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Why I Don’t Buy Using Revenue Multiples

Elliot Silver
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16

Revenue MultiplesI know a number of companies and individuals that have spent a lot of money buying domain names based strictly on revenue multiples, and there are many reasons why I think this is a bad idea. I personally have never bought a name strictly based on the amount of money it generates because of the reasons I outline below. I am sure there are plenty of people who have done well buying on multiples, with the “industry standard” previously being 10 years, but I strongly believe much more money has been spent on bad buys than good ones.

1) PPC will probably continue to decline. A 10 year multiple last year is probably a 14-18 year multiple this year – if not more.

2) Revenue might be seasonal, so if you buy a winter-related domain name in the spring, the last few months of revenue will be strong, but it’s probably not indicitive of how the domain name will perform year-round. If a seasonal domain name is bought on a 10 year multiple, when you consider it could be most active just 25% of the year, the actual multiple could be 40 years rather than 10.

3) A domain name may have been a developed website before it was parked. As time goes on, the site will presumably steadily lose traffic as search engine links disappear, and the money won’t continue to be generated as strongly.

4) A developed website that generates revenue will have costs associated with that revenue, including inventory, hosting, fulfillment, website design/updates, and the time it takes manage. An affiliate-based website will have less upkeep, but there are still management issues that take time and effort.

Sure, if a generic domain name is making money, I will take the revenue into consideration and probably pay what would be a greater multiple than whatever the industry standard is. However, I don’t like the idea of buying a domain name simply based on the revenue it is generating in its current form. In my opinion, there are too many risks to buying domain names based on a revenue multiple, whatever that multiple may be. It’s too difficult to evaluate domain name values based on a fixed strategy like revenue multiples.

** I am out of town for the weekend, so comments may take extra time to be approved, and questions may go unanswered for a bit – but I will get to them of course **

Follow Up: Make 1,000% Profit

Elliot Silver
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37

I want to follow-up to a post I wrote a few weeks ago called “Make 1,000% Profit.” In the article, I discussed how people can analyze what names are selling at auction at Snapnames, buy names for registration fee at Moniker, and then sell them on Snapnames. The jist was that you can register a domain name for around $8.00 and sell it for $80 (give or take depending on your starting price), for a 1,000% profit.

Since I posted that article, I went out and attempted to do what I had been doing, with then intention of writing up my results here. I had done what I mentioned a few times, and I wanted to prove that it is still possible, even after I publicly wrote up what I was doing.

In any event, the results aren’t as good as the title of my article, but as you will see, I am clearly still more than happy.

Names Registered: 204
Total Spent: $1,550.40

Names Sold: 91
Net Revenue (minus sales commission): $5,849

Total Profit: $4,298.60

All in all, I earned about 3x my investment in profit, and I have over 110 domain names left to sell. One thing that surprised me is that some of the names I bought actually get traffic and some are earning PPC revenue. I suppose with domain tasting being eliminated there are more opportunities to buy names that get random bits of small traffic, but I was surprised. We aren’t talking about a lot of money, but a little bit is more than nothing and shows that there is a value to these names and the buyer presumably knows this.

All in all, I think the test was successful, and I am very happy to have made over $4,000 in profit on this. I still have several months to go to sell the rest of the domain names, but any additional sales is just gravy.

As I said in my initial post as a caveat, it’s important to be able to distinguish a similar domain name to what is selling, and you need to be able to determine someone’s (or many peoples’) buying habits to be successful at this. If you are going to try and do this, I recommend starting small and scaling.

I am sure some people will criticize me because it’s not 1,000% profit as billed. However, I am not selling anything and not making any money from anything you sell, so there’s really no reason for criticism. The first time I did this, the profit margin was greater because some of the auctions had mutliple bidders, driving the price (and profit) higher.

***

Just as a “head’s up” I am leaving for a long weekend in Atlanta later on today, so comment approvals may be a bit slower than normal.

Domain Names are Undervalued Because…

Elliot Silver
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14

I think domain names are considerably undervalued when compared to other business asset classes. Most companies would rather spend money investing in a quality piece of land rather than a category defining domain name.

As a domain investor, I would rather own the domain name Candles.com than buy a piece of land where I can build the biggest and best candle store. No matter how great this candle store is and where it’s located, it still can’t reach 1/100th of the people a domain name like Candles.com can reach.

I believe domain names are undervalued for a few reasons:

Many business owners still don’t understand how the Internet works. You could give many business owners the best category defining domain name, but they would have no idea what to do with it or how to build a website. There is also still a tremendous amount of disparity in web development. I could put out a bid on a fully interactive website and you can bet I would get bids ranging from a few hundred dollars to tens of thousands of dollars for the exact same quote. If a business owner doesn’t know how to approach this, it’s easier to focus on what is tried and true.

Many people would prefer to build their own unique brand than to spend an extraordinary amount of money on a generic domain name. In marketing classes, people are taught to differentiate themselves via their brand, and if they name their company XYZ Swimming Pools, business owners seem to want to stick with their brand. Perhaps it’s ego or lack of knowledge about direct navigation traffic and web conversion.

Although there are at least a couple of easy ways to finance a domain name acquisition (Domain Capital or DigiLoan), I imagine it would be tough to convince a bank to give a large loan to finance a domain purchase. It’s easier to take out money to expand a small business in a local community than it would be to buy a domain name to enhance a company’s presence online.

There is no MLS-like system that can give consistently accurate domain values. Even similar domain names can have hugely different values, and there is no way to get an appraisal that is totally accurate. You can’t expect someone to spend tens or hundreds of thousands of dollars on a domain name when he has no idea if the domain name is worth the price.

What do you think?

City in a Box Opportunity

Elliot Silver
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30

I wanted to share an email I received from my friend Fred Mercaldo, one of the most respected geodomain developers whose company owns Scottsdale.com. Fred’s company introduced a new offering for other domain investors who own city/regional .com domain names. If I hadn’t developed Burbank.com and Lowell.com on my own already, I would not hesitate to turn to Fred and his expert team. If you have an undeveloped geodomain name – or if you have an underdeveloped geodomain name, you might consider reaching out to Fred about this opportunity.

Scottsdale.com has grown to include 4 additional geodomains in the Arizona market.   In building these sites, we have developed a platform and system that Becky and I realized could be used for other geodomains, and have now formally begun to market the software as “City In A Box”.

We are big believers that geodomains be developed and not parked, and there are still many cities and state names that could benefit from our services.   To see the actual site, visit www.mesa.com and www.sausalito.com.   The package includes a complete, ready to monetize website, with a comprehensive Content Management System, customizable Channel and Directory categories, fully functioning Event Calendar, Stories, Articles, Press releases; easy admin area for all banner ads; ability to have visitors create user accounts, stat tracking ability for all advertisers or anything listed on the site, so reports for advertisers are easy; blogs, and full Optimization Elements.

This is not a typical template system or mini site; this is the result of many years of trial and error in the building and marketing of Scottsdale.com, and if I had the ability to purchase this package years ago, I would have saved literally hundreds of thousands of dollars.   We are presently developing 4 other cities, and have the ability to build out 8-10 more this year.   The total price for everything is $12,500, and for a yearly fee of $2,500 we will provide all upgrades and updates in the future.

Additional information, including a spec sheet can be obtained from Fred@scottsdale.com or Becky@scottsdale.com.

Treat Your Advertisers Well

Elliot Silver
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11

BurbankWhen I first launched Burbank.com and Lowell.com, I had 4 banner spots available to advertisers rotating on the bottom right hand side of nearly every page. There were between 8-12 banners in total, so each banner didn’t get a ton of impressions. I was able to sign on one great advertiser on Burbank.com a few months after launch, and I was psyched.

A few months in to their commitment, the advertiser told me they weren’t going to continue to advertise on the site. The first person I called was David Castello to ask him how I should respond. I expected a great rebuttal which would secure the advertiser for another six months, but I was wrong. David’s reply was something like, “wait, you’re offering rotating banners on the bottom right of your site and you’re surprised the advertiser isn’t going to renew? Treat them well and they’ll never leave. You need to give them better placement on the site.”

Well, I made a big change a few months ago, adding a row of six advertisements to the top of the home page, just below the banner, and the response has been terrific. The advertiser informed me that her company will continue to advertise, and I just signed another advertiser on Lowell.com for advertisements in several sections on the site. In addition, I’ve had many more advertising inquiries of late and I am close to signing a nice advertising deal on Lowell.com within the next couple of weeks.

Traffic continues to rise for both of my primary geographic domain names, and advertisers are getting even more value. I am treating them well and allowing them to advertise locally in a cost-effective way. It’s a win/win for all parties. Just like I do on my blog and now on my geodomain names, if you give your advertisers the best placement, they will continue to advertise and support your efforts.

As an aside, the chart below is something I am very proud of because it’s been a lot of work. The publicly reported traffic numbers for Burbank.com are several thousand visitors less than my statistics are showing (perhaps because they don’t record type-in visitors), but you get the idea. Every month I work hard to beat the prior month, and it’s beginning to pay off!

Stats

Free BuyDomains Webinar on Thursday

Elliot Silver
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0

BuyDomains LogoBuyDomains is hosting another installment of their free webinar series on Thursday, July 16th.

The topic of this webinar is “How You can Earn Money as a BuyDomains Referral Program Member”.

The BuyDomains Referral Program has gotten off to a terrific start.   Just recently, one of its members earned $1,700 for a referral that resulted in the sale of A6.com for $34,000. You can easily integrate the referral program on your website, blog, forum signature, Twitter account…etc. I am sure they will cover this and more at the webinar.

Those wishing to attend can easily register online. I’ll be there – will you?

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