We know that each and every website page is assigned a Google Page rank, based upon a mathematical algorithm. Pages rank on a scale of 0 (zero) the lowest, and 10 (ten) the highest. Linking between websites both internally and externally pass a value or Page Rank.
If site A links to site B, a percentage of Site A's Page Rank is passed or credited to site B. Nothing is lost from site A in terms of Page Rank unless the link is to a banned area, or bad neighborhood.
The amount of Page Rank Site A passes is determined by the amount of Outbound links of site A's page. The more Outbound links, the smaller percentage of Page Rank is passed. Pages with large amounts of outgoing links pass very little Page Rank and in some cases may cause more harm than good. Try to avoid linking to pages that have large amount of outgoing links, Like Link Farms etc.
A real life true example. Site A had a Page Rank of 4, there were only 2 outbound links on Site A. One of those outbound Links was to brand new Site B. Brand new Site B had 3 out going links, and NO other Incoming Links, besides the one from Site A. Google awarded Site B a new Page Rank of 4.
From this real life example, we see that the fewer outbound links per page, the more Page Rank is passed.
If Site A in the example above had a large number of outbound links on the page, then a smaller percentage of Page Rank would have been passed and New Site B would have received a lower rank then the equal rank that was passed.
Higher Page rank sites linking to your site to pass PR is consider valuable, but normally the higher Page Rank sites have a tremendous amount of existing outbound links so the true Page Rank Passes is normally minimal. It is also hard at times to get a quality higher Page Rank page to link to your site. Lower Page Rank sites are very important in Passing Page Ranks and link exchanges. Their Page Rank usually grows with age and has more inbound links than outbound links, creating a higher Page Rank, which in turn passes to your site via it's outbound link.
In general terms, an individual page's Page Rank is determined by the amount of links going out of that page (outbound) and the amount of links coming to that page (Inbound). A general rule of thumb: you want to have more inbound links than outbound links.
Definite things to avoid.
When doing reciprocal linking, make sure you check the amount of outbound links that not only the page has but the overall site as well. Search engines such as Google doesn't like Link Farms ( 1000's of links on the site), gambling sites and pornography. Unless that is your business, don't link to any of those types of sites.
You can lose Page Rank and Search Engine Results by Linking to sites that are considered Banned, or Bad Neighborhoods. Be aware and check before linking. Even if you aren't "punished", you will gain no benefit and the PR leached away from your site is not worth it.
Be aware to whom your site is linking to via outbound links. Periodically check your outbound links making sure that they are:
1) Still an active website
2) Still a resource for the reason you linked to them in the first place
3) They have not changed theme formats and are still a quality site.
Page Rank grows over time. Google updates visible Page Rank infrequently, like every 4-8 months or so. The best SEO strategy is to link to and link exchange with like themed sites or quality sites.
Article by Ed Charkow - Ed is the webmaster at http://www.seoengine.info and http://www.nichesitespecial.com . Reprint rights are granted with live hyperlinks and resource box intact.