This is the second article in the series on conducting a domain traffic test. The first article can be read by going to: How to Conduct a Domain Traffic Test - Part 1

For the past 8 years I’ve been looking at nRPM (normalised RPM) numbers and routing traffic to the best solutions at any point in time. This has produced significant gains for clients and well worth the effort of getting messy in the numbers.

So now that there is an agreed set of definitions for metrics what do we need to do to conduct a traffic test? There are two main approaches:

1.      Using baseline data

2.      Using the existing monetisation account

When conducting a traffic test most domain owners provide us with the previous month’s stats to be measured against. One of the problems with this is that we don’t have the raw traffic numbers to generate a normalised RPM. One of the good things is although the stats are taken from a different time period they can be useful in focusing attention on which domains are clear winners and losers. Regardless of the outcome we need to understand why we are winning or losing.

For example, what’s the point in claiming victory if the domain has twice as much traffic during the testing period compared to the baseline? Although good, it would be false to say that it was due to traffic optimisation.

For larger traffic tests it’s far better to adopt option two and run the test by integrating the existing monetisation account into the traffic mix and then sample around 20% of the traffic elsewhere. If the new monetisation sources win the traffic, then all of that domain’s traffic is then moved to the new provider.

For example, let’s imagine that you have all of your traffic going to an account at Domain Sponsor. You want to check out if they are still the best solution for your traffic so you ask me to setup a traffic test. The first thing we do is integrate your existing Domain Sponsor account into ParkLogic and then leave 80% of the traffic still flowing through to DS while we test other monetisation solutions with the remaining 20%.

So rather than having to move all of your traffic you are now only risking 20%. Remember that 20% will earn some money (hopefully more than DS) so your revenue risk is more than likely going to become a win. What’s even better is that we can clearly establish a nRPM for the traffic flowing through to DS and know beyond any doubt who is actually paying the best at that point in time.

With traffic optimisation it’s vitally important that each domain is reviewed and treated as a unique case. There is no point in optimising across an entire portfolio is you don’t also focus on the domains themselves. It’s like the old saying, “look after the pennies and the dollars will look after themselves.” The domains are the pennies and the portfolio is the dollars.

The next article will continue to unpack what metrics we focus on in a traffic test.

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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. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

Like any industry where buying and selling is involved there is a potential arbitrage gap between what the seller is generating and what the buyer can potentially earn once a transaction is complete. This can dramatically change the return on the investment.

A simple example would be if a seller has all of their domains parked at Company A and they received a 75% payout. As the buyer, you know that at the same company you receive 85%. That’s a 13.3% greater payout. This means that if you paid 24 months revenue for a portfolio you should get the payback within 20.8 months.

If a seller has all of the domains at a single parking solution then there are a considerable number of additional ways that you can increase the revenue. Over the years at my company ParkLogic I’ve found that the maximum any parking company typically wins in a portfolio is 20% of the traffic.

This means that if you are acquiring a portfolio that has been parked at a single parking company then you can at least improve it 80% of the time. That’s a great outcome! At ParkLogic we also have a real-time bidding system in front of the traffic that sends the traffic direct to advertisers to provide additional revenue uplift (enough of the sales pitch!).

The reverse of the above is when you find a portfolio that is parked all over the place or where there may have been some special deals in place that underpinned the revenue line. For example, let’s imagine the portfolio had a group of domains that were all going to a particular affiliate company? Will the deal also migrate with the domains or will the deal suddenly vanish once you parted with your hard cold cash?

Likewise, for domains that have “slept around” they are likely to be fully optimised. Be careful of buying these portfolios as there is unlikely to be much of a “free” revenue uplift from optimisation. What I would recommend is to ensure that you can establish an account with the optimisation company prior to the acquisition. We have a number of ParkLogic clients buying and selling domains between them to more secure their ROI.

I’d also be careful of fad domains. These are domains that are popular for a time and then the traffic just dies off. So do your due diligence on the traffic by requesting stats across six months and then view the traffic data on a domains by domain basis to see if there are any trends that you don’t like. Spikes in traffic and downward trendlines tend to be the bad ones to look out for.

Particularly look out for what I would call the “lucky click” domains. These are domains that may be sold in amongst all the others that have a tiny amount of traffic but got a $30 click. You’ll probably never see that click again but if you buy these domains you’ll be paying a lot for them. To find them calculate the RPM for each domain (revenue / view * 1000). Sort the domain list from highest to lowest and you will discover that these domains are typically sitting right at the top…..get rid of them from the deal.

The wise purchaser will take the time to thoroughly go through a list of domains and indicate which ones they are prepared to pay for and which ones they aren’t. The seller will try and keep the portfolio together as an aggregate to stop this type of cherry picking. In the end it will become a negotiation. The strength of your position in the negotiation will be determined by how much homework you have done at the analysis stage.

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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.
Click here to arrange time with Michael
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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.