Domain Name Valuation Based on Revenue Multiples

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.

Elliot Silver
Elliot Silver
About The Author: Elliot Silver is an Internet entrepreneur and publisher of Elliot is also the founder and President of Top Notch Domains, LLC, a company that has closed eight figures in deals. Please read the Terms of Use page for additional information about the publisher, website comment policy, disclosures, and conflicts of interest. Reach out to Elliot: Twitter | Facebook | LinkedIn
  1. Supported by any number of firms and individuals willing to pay based on such, multiple of revenue does nothing more than establish an absolute floor value.
    It’s from that floor value where the real valuation analysis, determination; and greatest disagreements; occur.

  2. It depends on the domain. Is it a industry.
    I see this stupid question all the time. I think I can claim expert status on this.
    These follow types of domains should not be valued on PPC.
    Brandable (true brandable),,,, etc.
    This does NOT include 5 letter com Palindromes like which when typed in to google result in crap results. IMHO.
    Industry Domains,,,, and the like.
    Activities, like,,, etc.
    Names, First & Last, Cities, Countries and the like.
    Any 2 or 3 ALL letter domains even bad letters are good, Having number with 2 or 3 letter domains suck for the most part, other than stuff like etc.
    Adding prefixes to most of the top 5000 words, like i, e, go, my are also brandable. might get traffic and make money but I don’t know who would pay a premium for it.
    The rest of the domains are CRAP and should only be done on PPC. Because that is the way I see it.
    Many people try to sell me domains, don’t know why anymore, but they do. People even have available domain list for anyone to buy. For Example “” the last time I saw someone doing PC Portraits as a career was a fair in the streets of a small town. If I am a investor, how is that going to be my client someday? Doesn’t make sense to me. If this domain makes NO money, why would I/anyone buy it in the hope of some street vendor to buy it from me someday?
    Use Double Quotes around the word in Google, if garbage comes up, it is probably a garbage domain, though NOT 100% true, though a good rule to live by. “pc portraits” gets a value of 4000. Not real good, no google ads, so in my mind, $10 for nothing., the last musician I saw that had money to buy domain, didn’t need any domains. 14,000 in google and lots of comma’s with the Musician, Man. If you don’t know why that is bad, you shouldn’t be buying domains.

  3. This cracked me up:
    “For example, The last time I saw someone doing PC Portraits as a career was a fair in the streets of a small town.”
    Actually, your entire analysis of which domain names should not be valued via PPC is pretty good.

  4. Buying a business in any industry starts with a valuation of current earnings – period. Various risk factors and other intangibles (positive or negative) are also considered, and the final valuation will usually be some multiple of CURRENT earnings (EBITDA).
    The multiple is often in the range of 1-10x earnings, depending on the industry. Of course there are rare exceptions where particular companies have created a dominant market position that cannot be easily challenged (e.g. Microsoft in the 90’s, Google in 2000’s).
    However, in most cases a wise buyer will only value actual results to-date. They are usually interested in purchasing the company (or domain) because they believe there is future potential to grow or improve the business, but they will NOT value this “future potential” when negotiating.
    I understand the potential of the domain business (which is why I’m in it), but it’s unreasonable to expect to be paid on speculation – whether we like it or not.
    In fact, I could argue that buying a domain or website based on a 1 year multiple of earnings is very risky, because the traffic and monetization strategies are volatile and can change much faster than in the brick and mortar world.
    Tym Barker

  5. Tym,
    Sorry, but by using such an incongruous valuation method and approach, a piece of unused raw land with nothing on it (which is akin to an undeveloped domain name); even were it on Wall Street or the strip in Vegas; would be worth nothing because it was generating no income…
    …and we know that can’t be right. 😉

  6. Steve,
    Valid point, except we need to consider time.
    I’ll bet that in 1870 there was some raw, unsused land on Wall Street that they couldn’t give away at certain times. Only a few visionary “speculators” saw the value in raw, unused land on Wall Street in 1870. The average business person interested in hard numbers just laughed. A hundred and some years later even the village idiot can see the value of property on Wall Street.
    In 2008 we’re the speculators for domain real estate (actually I’m just a Johnny come lately compared to some of you guys). If we’re inclined to sell today we need to understand the perspective and mindset of the typical corporate buyers at this point in time.
    Unfortunately, we can’t expect the vast majority of people to see the true value of domains for another 5 or 10 years. Yes, at that time the “real values” will be obvious and far surpass traditional business valuation methods.
    Unless advances in search technology and structure of the internet renders “domains” redundant…

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