(by 45 people)
How to Value a Squidoo Lens
As Squidoo Grows and develops, the marketplace for buying and selling lenses is also bound to grow. The question is, how much is a lens really worth?? Lets explore a couple of classic ways for valuing assets and apply them to the Squidoo economy.
To see these theories in action, stop by Sellmylens and put one of your neglected lenses that need a new home up for auction - for Free!
Like this lens? come check out more financial goodness over at the GrumpStump.
A Lens is a type of Passive Income
Great! So what does that mean?
An income stream falling into this category is one where money is received usually on a regular basis, without continuing effort. This does not mean no effort at all; most passive income streams require great effort to start with.
This is a solid representation of most lenses, which require a large amount of initial content to be valuable but little maintenance (comparatively) to maintain.
How do you classify lenses as an asset?
Let's define what makes a lens an asset
Let us define the terms we are going to measure a lens' value by:
- traffic generated to the lens : How many people visit the lens each day? This has been demonstrated by the owners of Squidoo to have an effect on your lensrank, and by extension, the passive revenue generated through Adsense by your lens. Plus, let's not forget the power of eyeballs directed at any one thing for long. The higher the traffic the lens receives, the more 'voice' it has. We will measure this voice in 'unique visitors' which is how Squidoo measures traffice.
- Direct Revenue generated by the lens: This is going to be $$$ generated by the lens through Squidoo. This will include Adsense revenue as well as any module revenue. For purposes of calculation, we'll use the average of the last three months of lens revenue.
- Indirect Revenue and Pageviews Generated by the lens. Many lenses are not designed to either earn revenue or create value through Squidoo pageviews. Instead, they are landing points, or mini-portals to other websites the lensmaster owns. These will be very difficult to value, as indirect Revenue and Site visits are hard to:
- Prove
- Value for another owner
Because of this, I doubt that they will sell as often, as they are tied into other assets that would need to be sold as well to create any value. Unless a market emerges for 'referral' lenses, I am not going to address them here.
What you need to calculate your Lens value
You can pull all of these off of your Squidoo Dashboard
- Take your lens revenue totals(Adsense + Affiliate Income) over the last 3 months or more.
- For our example we will say our lens has made $1.16 , $2.30, and $3.87 over the last 3 months, each month larger than the last.
- Take your Lens Visitor Totals over the last 3 months.
- We will use the totals 48, 112, and 248 respectively.
- At this time, there are no real tools to determine how popular your URL is within the Squidoo Universe. If a tool becomes available to determine this, we will have to assign a value to this. (i.e. the most popular URL would be given a 10 while a useless URL would be given a 0) Note: this is not LensRank, which is a measure of the popularity of your Lens.
- Write down your LensRank as well. As the market becomes more efficient, LensRank will become a measure of value as well.
Books on Asset Valuation
Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, Second Edition
Amazon Price: $59.85 (as of 07/20/2008)
Used Price: $51.93
Damodaran on Valuation: Security Analysis for Investment and Corporate Finance (Wiley Finance)
Amazon Price: $63.00 (as of 07/20/2008)
Used Price: $50.00
Active Portfolio Management: A Quantitative Approach for Producing Superior Returns and Controlling Risk
Amazon Price: $50.40 (as of 07/20/2008)
Used Price: $18.00
Strategy #1 : Value it like Cash
This is the simplest way to calculate a value for your lens.
Assumptions:
- The average revenue from the last 3 months will hold true in the future, neither increasing nor decreasing.
- Interest Rates will hold relatively steady for the near future. (currently around 5% in a high-yield savings account)
- In this calculation, the income of the seller is being replaced
- This is purely a cash flow valuation and the underlying asset (lens) holds no value in itself.
Calculation:
Take your average income ($2.44 in our example)
- This is the amount of income the seller would need to replace each month.
Multiply by 12 (annual income) ($29.32)
Divide this number by the current interest rate on a high yield savings account (5% in this example) (5% = 0.05 | 29.32/0.05 = $586.40)
What this Means:
In this example, the lens would be worth $586.40! Keep in mind, the revenue is predicted to remain constant and the buyer is assuming all of the future risk. I think a price like this would only be seen in a Seller's market with a valuable lens. However, the other factors outlined above that are not included (pageviews, LensRank, URL quality) may justify this price to the Buyer.
Other Services for your lens
Other ways to Monetize your lenses
- Buy and Sell Squidoo Lenses
- This is the Squidoo lens that explains how SellMyLens.com works.
- Sell My Lens - The place to Buy and Sell Squidoo Lenses - Squidoo Lenses
- www.sellmylens.com is an online auction offering a low-cost solution for selling Squidoo lenses
Strategy #2 : Use the Present Value of the Lens
This is a common method used across industries.
The Lifetime Value is:
the Lifetime Value (LTV) is the present value (usually expressed in currency) of future profits that can be derived from a lens based on the profits that have been received from that customer in the past.
This includes finding the following factors:
- Determine the time horizon over which lifetime value will be calculated (e.g., 5 years)
- Determine the interest rate to be used when computing present value
- Determine the costs attributable to a customer
- Sum the revenue, subtract costs, and take the present value over the specified time period.
We will use the following values for these terms:
- 12 month time horizon (the internet moves fast, what is hot today is not tommorow)
- Interest rate of 10% (a solid rate of return for an investment, but nothing outrageous)
- $0 in costs (Squidoo is free!!!)
- Revenue of $2.44 a month (per our example)
Calculations:
Where:
- PV = The Present Value
- C = Annual Cash Flow ($2.44*12 = $29.28)
- i = Our interest Rate (0.10 = 10%)
- n= number of years (1)
So:
PV = 29.28(1.1)^1
PV= $32.21
If you assume 2 years of revenue:
PV = $35.42
3 years:
PV = $38.97
Summary
As you can see, in this example, the value of the lens is MUCH lower than if it were just treated as cash. As time goes on and the lens trading markets become more efficient, I will do my best to refine the calculations to come up with better estimates.
Squidoo in the Blogosphere
Strategy #3 : Value it like a Small Business
Using Capitalization, we can value a lens like a MicroBusiness
A lens shares many qualities with a microbusiness so I find this comparison appropriate. ( Income, Costs (profit sharing), time investment etc.)
Often times when a small business is valued, it is done so by the buyer taking the lowest rate of return he will accept ( a measure of risk ) and comparing it to the revenues of the company.
Some Currently acceptable Rates of Return for different Asssets:
- Cash, Gov't Bonds : 5%
- High Quality Corporate Bonds: 6-9%
- Stocks: 10-12%
- Investment Real Estate: 12-18%
- Small Businesses (20-200 employees): 18-30%
- Microbusinesses: No real market but probably north of 30% easily up to 100%
I would classify Squidoo Lenses as Very Risky/Microbusiness type entities. In our little example I am going to say an acceptable rate of return on a lens is 40%. This means you expect to 'Capitalize' or earn back that percentage of the purchase price each year.
Using the annual income of $29.32 in our example we get the following
Annual Income / Capitalization Rate = Business Value
so,
40% = 0.40
and $29.32 / o.40 = $73.20
Notice that this value is in between the other two values we have calculated so far. This means we are slowly closing in on a cash flow based valuation range for lenses! (English: we know lenses are worth between X and Y based only on how much money they make)
Sell your lens? Free Analysis!
If you have bought or sold a lens lately, and don't mind sharing the price or the historic revenues, drop a line here and I will use the data to create an analysis of what kind of deal you got based on these theories. I can post the results here or send them to you privately
Thoughts and Comments
Think I'm way out of line? Have a better way to value lenses? Drop me a line and let me know!
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LaraineRose
Never thought of selling a lens. My lenses are like pets to me - I've spent so much time with them/on them that ... I know that sounds sort of sentimental ... well, maybe I'll think about it. Any offers? 5 stars, fan, favorite and lensrolled. Posted July 01, 2008 |
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Joan4
This is sooooo interesting! Thank you! I really enjoyed this view of my lenses! Posted June 29, 2008 |
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LauraMarie
Great info here. Thanks for sharing this Posted June 22, 2008 |
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cherangelry
I always wondered what I would price a lens if I ever decided to sell one! Thanks for the ideas! I'm adding it to my favorites it so I can track any updates! :) Posted June 16, 2008 |
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Gimmesome
Nice work...Basically the value of a lens (or any other asset) is based on the future cash flows it is likely to produce. The main difference between Strategy #1 and #2 is that #2 does not include a terminal value. That is, it assumes that the cash flows have a finite life span, while the first method is in perpetuity, so naturally the first method will yield a higher valuation for the same cash flows and discount rate. Posted April 30, 2008 |
