Domain Sales - Bundled Pricing Strategy

Domain Sales - Bundled Pricing Strategy

How many of us have lamented the fact that we receive enquiries on individual domains while the great majority of our portfolio seems to just be a great big cost? Is there a way to swing this situation around? Yes, there is and it’s called bundled pricing.

Escrow.com

Bundled pricing is taking a desired product and making it for sale with something else which you may have had trouble selling.  The average sales value is increased at little to no additional effort in the sales process. This is a strategy that many corporations use to sell us things we really don’t need so they can continue to move products.

A classic example of this is the sale of the “Big Mac Meal”. Do you really want fries? You don’t actually but it’s just so easy to add a few cents more and get an entire “meal” rather than buying a Big Mac and coke separately. In the process, McDonald’s has dived into our wallets and pulled out some of the loose change.

I’ve always wondered why McDonald’s sells a Big Mac, Coke and Fries together. I’m sure they’ve done a lot of research on the topic but I would have thought that a Big Mac, Fries and Apple Pie would be a much better combination……after all, everyone will buy the drink anyway.

This brings up an interesting point. If you wish to extract additional value, then bundling products together is not as easy as it first seems. Sometimes the obvious bundle is actually not obvious at all.

Let’s imagine you were after bingonight.net (one of my domains) and offered $8K for it. I could say yes and the deal would be done. Or I could tell you that the domain is part of a bundle of five bingo related domains that I’m selling for $12K.

All you were originally after was bingonight.net but now I’ve just told you a number of things:

1.       I have more bingo related domains.
2.       You can’t get bingonight.net by itself.
3.       I’m getting these other domains for half price!
4.       I'm also telling you that I'm the place to come to for domains in the future.

Suddenly we are having a much larger conversation than just purchasing a single domain. From my perspective, while I’ve now turned a $8K sale into one for $12K. This works for the both of us.

I could have bundled bingonight.net with an aviation domain a couple of Indian domains and a Spanish domain. This would allow me to move unsold inventory but rather than enhance the sale it would potentially turn off the buyer. Like McDonald’s and their meal deals, picking and choosing your bundle is critical for a successful outcome.

At the price levels of stock items, every enquiry should be viewed as an opportunity to sell not just one domain but a bundle of domains. Even if you have to discount a little the overall revenue line has increased.

When you look at your portfolio it’s often the traffic domains that bring the sales enquiries and the domains with no traffic that are of higher value. So bundling both sets of domains together brings potentially brandable domains and traffic together…..which can often sweeten the deal for the buyer.

The challenge here is that many of the marketplaces don’t allow a bundling strategy and deal with domains on an individual basis. More on this in another article….

Battleframe

1306 Hits
0 Comments

Part 2 - How to Price Your Domains for any Market

Part 2 - How to Price Your Domains for any Market

This article continues directly on from How to Price Your Domains for any Market

One possible way to derive the mid-point number is to examine the average advertising spend by market vertical. We can then pin the mid-point for this data as being worth $2,000.

Escrow.com

The below chart shows the “drink” category as being at the approximate mid-point in spend. This would suggest that domains above this category would have a higher mid-point value and domains less than this category a lower mid-point value.

Global spend by vertical

Once again, with a little bit of Excel wizardry we can calculate the financial sector average domain spend being at $1543, which little less than the $2,000. Once again, we have a problem where the methodology being used is linear where in fact it may not be the case. Nevertheless, the financial services industry is a little above the mean point for the market verticals so our numbers shouldn’t be too far out.

We can now update our financial demand curve chart from the previous article so that now looks like the one below.

Demand Curve

So where does this entire analysis go wrong? Domain investors are less concerned about the left-hand part of the demand curve but argue incessantly about the right side of the graph. They should rightly do so.

Since we know the mid-point we can plot a reasonable price for each domain. On a keyword by keyword basis we can allocate the level of demand divided by the total demand for all those keywords above the mid-point. We can then multiply this ratio by the $1543 we calculated earlier. And presto! This will mean that “homerefinance.com” is valued at $613,475!

We essentially then do the reverse process for those domains worth less than the mid-point. By using this method, we have the following valuations for the suite of “second mortgage” domains we looked at earlier.

Secondmortgagerates.com - $1,157
Secondmortgageloans.com - $1,548
Secondmortgage.com - $1,683
Refinancesecondmortgage.com - $3,669

The question needs to be asked, do these values look sensible? Yes and also no…..and here’s the double conundrum for the domain investor.

For a motivated buyer, these valuations can be out by a factor of ten. The pricing will be influenced by the what you glean from the conversation and this is the “art of the deal”. It’s one of the reasons why some domain investors work exclusively with select brokers.

The second issue, is how long do you want to hold your domain assets? If you’re prepared to hold your domains for ten years, then start dividing the prices by an increasing value of 10% per year. This means the first year the domains will be worth ten times the above and the second year 10% less etc.

BUT if you are wanting to sell the domains with some science behind the pricing then these don’t feel absurd. A component that I have not taken into account is the excess in supply for the volume of searches conducted on each keyword. This can potentially influence the pricing discussion.

Now before you jump up and down claiming your domains are worth far more than what I’m suggesting then ask yourself these simple questions.

Am I looking at a domain that is close to the right-hand asymptote? If you are then the methodology will likely be a little shaky.

How many offers have I received in the last 12 months for this domain? In other words, are you pricing your domain outside of the market's expectations.

What is the average offer size? If you have received offers, what are they?

Over the years ahead I plan on continuing to refine the model to dig into what else that can be influencing a domain sale’s price. What I don’t want to do is get into market comparables. In my opinion discussion comparables completely undermines the uniqueness of a domain and potentially pushes a buyer to look for other options.

I hope you have found these couple of articles an interesting read. Please leave any questions and comments below.....I'd love to receive some :-)

Battleframe

1782 Hits
0 Comments

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

Recent Comments
mgilmour
I think that I begin to answer these questions in the next article.
15 March 2017
mgilmour
My pleasure, and it really is. Getting feedback from anyone spurs me on to write about our wonderful industry. Thank you for your ... Read More
18 March 2017
1568 Hits
5 Comments

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

1298 Hits
0 Comments

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

Recent comment in this post
Wolftalker
Excellent advice. Congratulations on highlighting some key strategies.
06 March 2017
1903 Hits
1 Comment