What's the value of a link?

I had someone say "should I pay $500 to get a text link on a highly ranked site in my industry?" My response ...

There are two ways to value this link: by the traffic it directly generates, and by the impact on the position of a page or pages in a search engine.

1. By traffic on the page

# page views x click thru rate = some number Z

Effective cost per click on Z – compare against cost per click in a Google or Overture

Now, there is potentially some value for the link with the engines. But how much? Let’s try to assess.

2. by traffic it could generate from driving traffic to the engines

This is trickier. Theory: # of links needed to move a page up in the engines depends on the competitiveness of the term. Let’s say we need 10 links. This is arbitrary. Now let’s say the cost per link is $100 each per key phrase that we can put in the anchor text. This equals $1000. Let’s say this term is getting 500 searches per month, or 6000 in a year. (remember, the Overture data is for broad matches, not for the exact match. there may be very few terms with this exact match). Let’s say we can get a 3% CTR from our page that is now in a good position because of the 10 links. 3% of 6000 = 180 clicks. The cost per click is 18 cents. This is very reasonable.

But will those 10 links be sufficient? Will that be the only cost? This is hard to say. What if we get 9, but that’s not enough and we can’t find the 10th, then the 9 are largely wasted. There’s some kind of a risk premium we need to consider.

On the other hand, we may be able to drive positions on more than 1 term using the anchor text.

Some links are going to cost a lot more than $500, and there’s a cost to our time as well.

I would not get too stressed over getting exact numbers, but it would be good to do some sort of ballpark analysis. To put things in perspective, the Yahoo Directory is currently $299 per year. https://ecom.yahoo.com/dir/reference/cost It is hard to believe any link could be worth more than this.