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If I have timed this right, and if you subscribe to SEO Theory, then by now you may have read Managing Link Investment Risk. If not, go read that blog now and then come back here.

So, for those of you who understand what I’m talking about when I mention “Link Investment Risk”, here are three tips you can use to manage your risks. I briefly described one in the SEO Theory article.

• Use a spreadsheet to catalog your linking resources and strategies
• Assess your competitors’ linking investments (and link investment risks)
• Calculate risk-to-cost ratios

Before you do this, you have to make certain assumptions. You can adjust your assumptions over time as you improve your ability to assess costs. You need to assign a dollar value to every cost. For some costs the value may change over time. I recommend using average values rather than updating your assigned values frequently.

You want to assign value to the tasks involved in your link acquisition: analyzing sites, filling out forms, writing emails, whatever. If you were doing this for someone else, what would you charge them? That’s the cost you have to charge yourself. There is no profit margin to be concerned about.

Since you don’t know what your competitors earn or charge for these activities (unless they spell out the costs on their Web sites), just use your own personal cost factors for them.

Use a spreadsheet to catalog your linking resources and strategies
By “resources” I mean classes or types of resources, not individual Web sites. You decide how to group them.

You want to use a separate table for resources and strategies. You want to assign reasonable risks and costs. You can be creative in assigning a cost to a strategy. Think about how much time you would devote to a particular strategy for a campaign. Don’t think in terms of, “Well, I’ve been doing this for five years….” Most campaigns are executed in 3-6 months or less.

Be consistent with how you assign risks. If you use my proposed “foolish risk”, “prudent risk”, “unexpected risk” scheme you may find some risks are not easily categorized. It’s okay to expand beyond those three levels. I would not, however, equate “foolish risk” with “high risk” and if you don’t use “foolish risk” then you should use something else in addition to “high risk” to distinguish between risks that potentially offer a lot of return and risks that really just squander resources.

Costs should be based on time and materials, fees, etc. Use estimates where you must.

Finally, count up how many links you obtain from each resource class and strategy. If you want to really drill down, count how many of the links are indexed by major search engines.

Assess your competitors’ linking investments (and link investment risks)
Using the method described above, pick your 2 or 3 best performing competitors and do the same thing for them as much as you can. Don’t worry about how accurate your profile of each competitor is. You’re just creating benchmarks to compare your own investment costs/risks to.

Calculate risk-to-cost ratios
This should be self-evident. Let’s say you developed a 5 point risk scale, with the higher number representing safer risks. Let’s say you have identified 5 resources classes and 3 linking strategies. A risk-to-cost ratio would be the assigned risk divided by the cost of class or strategy.

If you have an average risk of 3 and an average cost of $3000 then your average ratio would be 3/3000 (or 1:1000). How many links does each resource class provide you? How many links does each strategy provide you? The lower your ratio, the better. For example, a high risk/high cost ratio might look like 1/10000 (1:10,000). A low risk/low cost ratio might look like 5/500 (1:100).

You can convert the ratios to percentages, if you like. 1:10,000 would be equivalent to .0001 and 1:100 would be equivalent to .01. You’ll never get to a value of 1 but the closer to 1 your percentage/ratio gets the better (in this model — there are other ways to measure link investment and risk).

If you obtain 100 links at a ratio of 1:10,000 and 200 links at a ratio of 1:100, which resource class or strategy do you feel offers the better return on investment? Actually, you can’t know for sure, but if you’re tracking indexed links and how fast each resource and strategy produces them — well, you can develop some pretty interesting statistics.

The bottom line here is to determine how effective, risky, and efficient your link building is (and maybe to compare it to your competitors’ performances).