How to Value and Negotiate Premium Domain Purchases
The guest post below was written by Michael Wittmeyer, a long time Internet marketer and co-founder of precious metals retailer JM Bullion.
One of the first steps towards launching a new web project is to decide on and acquire a domain name. New webmasters usually are more than happy to pay $7 or so to register a new, fresh domain. However, once you gain more ambition and launch bigger projects with higher aims, you may target a specific domain that is perfect for your project, but unfortunately, is privately held.
In this case you need to be able to come up with a good valuation for the domain, reach out to the owner, and negotiate a fair price. This article is going to outline my entire process for finding, valuing, and purchasing privately held domain names.
My credentials: I’ve bought probably two or three dozen privately held domains over the past few years, with prices ranging from $X,XXX to much, much more. Although I have executed quite a few good buys that turned out huge for me, I also have made some horrible decisions that cost me a lot of money. I think this gives me a good background to write from, as I can advise you on what to do as well as what not to do. Ok, let’s get started.
Finding a Domain to Target
Your first step for buying a domain is choosing a domain or several domains to target for purchase. There are two routes to take: seeking a generic domain with no search value (like PokerWorld.com), or seeking an exact match domain to target a specific search phrase (like OnlinePoker.com).
If you are seeking a generic domain, you usually have a budget in mind and plan to build a large, expansive resource that will cover several topics. When picking a generic domain, I’d avoid any domains with numbers, hyphens, or anything that’s not a .com (unless it’s a country-specific site).
My advice is to pick the main word or main two words that your site revolves around, add a prefix or suffix, and see if the .com domain is available for registration or for sale privately. For reference, here is a great list of domain prefixes and suffixes that you can use: http://www.dailyblogtips.com/200-prefixes-and-suffixes-for-domain-names/
When targeting generic domains, don’t get too attached to any single domain name, as there are plenty of other options out there. There’s no sense paying $5,000 for PokerWorld.com when PokerSource.com is available for registration fees (examples only).
Exact Match Domains
To find an exact match domain, choose the terms you want to target and check the .com/.net/.org for each. Some will be totally dead, some will have websites, and some will have parking ads along with a “This domain may be for sale, inquire here” link.
http://www.bustaname.com/ ß useful tool for smaller EMDs where you might be able to find a .org/.net or a reverse EMD for registration fees.
In my experience, the totally dead domains are the best to pursue. The next best are existing sites that appear to be old and neglected. Parked domains that are being shopped for sale usually are next best, as they are obviously for sale, but often have inflated price tags as well as the risk of a penalty/filter from the parking. Finally, if you come across a site that is fully built and operational, I’d just forget it as you’d be paying the owner way too much to just tear it down and start over.
Once you have a specific domain in mind, the next step is to come up with your valuation of the domain name.
Valuing the Domain
Before contacting the owner, you should come up with the absolute maximum $ amount you will pay for the domain. This helps you avoid “reaching” if you are close to a deal but would have to exceed your previously set maximum, and also helps you calculate your initial offer.
For generic domains with no keyword value, the valuation is basically totally up to you as you’re just paying for the name, not an implied boost in the search engines. Keep in mind that there are plenty of other relevant generic domains out there, so don’t go crazy for any individual domain.
For EMDs, unfortunately, there is no set “formula” for calculating the domain’s value. Although there are some tools you can use to help, a lot of it comes down to your gut instinct as well as experience as an Internet marketer. Here is a bit of a “brain dump” for how I go through the valuation process for an EMD:
- If you are using the Adwords tool to estimate search volume, make sure you select [Exact] for your Match Type and go off of the Local Monthly Searches, as ranking well Globally is much harder than ranking well in one country.
- Once you’ve come up with a ballpark number for monthly search volume, analyzed the competition, and decided where you might end up in the rankings (in the long term), multiply the search volume by your estimated click through percentage based on your position. Here is a great article that will help you ballpark a click through percentage: http://cms.searchenginewatch.com/digital_assets/2906/SEW_CTR.pdf
- ^^Keep in mind that those numbers will vary depending on the number of ads and injections for your search term. If you are targeting a search term that has the maximum number of Adwords ads, as well as several local injections, image injections, news injections, shopping injections, or social injections, you can assume your click through ratio will be significantly lower as you have to compete with much more than just 9 other organic listings.
- Once you’ve figured out a monthly traffic range based on the estimated search volume and your estimated click through ratio, you need to estimate how much that traffic will be worth. Based on whatever offers you will be running on your site, multiply your average CPA or whatever payment by 1% or 2% or whatever conversion rate you expect (tons of guesswork, as you can see). So, if you expect a 2% conversion rate for an offer with a $100 CPA, each visitor would be worth $2. Assuming you were expecting 5,000 visitors per month from the exact match key phrase, you would expect revenues of $10,000/month from that term.
- Consider your development costs, SEO costs, as well as the time span it may take to hit that estimated revenue range. Also factor in any brand power that the domain might offer (a category killer like CreditCards.com is worth more than just its search engine boost for “credit cards”).
- Come up with a maximum offer – I like to keep it below the maximum average monthly revenue I expect once the site has reached its potential. So if you expect $10,000/month from a #1 ranking for the exact match term, and think you can actually reach #1 in a reasonable amount of time, I would offer no more than $10,000 for the domain. My reasoning here is that there is so much more that goes into a #1 ranking than just buying an EMD, so you can’t value it like it’s a guarantee of a top ranking. You could be penalized, you could fail to hit #1, you could convert at a lower rate than expected, you could receive a lower click through ratio than expected, the Adwords tool could have inflated the search volume, etc etc etc.
Once you come up with your maximum offer, the next step is to get in touch with the domain owner.
Getting in Touch
If the domain you’re targeting is currently a live website, see if the site has a Contact Us link. If not, or if the domain is dead, go to Whois.net and look up the owner’s contact information by typing the domain into the lookup tool.
Sometimes the tool will say that the domain registry information is located elsewhere. In that case, just visit the provided link (example – whois.godaddy.com) and use their lookup tool.
Regardless if the listed information is privacy protected or not, copy/paste the email address and send the owner an email. Make sure to reference the domain name in the email – I’ve personally forgotten to do this and looked like a fool when the other party replied and I had no idea what domain we were talking about.
The First Email
I like to start off with a very simple:
Do you have any interest in selling your domain, XYZ.com? Please let me know and thank you for your time.
Some people like to start with offers, but I don’t really like to do that, as at this point I am clueless as to the seller’s mindset. From here you will almost always get one of four outcomes, which will give you a little more information to work with:
- No response. In this case, I give it a week or so and send a follow up to check in again. A lot of times the Whois emails are outdated or dead, and if that is the case you’re basically out of luck unless you can find alternative contact information for the owner elsewhere on the Internet. If they list their actual, not privacy protected, contact information on the Whois you can try calling them or even mailing them a letter (I’ve actually done this before and gotten a response via email).
- I’m not interested in selling. At this point I usually drop it. Even if I am really interested in the domain, people who aren’t even somewhat interested in selling usually need an extremely inflated offer to change their mind.
- Maybe, make me an offer. This is probably the most common response. In this case I take the absolute maximum amount I would pay for the domain and cut it in half to come up with my initial offer. I think this approach is way better than lowballing the seller and running the risk of them ignoring you or being offended and not wanting to sell to you. Also, I like to emphasize that my offer is serious, I can send the wire within 48 hours, we can use Escrow… basically treat it as if this is your max price, and if they accept the offer you are ready to proceed immediately. When all of the logistical details have been laid out and taken care of, and all the seller has to do is say “Yes”, the thought of $10k or whatever amount in hand within a few days is usually very appealing to someone who is sitting on an unused domain.
- Yes, the selling price is $whatever. These responses are a bit trickier. If you are thrilled with the price, go ahead and accept. If you are not happy with the price, or would be more comfortable at a slightly lower price, I like to respond with: “Hmm that’s a bit out of my budget. I’d like to make a deal, and can pay cash immediately, but the absolute most I can offer is $whatever.” I usually make this number just a bit lower than what I really am willing to pay, as it makes it easier for them to make a concession later and “meet you in the middle” while still feeling they got more out of you than you wanted to pay.
If You Hit a Standstill…
In some negotiations you may end up in a “Mexican Standoff”, where you say that your maximum offer is $whatever while the seller says their lowest price is $whatever. In this case I like to just let them sit on the email for a week or two and pretend as if I’ve dropped it completely.
If they really won’t come down any further, then they won’t respond and you can drop it entirely. However, a lot of times they’re just trying to hold out so you will offer more money, and then when they don’t hear back from you and feel like they’ve lost the deal, they’ll come back with a lower price to try to close the deal.
Before Closing a Deal…
This is where I can really speak from my experience and mistakes. Before you close a huge deal for a domain, sit on it and think for at least 24 hours. I also like to talk to a few of my close friends about any potential deals to get their objective opinions.
The reason you should take these things slowly is because often times when you have an ultra-premium domain name within your grasp, and think of the money you could rake in with a #1 ranking, it is easy to become blinded and really “reach” for the domain by justifying an inflated price.
I’ve personally done this at least twice, as I was able to justify it in my mind with “I know I’m overpaying, but I will make this all back and more within 12 months.” As we all know, though, nothing in this business is certain, and if your site fails to perform as you expected, you end up with an enormous sunk cost and feel pretty foolish.
The lesson to take away here is to not be afraid to say no. There are an unlimited number of opportunities out there to buy excellent domains at fair prices, so don’t feel like any one deal is “make or break” as this puts you into a really poor negotiating and reasoning position.