Industry professionals occasionally debate about whether buying based on a pay per click revenue multiple is smart, and on what revenue multiple is appropriate to make a purchase. Naysayers (like myself) will argue that there is much more to a domain name than PPC, so simply using a revenue multiple is short sighted. Many who use revenue multiples argue that it’s one of the easiest and best ways to value a domain name, and it is especially important when buying a group of names or a portfolio.
While I don’t believe names should be bought or sold simply on a PPC revenue multiple, I do believe domain names should be bought based on some sort of revenue multiple. In any major business, marketing spend is typically allocated based on the return that is expected from the investment. Most of the time, the company will use a model to project a return based on expected response, lifetime value, depreciation, attrition…etc, etc. They will input the variables they know from past experience and make an educated guess on variables they don’t know. This gives an annual rate of return and can help place a value on an investment.
Using similar calculations based on my past experience, I come up with a value for a domain name before buying or selling it. I like to use 3-5 years as the amount of time to earn back the initial domain investment, but it varies depending on the domain name and my plans for it. With geographic domain names, I can determine approximately how much revenue I will be able to generate based on advertising sales, and I can justify a purchase price based on that. Had I used PPC multiples, I probably wouldn’t have been able to justify my purchase price.
When doing a calculation such as this, keep in mind the cost to develop and maintain the website, the cost of data and data entry, and the time it will take you to make the sales or the cost of paying someone to make the sales. Just because a domain name can make $100,000 per year as a website doesn’t mean the name is worth $300-500k based on my thinking. Since the cost of building and maintaining a website can be high, and the time considerations can be great, it is important to keep these figures in mind. While this isn’t perfect, it can help determine the value of a domain name to make an offer or a sale.
Safe Domain Name Transactions
After reading an excruciatingly long thread on DNForum that deals with allegations of scamming, stolen domain names, missing funds…etc, I wanted to share some general advice when buying and selling domain names. The advice I give is only based on how I personally do business, and I recommend using an attorney if that makes you more comfortable.
Before I purchase a domain name, I always check the Whois history to make sure the name looks like it is free and clear of problems. Frequent changes in ownership, different/inconsistent email addresses or phone numbers, and incorrect-sounding information always ring bells in my head and requires further checking. I also like to search using Google and the domain forums to see if the name has ever been in a dispute or had “issues.” Because I mostly
Lease to Own a Domain Name
I was giving advice to someone today about buying a domain name that is currently generating significant parking revenue. The owner is using a min-site with Adsense to generate this revenue (we’ll say $5,000 annually for the sake of this post), and the potential buyer thinks he could earn much more if he develops it further. The owner’s asking price is steeper than the buyer is willing to spend (let’s say $100,000), but I think the buyer can get creative with his offer in an effort to strike a deal.
In a situation like this, I think a lease-to-own offer would be
Importance of Keyword Searches for Domain Buying
When buying a keyword domain name, it is important to know how many people search daily for the keywords that make up the domain name. You might have the most targeted website for the keywords, rank number one in the search engines and have the best website design, but if nobody is searching for those keywords on a frequent basis, it will be difficult to earn a return on your investment.
Many people reference Google’s search results to cite how much information exists for certain keywords. While Google will show how many times the keyword is mentioned on the Internet, it fails to show how many people are actually searching for it. Using Google for this can be misleading, because there can be much more information about a topic than people searching for it.
The Overture search tool was a good indicator of the number of searches that were performed monthly but Yahoo has eliminated that tool. I’ve used Wordtracker and KeywordDiscovery before and both offer good indications of what keywords people search. If you own the domain name of these keywords, you have a strong search engine optimization advantage over everyone else. Once you upload relevant content and have someone optimize your site, you could see an increase in revenue.
Importance of Maintaining Liquidity
In difficult financial times and tough market conditions, it is very important to maintain a portfolio of liquid domain assets that could be sold very quickly if necessary. Two and three letter .com (LL.com & LLL.com) names, strong dictionary .com terms, city/geographic terms and some numeric domain names are considered liquid domain assets.
There are reasons for maintaining solid liquidity, other than having bills to pay. For one, other people may need to start selling their liquid assets, and if you are in the right place at the right time – and you have the capital to make the purchase, you could benefit. Additionally, it costs quite a bit of money to develop and maintain a website. If you need to finance a web project, you may need the cash in short order.
When you evaluate whether your portfolio has enough liquidity, think about
Domain Psychology
If others are like me, they probably find themselves searching for domain names based on events going on in their life. Lately, I’ve been spending quite a bit of time searching for wedding, pet, and real estate domain names. I do some keyword research via Keyword Discovery in addition to the “real world” research that I am constantly doing. I also look-up category killer names on iWhois.com.
Exploring new areas can