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

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Part 3 – Building a Business – The Pitch

Part 3 – Building a Business – The Pitch

In Part 2 of this series you’ve expressed your passion to me about your new business idea. I’ve seen a prototype built out of bits of cardboard stuck together with glue and although it doesn’t do anything you’ve sold the vision. So what’s next?

Escrow.com

I love passion but passion combined with a plan leads to action. At this stage, I’m after a one page summary document. I want to see whether you have the wherewithal to be able to synthesize your entire business onto a single page.

Before you tell me that’s impossible, Rupert Murdoch, founder of billion-dollar global international company News Limited, receives a one page summary every day that summarises his businesses across the world. If Rupert can do it then I’m sure you can.

So what’s on this page?

  • The product/service in a maximum of two sentences.
  • What problem is it solving and for which target market?
  • How will you reach the target market?
  • Financial opportunity
  • What will it take to secure the opportunity?
  • Who is currently involved?

Assuming I’m still interested then I will next ask you to present a summary deck of slides which dive a little deeper into the opportunity. I will work under the assumption that the dozen or so slides are backed up with a rigorous analysis which can be quickly accessed in an appendix.

Amongst other things, I’m wanting to drill down into any existing financials you may have. If I see a great big liability in the balance sheet you can be sure that I’ll ask what it is so please don’t try and cover it up.

If it’s a loan to shareholders then don’t be surprised when I suggest that it be forgiven…..the reason why you are raising capital upon a certain valuation is because of that input. Either that or massively drop your valuation. The whole point of putting cash into a fledgling business is to help it grow, not to pay back debts!

So what’s going to be on the slides?

  1. What is your vision and value? What are you trying to achieve?
  2. What problem you are solving and why this is important?
  3. Who is your target market? You can describe this as John Smith who is struggling with….. Or do a full market analysis of the potential
  4. The solution you are bringing to the market to solve its problems.
  5. How are you going to make money from your offering? What is your position in the competitive landscape? Are you the high-price, high service offering or the low-cost mass market solution?
  6. Do you already have some existing sales or early adopters? Have you proven your offering and are looking for expansion investment/help or are you yet to launch?
  7. What is your marketing and sales strategy? What are the barriers to growth? How long will the sales cycle take? Do you have some winning solution that will beat customers compared to your competitors?
  8. Are there any competitors (there always are) and state why your solution is better. What is your position in the competitive landscape?
  9. The existing team – brief bio on each member
  10. Financial projections and existing sales (if any). It’s important to highlight any key assumptions here.
  11. What is the deal? You are wanting to raise $X for Y% of equity. Investors really would like to see the difference their investment will make to the business and where the investment will be spent.
  12. You may include here what the exit strategy will be? IPO, trade sale etc.

The entire deck should take a maximum of 20-30 minutes to present and each slide should be succinct and to the point. The rest of the meeting with me will be you fielding questions as I prod around the assumptions and come to grips with your product/service.

Remember, I’m not trying to be mean! I’m trying to work out whether putting time into your venture will be a higher return compared to other opportunities.

Other documents you will want to have on-hand.

  • Executive summary page
  • Any technical documentation on the product
  • Detailed financial modelling…..and I mean detailed.
  • Proper market research that describes your target market in detail and who else is playing in the space. A good rule of them is the SWOT Analysis (Strength, Weakness, Opportunities and Threats). Think of your venture in these terms.

Some people have pitched for me not to invest cash but my expertise and they’ve wanted me to participate as an advisor. If the business is interesting enough then this may be the first step we take together.

With any investment, whether it be time or money there is always a dating period before a marriage. We both need to more fully understand how we can work together and make the venture successful.

I hope you've found this article worthwhile and that it helps you pitch not just to me but to others that may be interested in investing in your new business.

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What's The Value Of Your Domain?

What's The Value Of Your Domain?

In today’s video I discuss what makes a domain valuable and why very little underpins the current Chinese domain market. A lot of domainer’s have banked on a continually rising market and sadly, many of them may be in for a surprise when the Chinese market experiences a correction.

This is a really important and interesting point to discuss. There are a couple things that dictate what your domain name is worth and what kind of price you can be selling them for.

Watch the video and take part in the conversation by leaving a comment bellow!

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