Part 1 - How to Price Your Domains for any Market

Part 1 - How to Price Your Domains for any Market

As I’ve stated in a previous article, pricing domains can be a difficult task. Many domain owners firmly believe that the price completely depends upon the buyer. The problem with this position is that it runs contrary to the fact that priced domains are more likely to sell. In this article, I’m going to attempt to put some mathematics behind pricing domains in ANY market vertical.

Escrow.com

I made my first attempt at pricing domains in an article last year. At the end of the article I suggest that a lot more thinking needed to go into the model…..so here goes!

I’m a firm believer in economic theory and the rules of supply and demand. High prices are the result of a combination of high demand and low supply while low prices are a function of both large amount of supply and low demand. You can see the rules of supply and demand all over the business world; from oil and iron ore right through to dog food.

Supply and demand lead me to attempt to build a demand curve for a set of keywords in a market vertical. I entered mortgage, loans and finance into Google’s keyword tool and out popped 703 keywords with both the estimated volume of traffic, recommended price point and demand (ie. competition) for that keyword.

After a little bit of Excel magic I was able to produce the below demand chart for the financial category. I will be the first to indicate that you can actually get a more accurate curve with greater numbers of data points but the essence of the demand curve will remain intact. The interesting thing is you can also build the same sort of curve for any group of keywords.

Demand Curve

So what are we looking at? This is a pretty good picture of a marketers view of the keyword landscape for their particular market. Remember, this does not provide a picture of what they are spending but how much they value a particular keyword.

The only reason marketers will consistently pay more for certain keywords is because the traffic from that keyword provides a return on their investment. This is the why each keyword has a different price point. This means the demand curve is a mirror of the conversion rate for each keyword.

We do know that the average keyword domain sells for around $AU2000 ($US1,500). It could be then said that keywords around the “weighted mean” (ie. the point at which the areas to the left and right of the chart are equal) of $21 will attract the $2K price tag. Domains down the curve will sell for less than $2K and those above this point will sell for more than $2K.

For example, “second mortgage rates” has a bid price of $12.60 which slides it about 25% down the curve from the weighted mean which would suggest this domain is worth around $1,500. On the other hand “second mortgage loans” (a more targeted keyword) is selling for $21.33 and places it right about the mean and a price tag of $2,000. “Second mortgage” is a shorter keyword and has a price tag of $22.86 which pushes up the demand curve by 5% which suggests the domain is worth around $2200.

These prices are guesstimate and I will attempt to do a more accurate pricing later in the article. What’s interesting is keywords such as “refinance second mortgage” is 45% higher on the demand curve than the mean and are deemed more valuable than the shorter keyword versions. So why is this the case?

Remember the demand curve will only keep in place if the underpinning metrics of a sale are met. It’s not just about traffic volume or “brandability”. Ultimately, it’s all about sales! This suggests that people that click on the keyword “refinance second mortgage” are more likely to purchase a second mortgage compared to individuals that click on “second mortgage”.  In fact, we can calculate the number as being nearly 40% more often.

This flies-in-the-face of the assumption that a short domain is a good domain. Sometimes shorter keyword domains provide more traffic but they bring a lot of tire kickers who don’t purchase products or services. The simple act of typing in more letters can be one of the more interesting qualifiers of whether a consumer will purchase or not.

For instance, everyone would assume that “best loans” is a great domain….and yet, the marketers don’t like that keyword and push it down the demand curve. What they love is “home refinance” and are prepared to pay top dollar for traffic from that keyword.

Here’s the problem with this analysis. The amount of $2,000 for the weighted mean is an assumption for this market vertical. I believe that every market vertical will have an average value that domains are sold for…..the majority of this type of information is held by the incumbent marketplaces.

What I’m saying is that for the finance sector rather than $2,000 it could actually be $10,000 or even less for the weighted mean. In my next article I’ll continue to dig and pull out more on the mid-point number.

Battleframe

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Why My Mother's a Genius!

Why My Mother's a Genius!

There’s nothing worse than when you feel you’re thrashing. If you’ve never heard of “thrashing” then you’re likely to be one of the few lucky individuals that have never experienced it either. Thrashing happens when you have so much on your plate, you end up jumping from one activity to another and never completing anything.

Escrow.com

Thrashing originated as a computer term to describe the hard drive head as it moved across a platter of disks. When users add and delete files, disk fragmentation occurs and the hard drive head has to jump like a jackrabbit all over its surface in order to access a single file. In a non-tech talk.…you hear what sounds like mice scurrying around in your PC.

The technical boffins solved this problem by constantly “defragmenting” the hard drive and rearranging all of the file parts so the hard drive head moved to one spot to pick up the file. We can learn a lot from this approach.

So the other day I found myself on three IM chats, a skype conference call, emails pouring in and a things to do list a mile long.

As an aside, I’ve used the far more sensible metric system all of my life and yet saying my things to do list is a kilometer long just doesn’t sound right. I tip my hat to all of you recalcitrant Americans who insist on still using miles, gallons and ounces rather than kilometers, liters and grams.

I’ve often wondered though how you express thousands of something? Is it kilogallons? Do you ask your local shop for a kilo-ounce of sugar? Then again, you’d probably end up filling up your entire kitchen with that much, so probably not.

So back to my thrashing around skype, IM and emails. After muting the mike on skype (I hope I did anyway) I let out a little scream, smiled and began to politely extricate myself from the myriad of noise that I really didn’t need to be a part of.

That’s the thing. Thrashing normally occurs when you stick your nose into places that it really doesn’t belong. After getting a whiff of what’s there you feel obligated to do something about the problem and clean up the mess. Note to self….other people are quite capable of cleaning up their own messes.

So I looked at my list, had a bit of a delirious chuckle and began removing all those things to do that I didn’t have to really be involved with. In the process I discovered a long last feature of skype…..the away button. It gave me the time to think rather than react.

At the end of my review process I had a more manageable list and I followed my mother’s instructions. For some reason, most mothers are absolute geniuses when it comes to getting stuff done. It’s probably the fact that they have vast amounts of experience ensuring that children are fed, clean and not sticking their little fingers in power sockets. My mother was brilliant at stopping me from doing the latter btw.

What did my mother say? She said, “Get your list together, start one task and don't stop until it’s finished.”

What a brilliant piece of advice! Before computers were invented and hard drive heads weren’t even a technician’s dream my mother solved the problem of thrashing. I sometimes wonder if the techies just sat down with a few mothers we could have had the world of the Jetson’s by now…..what a lost opportunity.

So I did what my mother told me and my MBA be damned. Who needs a master’s in business when you have an expert with a bachelor of common sense to look up to! It was amazingly liberating. Stuff got done, people stopped complaining because I was delayed in finishing a task and I had a smile on my face.

That’s when I realized, that I’d left skype on “away”…..no wonder I’d suddenly gained so much time.

Have a great weekend!

Michael

Battleframe

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The Quality of Your Domains

The Quality of Your Domains

This is one of the most difficult topics to cover and it’s easy for a domain investor to throw their hands up in the air and say, “It depends on the buyer.” Although this is a true statement, it is sometimes used as an excuse for lazy thinking. Let’s begin to unpack this most difficult of topics.

Escrow.com

For a start, everyone will have different opinions on pricing and much of it will be tainted by their own experience. Selling a domain for a lot of money doesn’t make you a genius, it just means you’ve sold a domain. What makes you smart is if you’ve had a deliberate strategy for the sales of your domains and that strategy is unfolding in a successful outcome.

A fundamental error that many domain investors do is look at their portfolio of a thousand domains and multiply it by an average sales price of $1500 per domain. They then congratulate themselves on owning a $1.5 million-dollar asset. If this was true, then what would stop you from buying 9,000 more domains so your portfolio is now worth $15m?

The reality is that unless you have a very unusual portfolio, 90% of the domains aren’t getting any offers. If you look at your offer stream over the past 10 years (assuming you’ve been around that long) then you’ll probably discover that number is pretty close. This of course, depends on the quality of your domains…..more on this later.

So are the 90% worthless? Ask yourself this question. If I have a shack that’s falling apart on the edge of a crumbling cliff in the middle of the desert. How much is it worth? At some stage, I’ll pay someone to take it off my hands so you don’t have do to any maintenance!

The second question you need to ask is, “Do you feel lucky?” If you answer “yes” then keep the shack and pray that someone comes along and puts an offer in to buy it. If this miracle happens, then grab it with both hands. Don’t negotiate…..just sell the shack!

Many domains are like this. They are ramshackle shacks in the middle of nowhere that no one wants to buy.....I hat to say it but just drop these domains. The market has spoken and no one is making offers.

Here's the trap many investors fall into. Logically, a domain renewal fee of $10 per year is small compared to the potential windfall of selling it for $1500. You can convince yourself that even if you waited 150 years you would still be profitable. What’s the problem with this perception?

The problem is that having one domain dramatically reduces the likelihood of a sale. It’s like buying a single ticket to the lottery and you have a very small chance of winning. You can double your chances simply by buying another ticket…..but you also double your ticket expenses.

If we were to apply this to domains, then having two domains means you’ve just dropped your “time for a sale” to remain profitable from 150 to 75 years. At 3 domains, your number drops to 50 years and at 100 domains the figure is now 1.5 years. If you have 1,000 domains, you need to sell a domain every 55 days just to remain profitable.

So far I’ve been talking about average figures but let’s take this a step further with applying the thinking to the quality of a stock domain portfolio (ie. All domains selling at $1500). The below bell curve shows that for a portfolio of 1,000 domains those with higher quality will experience a sales events on average less than 55 days and those of lower quality will have much longer sales cycles.

Bell Curve

The more or less domains you have will simply alter the position and value of the average point. What’s interesting about this curve that it potentially shows you the quality of your own portfolio. I should also mention the underlying assumption is that a portfolio is high quality if it is profitable.

If you are sitting with 1,000 domains and you have a sale a few times per year then my advice is to start dropping domains immediately. You’re effectively subsidizing your business every year as you reach into your pocket to pay the renewal fees. You're on the wrong side of the curve....

There’s another curve that needs examination and has a lot to do with supply and demand. More on that in another article.

Battleframe

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Saturday Musings - Whizzbangsblog's Upcoming Anniversary

Saturday Musings - Whizzbangsblog's Upcoming Anniversary

Last night we invited a couple of friends around for a barbeque. It’s a quintessentially Australian thing to do and no, we didn’t have a shrimp on the barbie (besides, we’d have prawns). I find there’s nothing quite as relaxing as sitting outside watching the sun set while you feel the cool refreshing breeze on your face.

Escrow.com

It was then that it hit me….I’ve been blogging for nearly ten years! After checking the whois on whizzbangsblog.com I found the actual ten year anniversary date is the 7th April! Time flies when you’re having fun!

One of the things I most cherish is hearing from you, the readers of whizzbangsblog. Each comment spurs me on to keep writing and digging into all the possibilities that business and domains represent.

I don’t think I’ve ever asked it before but I would love to hear from you about whether you find the articles helpful, challenging, funny or something else altogether. Also, it would be great if you could let me know which articles you have enjoyed reading the most.

I'm planning on compiling a lot of the comments (assuming I get any) to be part of the anniversary celebrations....so don't be a stranger and let me know what you really think!

Many thanks for being a reader here….

Have a great weekend,

Michael

Battleframe

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How to Sell a Domain to Your Target Market?

How to Sell a Domain to Your Target Market?

There’s a great discussion taking place over at the domain forum, NamePros, where one camp is asking why businesses don’t buy domains for thousands of dollars well another group is suggesting that is way too much money. The fundamental question that needs to be asked by a domain seller is, “Who am I selling to?”

Escrow.com

The vast majority of businesses in the world are small not large. These are often the family owned firms that may be running the local pizza shop or printing company. They may or may not have a website and given their clientele are within a few miles of their business they often have little need nor desire to expand to the rest of the world.

A successful small business is often one that allows the owner to pay themselves a salary. Remember that 80% of small businesses fail in the first couple of years largely due to lack of capital.

To ask a small business owner to put their hand in their own pocket and buy a domain name worth $10,000 plus dollars is a huge step. They are likely to decline the opportunity because they would rather buy a car or take their family on a holiday instead. One of the reasons why most domains sell for $1500 is because this large market has individuals within it that are prepared to risk smaller amounts of money.

Typically speaking this market segment is looking for an idea that will either make their life easier or allow them to get the jump on local competitors. They are fast moving and more often than not would buy a domain on an impulse. This market segment also provides the baseline of inbound enquiries to the marketplaces like Sedo and Afternic.

This brings us to the medium sized enterprises that represent about 9% of businesses. They are still often controlled by an individual who makes any significant monetary decisions and they will require a rudimentary business case for a $XX,XXX or more domain purchase. They do have a greater capacity to purchase a domain if they believe they really need it. The challenge here is to prove the domain's worth....more on this later.

The large corporate customer is about 1% of the market and have the capacity to pay significant amounts of money for domains they believe are a critical part of their strategy. I find many domain owners make the mistake of assuming big companies have lots of money just waiting to buy domains.

Inbound enquiries may or may not reveal whom they work for….ideally you need this information to better help build the business case for the domain. The first part of any discussion needs to be around this point.

Contrary to popular opinion, a marketing manager doesn’t have a large amount of cash they can just throw around….it’s already been allocated in budgets and it’s very unlikely to have a line item for domains. An individual rarely makes the decision for a large domain purchase but they may become your internal champion if correctly managed. Just don’t expect decisions to happen quickly in the corporate market!

I should say that your goal should NOT be to sell one of your domains but rather educate the individual on how they can sell the domain internally. There’s a big difference between getting this person’s sign-off and getting the other 32 sign-offs needed in the corporate structure for the sale to go through. This means you should be thinking about how you can make your internal champion look and sound like a domain name expert.

The first thing you should do when speaking with your prospective contact is to really listen. God gave you two ears and one mouth…..use them in that proportion! What you’re trying to understand is the reason why they want the domain….think about the strategic vision they are trying build. Given non-disclosures etc. you’re going to have to be very careful and tease some of this information out across multiple discussions.

In conjunction with your champion you then need to build a compelling deck that they can take internally on why the corporation needs your domain. Some of the slides in the deck are likely to cover:

1.  Quick overview of the importance of a domain

  • Simple one page general slide covering importance of domains to marketing strategy. This will help get individuals that aren’t completely over domains up to speed.

2. Current market analysis for existing corporation/business/product unit.

  • What is the size of the online market?
  • What is the potential for growth?
  • What are the barriers for growth?
  • Traffic, Alexa rankings etc.
  • Estimated online spend
  • Look for natural type-in, search and advertising generated traffic

3.  Top three online competitor’s analysis

  • Traffic analysis, Alexa rankings etc.
  • Estimated competitor advertising spends.
  • Look for natural type-in, search and advertising generated traffic

4.  Potentially do a domain analysis comparison

  • Corporation versus competitors
  • Length, type-in traffic (ie. Brandability)

5.  Why purchase the domain name?

  • Add to strengths?
  • Help shore up a weakness?
  • Will open up a new market for a product/service?
  • Seize the opportunity before a competitor does? This is a potential threat for the business and decisions will largely be about blocking a competitor from entering a market.

6.  About the Domain Target

  • Existing traffic?
  • Where does it fit within the market after the analysis?
  • Is there any market research on brand recognition that would help support the case for the domain?
  • Have you conducted any market research with your domain? Do some market research and spend a day making calls targeting potential customers of the company’s products…..asking them a variety of questions that may/may not support the case for your domain.
  • Put a survey on the domain and see the results.

7.  What is the deal?

  • Think in terms of NOT what the domain is worth but what the domain will bring to the business that may buy it. It’s all about understanding the strategy. I remember I had a company make an offer for one of my businesses and they wanted to do so on a EBITA basis. I said, “Not a chance, the IP in my business will increase your business by X%!”
  • If you know the size of the market opportunity, then it becomes much easier to price a domain accordingly. Don’t every pick a figure out of the air as assume that it will be challenged and you must be able to justify it.

8.  Who are you?

  • A brief about yourself featuring your expertise as a domain expert….it’s a bit of a don’t mess with me slide. You’ve sold such and such a domain at $Xm etc. This gives confidence to the buyer that you know what you’re talking about. Take guidance from your champion about this slide…..you may leave it out.

I could go on and on for what should be in the deck. Basically, the goal is to puts some empirical evidence behind why your domain is absolutely the asset the corporation should purchase. There should also be appendices with data backing up the slides.

It would be worthwhile “coaching” your champion (don’t be condescending….they got where they are because they’re smart) through the data so they know it intimately.

It may also be worthwhile jumping on a plane to be at hand in the event there are any questions once the project reaches the higher levels in the organisation. I’m amazed at the number of people that want to sell a domain for a huge amount of money but aren’t prepared to spend a few hundred dollars on a plane ticket.

There's a lot more that can be said about doing high end sales but I hope helps your thinking and gets the ball rolling.

Battleframe Book

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