I wrote when I started this site that it was going to be an experiment in many ways, and part of that was to see if it could become self-sustaining or better, even though I never held any high expectations. Well, you know how people are always asking about whether they can make money off of blogs. So, in true finance geek fashion, and to go along with the theme of this site, I decided to calculate what the NPV of this blog would be as if it were a potential project under consideration for investment*.
I’ve added a little graphic to the left sidebar for fun. Now, don’t get excited — it doesn’t update in real time with your clicks and visits or anything, but it’s something I’ll update each month to show how things are going. Right now it just plots the money I get (all from Adsense so far) less the amounts I paid for registering the domain and for hosting service each month at Hostgator. In other words, I don’t include labor costs. (I also plotted traffic visits for fun.) So after four months, the NPV comes to -$28.34. On the other hand, at least my cash flows are less negative each month.
Now, if you’re wondering whether a blog is worth pursuing if you take your time and energy into consideration, I’m afraid the answer is pretty clear in most cases: assuming $10 an hour for 4 hours a day and 20 days a month, the NPV of this blog changes to -$3,196.02!
Compelling evidence to argue that your blog is just your hobby, right?
By the way, it shouldn’t be surprising at all that I’ve got negative cash flows and a negative NPV so far: it’s a new blog, has no readership, and no ranking. And though I started setting up this website in January, it originally launched in a completely different format. Since then, it’s undergone revisions as I’ve learned more about what I want to write about and how to bring in readers and some revenue. Just last week, I made several major changes: I changed the main site to focus entirely finance, created a feed subscription, advertised this blog more via Feedburner and Pfblogs.org, added a couple of other revenue sources, and started posting more frequently. It’ll be interesting to see if and how these changes impact things.
For the few interested in the finance portion of the NPV, here it is. To calculate the NPV, I assumed a cost of capital of 5% for the year (= 0.407% effective per month). This isn’t a risky project and the dollar amounts aren’t huge, so I just figured using an average going interest rate for a money market investment would be a good enough proxy for the opportunity cost. Of course, calculating the NPV on a blog is pretty simplistic in most cases: no real depreciation considerations, debt, interest or tax shields, so free cash flows are just revenues less expenses.
So, let me know what you think, even if it’s just “wow, this is too geeky and you have too much time on your hands.”
(*) If you don’t know the definition of NPV, don’t worry. For the purposes of this little writeup, just take it on faith that in finance, an NPV > 0 means it’s a project is worth doing, and a negative NPV means it’s a money-loser. Another way to think of NPV is the $ value of the project.