I was reading a forum recently and another domain investor was asking about how to price and how to buy traffic domain portfolios. It was a really interesting question that caused me to think about how I price my own portfolios and what I look for when seeking to buy.
It should be stated right up front that everyone has a different risk/return appetite. Some people love to live on the edge and push the limits while others prefer to have a more sedate, stable investment profile. Whatever your risk/return ratio I’m sure that you will appreciate the following pointers.
Traffic domains are typically sold on multiples of months of revenue. So if a domain was earning $10 per month from being “parked” (ie. advertising revenue) then you may pay 24 months revenue for this domain. This would make the purchase price $240. Note that this equation inherently takes into consideration the registration cost of the domain for the two years.
The number of months that you pay for a traffic domain is greatly influenced by a number of factors that I will go through in this series. How much you are willing to pay will ultimately depend upon your risk profile. As a benchmark a domain traffic portfolio typically sells for 24 months revenue but like I said this can be dramatically influenced by your risk profile.
Just for the purposes of this article I will be taking the approach that I’m wanting to purchase a portfolio. Like any investment traffic portfolios are a balance between risk and return, where the risk has two buckets:
1. Legal risk
2. Traffic risk
When we talk about legal risk we typically mean the portfolio that you are looking to acquire has a number of trademark infringing domains. This usually takes the form of a WIPO, UDRP or direct legal action. The worst case scenario would be that that you purchase a domain portfolio and then you are sued for damages by the trademark owner…..this is typically not a pleasant experience.
Given that just about everything is trademarked in the world what many people do is throw out all of the obvious domains and take a risk on the remainder. For example, they won’t buy typos of Yahoo, Microsoft, Dell or Verizon but they are happy to risk “Joespizzashop.com” typos.
Is this ethical is debatable and I have no desire to make a case for or against this practice here. Let me say up front that if you purchase a domain that is a typo of a brand then you are potential placing yourself at grave legal risk. You’d better have a really good legal shield and a lot of lawyers on tap.
I remember a number of years ago I purchased a domain portfolio and I said to the seller that I’d take every domain except XXXX.com (where XXXX was a brand typo). I did not want to have my details on this whois information. So the rule here is BE CAREFUL what you buy.
So how does the legal risk influence the purchase price? For a start, some domains are just too hot to handle….which makes them in many instances unsellable. I’ve seen TM portfolios sell between 6 months and 20 months, depending upon the potential severity of the TM infringement.
Just remember that everything is trademarked somewhere in the world so no matter what the majority of domain investors bear some TM risk. How much risk really depends upon how diligent they are in monitoring their acquisitions?
in the next article I will get into the real nitty gritty of how to evaluate a domain portfolio.
Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He is the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face.
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