So here are some thoughts, which I hope will turn into a healthy discussion about this very important subject on our way to domain liquidity.
So what do we have now. We have some massive automatic appraisal thing going on. Everyone know about it’s quality. The only way we can/should use that is to extract decent names from a huge list. That’s it. They report wrong seo volumes, wrong advertisers, etc. And numbers are off.
So here is my look on this. No matter what domain name have the amount of people interested in it(if at least one person is interested).
What are the crucial metrics to a domain name and which of them are more important then the others?
Here is my list
Domain name must be .com (for a very obvious reason, .com is the best and got traffic leaks from any other extensions + type-in traffic)
Search volume for the exact keywords (small addition, there is a big difference in 500,000 exact searches for “.psd tutorials” and 12,000 searches for “consolidate loans”). Every single domain approach should be different.
Type-in traffic. (yes, it is nice. however when you are using short .com’s you are not getting targeted visitors – no matter what sellers say. If you are looking to buy irons.com – that small amount of type-in traffic will not be the irons you think they are. They will be golf irons, steam irons, electric irons, some music band named irons, someones dog named irons, someones school project and they check for domain name. Yes they will be all checking up irons.com and NO you will not get convertions from that traffic. Ok, maybe you might get 1% convertion).
Another important metric is would you buy this domain for more. (If for example I buy a domain interiordesignideas.com – which is my domain for 9k. I need to know, is it really possible to get more for it. Would the price that I ask be a fair price for someone else. Would I be able to unload it at the same price if I get no success in reselling at a higher price? This is very important).
Product domain name. (When I say product I don’t mean only domain like pearlearrings.com, newyorkshows.com is a product, memorycards.com is a product, familyvacation.com is a product. Something that can be branded and become a point of sale is a product. And what is not a product. Domains like others.com, unsure.com etc. can be a product in your head, with your plan – but so can be any other domain name).
Unique position of a domain name to competitive domain name. (Recently I inquired about RefinancingLoan.com after finding an email in 2007 that I sent to them and they reply back then was: we will email all interested parties and sell to highest offer. So I check whois and it was still the same owner. Then I sent email asking how much they want for it. And he said: six figures. So I replied: “lol”. And he replied: “personalloans.com sold for 1mm”. And I replied: “but you are not selling it, you sell something very different”. Can you really compare apples to black caviar. No, you can’t. Even if there are more buyers for apples, you can unload rare sort of caviar for much much more. And If you are selling apples there are tons of different sorts. So you better have the best one. But it’s a totally different market. So refinancingloan.com, I would consider all these before: refinanceloans.com, refinanceloan.com, loanrefinance.com, refinancing.com, loanrefinancing.com. In this case for the buyer it would have been much better to just buy something like refinancemyloans.com or refinancingmyloan.com – as you see there are no similar approach).
Domain name length and age of registration. (Yes, I combine them. Both of them are important, none of them is super important. I did sell roleplayinggames.com and refinancemortgagerates.com for very good amounts, while some short domain names didn’t sell nowhere near).
Advertisers. (Yes, they are important. You can get direct ad proposals from them, you can get their targeted ads via adsense on your website that pay higher, you can sell your domain/website to them – so what you want is more of them and the higher they pay per click – the better).
If it is a product domain name, are people actually buying it on the net. (Sometimes I see very strange bids on auction. People are buying well known product domain. But they don’t make sense. You can’t build a store for something people are used to buy together with their groceries. When you are trying to buy a product name. Think. Would you buy it over internet yourself. Ask your friends would they do that?)
So now when we have all the metrics, how should we use it. Let’s take a domain name for example. Flippa.com did mention my previous post in their blog. So let’s take one of the domains listed in their marketplace.
Fitness.com – price tag = 4 million dollars. So yes, it is a great name. Everyone would love it. Bla bla bla bla. Citing the seller revenue is: “Our monthly revenue is between 12,000 – 18,000 USD“. Then seller adds in comments “If you are looking to just take what we’ve built and try to make money on the site, than this domain is not for you. If you have a good business model that could benefit from 3m visitors / month, than this is more up your alley.
For example, a standard conversion rate is 2% … 2% of 3m = 60,000 clients / month. If those 60,000 clients bought something with a profit margin of $10, that’s $600,000 / month.”
Right. Now let’s have some analysis. You had this domain since 2004. You tried hard and you could only make it earn 12,000 per month in 8 years of work. It is either you are very bad or the business model was not viable at all. And you are trying to sell it based on what some other mythical person could do with website, so it will earn 30x times more then you did, but based on revenue you are asking 27 years of revenue IF revenue will remain at 12k and will not drop.
I understand our example is not pure domain name and we can’t really look at metrics and be objective. So we just try to use the success meter here.
What would be comfortable number for us to pay for it. I would say 60 months of revenue. Because no matter how good it is, there is no guarantee it will make more then 12k. So we need a point where we can sell it for more. We don’t just buy something and keep it. We want to make profit, right. And we only want lower revenue amount, we don’t know and can’t be sure it will make 12k in future, let alone 18k, so why use any averages.
So at 12k that’s 720k dollars. Very fair amount to me. Fitness is great generic domain. But you need GREAT website, team, supply and great contract with a shipping company for it to become GREAT fitness related products to sell. Yes there will be a small % of people who will buy on this website without comparing to others, but to be industry leading store you will have to be more then just that.
So at 720k dollar I would put our success meter at 100%. Because dependance on can we sell it for more or not is based on what we put in it, how much work and money we invest. So if we are successful and make 2x then it was. Then our success meter doubles to 200%. Everything that we sell about 100% is a pure profit.
Now if it drops, we lose money. No need to explain. We might find someone stupid who will pay what we paid or even more without any business plans. Fitness.com WOW. But we definitely can’t rely on that.
Simple yes. But here is why it can be a good model to appraise domain names.
We can buy fitness.com for 360k for example. That’s 200% success meter. Much better deal isn’t it. We can always try and sell for 100% and get that profit.
We can also buy for 1,440,000 at 50% and hope to sometimes get to 100%.
Now the number of revenue months and other factors should be based on the metrics. If it was fitnessstore.com then we would have many domains better then it. And success meter would have go down based on that etc.
I am not offering anything 100% solid, otherwise I would have built a website. I am just saying this system can be implemented for easier tracking of ROI. You only need to think about all metrics once, determine the 100% success meter price. And then you know is you having a good or bad deal.
Hopefully we can discuss about this matter below.
M M 14:53 on March 27, 2012 Permalink
I agree 100% with the ethic part, I would have done the same thing.
but I don’t understand the ‘no longer for sale’ answer.
Instead of shutting the door in your both faces, I would have share this info with the buyer and let him/her to decide.
You never know other people motives and maybe you missed a good opportunity to sell this domain for a nice amount of money (even if not 32k)…
Puranjay 16:55 on March 27, 2012 Permalink
You’re a good guy Algis but unfortunately, few people would do what you did (even though I wish it were otherwise).
I’ve never been in such a situation before, but once I bought a domain from DNF for around $15k. Later, that same domain was put up for auction at Sedo and fetched $12.5k. The buyer was from DNF as well and he appreciated that I didn’t sabotage the sale for what was a publicly known loss.
Another time, early in my career, I bought a domain off someone for $18k. The only problem was that I had $14k with me at that time and couldn’t spare the extra $4k. I promised to give him $14k and the rest within a week. He was skeptical but agreed. We didn’t sign any agreement or contract – just our words. A week later, when I sent him his $4k, he was really pleased and said that people who are that honest are hard to find. He also offered to write me a referral whenever I needed. I still have that email and it makes me feel good to know that someone thought of me that way.