run out in say three years – they will trade at a P/E ratio (price-to-earnings ratio) probably in the range of between 10-20. Stocks with higher earnings growth will have a higher P/E, and those with lower earnings growth will have a lower P/E.

Now, the average US equity P/E ratio from 1900 to 2005 is 14, so let’s use that value for estimating the value of your blog. This is quite reasonable in my view as most blogs are “sustainable” and likely to generate stable earnings in the future from hits coming in from search engines.

Thus the formula to calculate the value of your blog is:

Blog value = daily earnings x 365 x 14

So the value of a blog with daily earnings of just US$1 a day is 1x365x14 = US$5,110!!!!

And just remember this is from earnings of just one dollar a day! If your blog has earnings of US$10 a day, this would mean that you should only consider selling it if you receive an offer of ten times this amount, or a staggering US$51,100!!!!!

This is quite incredible really, but just goes to show the value of small amounts of money added up over a lengthy period of time. Sure you make only peanuts on a daily basis, but when those peanuts are added up over a period of 10 years that’s quite a lot of money indeed….