Buying and Selling Traffic Portfolios - Part 3

Buying and Selling Traffic Portfolios - Part 3

In the previous two articles we looked at managing legal risk and also the different types of traffic that often flow through to domains. In this article I will be examining the other influencers on the returns from a traffic portfolio.

The first thing to look at is where the traffic is coming from. For example, is it mainly USA or is it from China? Chinese traffic tends to be paid much less than traffic from the USA.

A number of years ago I did an analysis on the penetration of credit cards in a specific geographic region and how this influenced earnings per click (EPC). Cash based economies like China tended to have a much lower EPC. The reason being that marketers have a much more difficult time tracking spending money online to ultimate sale of the goods if the transaction is constantly being pulled off-line.

I personally believe that over the years ahead many of these burgeoning economies will adopt credit cards and the online cycle will be complete for marketers. So watch this space!

When you buy a traffic portfolio you are always looking for any “free” upside. An example of this would be if you were getting paid 90% from a monetisation provider but the person selling the portfolio is only getting paid 80%.

We’ve had ParkLogic clients purchase portfolios that have been held at a single parking company and then placed on our system. From experience, typically no parking providers wins more than 20% of the traffic on our platform which means that the acquisition would receive more revenue 80% of the time if move to other platforms. This typically provides a 30% uplift in revenue via our algorithms and processes and this dramatically reduces the payback period for the investment.

Another source of potential uplift is if you have a specific relationship with an affiliate and you purchase domains with traffic that relate to that affiliate. This will potentially reduce the payback time for your acquisition.

I also ask the seller to provide traffic and revenue statistics over extended periods of time. After some simple analysis you can determine whether the portfolio is stable or bouncing all over the place. Stable portfolios provide more consistent returns and reduce the risk for any acquisition.

As a part of the analysis I like to determine what percentage of the revenue and traffic come from particular domains. This will help determine whether the acquisition is really dependent upon a few stand-out domains.

For example, I would much rather purchase a domain portfolio with no domain providing more than 1% of the revenue than to have a single domain doing 20% of the revenue. If the 20% domain loses traffic for any particular reason then your return on investment is severely impacted. If you lose a 1% domain than it’s likely that you can ride that out.

Don’t forget to do an RPM analysis of the potential acquisition. RPM is the revenue per thousand visitors. Domains with an RPM above 30 may not have much more upside to them (check out their market verticals). I never like buying a portfolio with high RPMs…..they often end in tears!

Don’t forget to get some tax advice when you purchase a portfolio. To make the maths easy, let’s imagine that you purchased 1,000 domains for $1,000. Average cost pricing means that each domain is worth $1 each. If you drop 50% of the domains then you now have a potential capital loss of $500 to offset any gains. The revenue for the domains may only drop a few percentage as the majority of the traffic was being carried by the other 500 domains. My advice…..go and get some advice as there is a lot of hidden value that you can uncover.

So that’s a little on analytics when purchasing a portfolio….there’s a lot more to come! I’ll be publishing the next article in the series in a few days time.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was 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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Tuesday, 12 December 2017