How to Value a Squidoo Lens

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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?

As defined by Wikipedia, Passive Income is as follows:

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

A lens is an asset. It has a value to it. As you (the lensmaster) grow and nurture your lens, increasing it's popularity and visibility over time, theoretically its value will increase. However, the day will come when your time as a lensmaster will end. If this is before the end of Squidoo as a whole, then you may be able to recoup some of the time and effort of developing your lens by selling it.

Let us define the terms we are going to measure a lens' value by:


  1. 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.

  2. 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.

  3. 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:

    1. Prove

    2. 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


  1. 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.

  2. Take your Lens Visitor Totals over the last 3 months.

    • We will use the totals 48, 112, and 248 respectively.

  3. 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.

  4. 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 

Equity Asset Valuation

Equity Asset Valuation

by: John D. Stowe CFA, Thomas R. Robinson CFA, Jerald E. Pinto CFA, Dennis W. McLeavey CFA

Amazon Price: $59.85 (as of 07/13/2009) Buy Now
Used Price: $39.90

Equity Asset Valuation Workbook (Cfa Institute Investment)

Equity Asset Valuation Workbook (Cfa Institute Investment)

by: John D. Stowe CFA, Thomas R. Robinson CFA, Jerald E. Pinto CFA, Dennis W. McLeavey CFA

Amazon Price: $26.37 (as of 07/13/2009) Buy Now
Used Price: $21.68

Valuation: What Assets Are Really Worth

Valuation: What Assets Are Really Worth

by: Alfred M. King

Amazon Price: $115.94 (as of 07/13/2009) Buy Now
Used Price: $6.81

Strategy #1 : Value it like Cash 

This is the simplest way to calculate a value for your lens.

This is probably the roughest way to value your lens. However, it is a good starting point. Disclaimer: This value is probably High, as the buyer is assuming all of the risk in this calculation.

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.

Next, we will calculate the Present Value of the lens. Specifically the Lifetime Value.

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:

Present value Equation

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.

Strategy #3 : Value it like a Small Business 

Using Capitalization, we can value a lens like a MicroBusiness

Another Method to Value your Lens is to treat it as a small business.

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

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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!

Lensmaster

teamnirvana wrote...

A great article to start with. It really nurtures the aspirations of future lens makers. Thanks for taking time and posting this for us.

ReplyPosted May 02, 2009

Lensmaster

StephanieManning wrote...

Thanks! I just sold my very first lens today. It was the first lens that I created and the first I sold! I got $125 for it! Woo hoo! I could have sold it for more but...jee's $125 for a lens that I created just to link back to my AC aritcles for pageviews. Squidoo has turned out to be alot more then I could have ever imagined.

(In case anyone is wondering...the lens that I sold for $125 was www.squidoo.com/avonrepresentative)

ReplyPosted October 11, 2008

Lensmaster

Rob3 wrote...

This is a very interesting lens, with well explained calculations and valuations. Thanks for great info. 5*'s!

ReplyPosted August 31, 2008

Lensmaster

WritingforYourWealth wrote...

I think 12 x monthly earnings is probably fair, unless the lens has a lot of traffic and is obviously poorly monetized. Nice lens. :)

ReplyPosted August 24, 2008

Lensmaster

0ctavias0fferings wrote...

Interesting ideas. I guess that as time goes on it may be possible to equate building a lens with building a house, where there will be an element of desirability which will need to be taken into account when calculating the value.

I suppose it's also quite likely that over the years ahead some lenses will be sold on more than once, establishing a track record for value.

This could be my retirement plan LOL

ReplyPosted July 20, 2008

 
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