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Is Your Blog Worth the Effort? How to Calculate ROI

August 11th, 2011 ::

MoneyWhether you spend significant amounts of time pounding out blog posts, or pay others to blog for you, how can you be sure it’s worth all the effort? Convince and Convert’s Jay Baer has created one of the best methods I’ve found for calculating a blog’s ROI.  It involves some math, so if you hate math like I do, I apologize.  But it’s a worthwhile exercise, so give it a go!

Here’s what to do:

How much does your blog cost?

1.  Determine how many hours your or your staff spends writing, editing and managing your blog. For each person, divide his/her salary by 2,000 (the hours worked per year based on a 40-hour work week and two weeks’ vacation) to get an average hourly salary compensation. Multiply this number by the number of hours each person contributes per month, and then add up a total for all of them.

2.  If you don’t know it already, ask your accountant for your company’s standard overhead.  Multiply your total from step 1 by the overhead calculation. Add this number to your total from step 1, and you’ll have the total labor cost of your blog each month.

3.  If you built your blog internally, you can use steps 1-2 to determine the labor cost of designing your blog. If you had a third-party create your blog, determine how much you spent on the initial design process. Don’t forget to add redesigns and updates.

Baer suggests using a 24-month amortization schedule since blogs tend to evolve quickly and require redesigns about every two years. So, divide the amount you spent on design by 24–this number is your monthly design expense.

4.  Add up any fees you spend on Web hosting and SEO services to determine the cost of hosting and maintaining your blog.

Add up your totals from steps 2-4 above, and you’ll have your blog’s total monthly cost.

How much is your blog worth?

1. Now you need to determine which actions on your website can create instantaneous sales or leads. Items such as “Subscribe to our e-newsletter” or “Sign up now” are examples.

2.  Set up a Web analytics program to determine how many people take action on your blog. You may want to set it up to count only those people who spent at least three minutes on your blog, for example, to be sure the blog was the driving factor for the behavior.

3.  To determine the value of each action, you’ll need to calculate the average lifetime value of your customers by multiplying the average amount of money a customer spends with you per month to the average number of months they remain your customer.

4.  Multiply the number of revenue-generating behaviors by the average lifetime value of your customers to get the total value of your blog.

And the ROI is…

If you found the above calculations to be a bit hairy, at least determining return on investment is always simple and straightforward:  Revenue – Investment / Investment = ROI

In this case, revenue = total value, and investment = total cost. So, subtract the total cost of your blog from the total value of your blog and divide by the total cost. Convert that number into a percentage, and you have your blog’s ROI.

How does your blog measure up? After performing these calculations, do you think your blog is worth the effort?

Image by Flickr user Sushiina (Creative Commons)

The views expressed here are the author's alone and not those of Network Solutions or its partners.

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