about to buy high value domain - advice needed

[anjur]

Let me describe the position I am in. I own an educational software product that has been advertised on many different sites. I am now potentially in a position to purchase one of these sites.

The current advertising deal that I have with the owner is 50/50 profit split on the proceeds of my product (I am the exclusive advertiser). The total sales derived from that particular site are approximately 50K per year (so that the advertising income for the site is 25K).

So, given this 25K verified and presumably stable yearly income - what would be a reasonable price to pay for the site?

I have heard of a variety of valuation formulas (i.e. 3 x yearly income); I don't know how applicable they are, and of course I understand that actual price will be something that acceptable to both parties, regardless of the forumlas, but I would still appreciate any insight that more experienced domain resellers might have.

Thank you very much!

 

[TheLegendaryJP]

Im confused, without your product wth would the guy offer on the site to make anything?

Tell me you own your software and he doesnt have a cut in that too. Assume he doesnt I would have to say the name should only be based on the traffic it receives for you, is it natural or generated, share more info.

 

[theinvestor]

So, this is not so much a high valued domain but more of a business that you are trying to buy out.

It really depends on the yearly revenue. For example is it consistent? How long has it been generating that income? Is it growing annually?

Many questions need to be asked before you can determine a fair value.

 

[anjur]

Without my product, he would get other advertisers and make similar money. Previous to our deal he had google adsense (which made somewhat less money, than what my offer was). But income is there , coming from me or someone else. The site is 100% 'organic' , lots of links from edu institutions, highly focused audience (think "chemistryhelp.com", but a somewhat different subject), 1.6M visitors, 8M views last year, PR6, zillions of backlinks.

---------- Post added at 12:33 AM ---------- Previous post was at 12:27 AM ----------

theinvestor - - the traffic is steady (not growing), as far as income goes - the last 2 years were not as good as 3-4 years preceding it - seems to be the direct consequence of the overall economic crisis (because sales of my products were affected the same way across the board)

 

[Varlin]

As long as the sales are legitimate, not spam-driven, at 12x monthly revenue it looks like you will recoup your $$$ in 1 year and the rest is free lunch forever. Seems good for you. You are not buying a domain, maybe not even a website, you are more like buying back shares in your own biz.

 

[DC20]

Some would depend on why he is selling (is he just tired of the business, or???). Next, how much work is it going to be for you to keep the site going? This is added cost. If this isn't too bad, I would of course get him started talking numbers first, but I would feel most comfortable making my money back in 1 year (unless you thought you could grow it significantly), but depending on the track record and the circumstances I wouldn't run from 2 years but would not go above 3 years (unless he has been generating this revenue with you for longer, and it has been stable, and he just won't budge).

So, for me 1-2 years and calculate anything further very well before considering....but given the track record you described it sounds like you've got a good deal. A lot of "investors" may go for more than 3 years, but we aren't looking for a 5% return over 10 years here, we're looking for pure profit in a foreseeable time frame.

Just my $0.02,
DC20

 

[anjur]

He is selling because certain technical aspects of keeping up the site functionality became too much of a burden on his time. For me, it will be some work, but nothing I couldn't properly outsource.

I am at a certain disadvantage here because I was the one who originally proposed the idea of me purchasing the site. (I was motivated by another one of my important advertising channels disappearing - a similar site bought by a competitor and me not being able to advertise on it any more). So I am the one who has to come up with an attractive offer. 12x monthly earnings would make absolutely no sense to him - why sell the site when he is going to make that money in 12 months. In his initial response he said that his impression of valuation for the site/business of this type would be 3-6 times yearly income. I personally think 3 x yearly income is something I would be comfortable with, but above that, I just don't know...

 

[exponent]

Is he actively engaged in ad arbitrage?

 

[anjur]

Is he actively engaged in ad arbitrage?

No, I am the exclusive advertiser on the site - there is nothing there but ads for my product.

 

[URLtrader]

In his initial response he said that his impression of valuation for the site/business of this type would be 3-6 times yearly income. I personally think 3 x yearly income is something I would be comfortable with, but above that, I just don't know...

That is a fair demand. Go for it. Keep us posted once deal is done.

Good luck.

 

[anjur]

I would like to thank everybody for their input. I will let you know what happens.

 

[A D]

No, I am the exclusive advertiser on the site - there is nothing there but ads for my product.

That doesn't mean he isn't buying targeted traffic to your ad with arbitrage.

-=DCG=-

 

[anjur]

I know the owner very well - believe me, he isn't.

 

[Onward]

I may try to negotiate a better deal such as 1 year revenue up front and 5-10% of income as long as the site is up and running or 1 year up front and 2 years revenue spread out over a 5 year period.

That way you have something to come back with - a 3 year - upfront deal - what you are happy with in the 1st place.

 

[Gerry]

So, its not so much a high value domain you are buying but rather buying back your own business??

Yes, if your product is directly branded via the site (and URL), then of course it is high value.

Does the URL and the site brand the product?

 

[anjur]

I am not buying back my own business. I am just advertising on that site. The product is not branded via the site - it's a simple advertising deal. I share the profit from sales of my product with the site owner 50/50, but he is in no way involved in my business. The reason I wrote "high value domain" (should really have said high value website) is because it is generating $25K a year income - it is reasonable to assume that it would make a similar amount of money without my advertising, since the owner would be able to strike a similar deal (for example) with my competitor.
So, objectively, it is a high value site. Subjectively - it is somewhat more valuable to me than to an average investor because by acquiring the site I am 'cementing' my position in this relatively competitive area. And of course, I can change the site to more aggressively promote the product, and I don't have to worry about competition acquiring it (thus eliminating a successful sales channel)

 

[Gerry]

Here is the point...

IF the product is not branded by that site,
and IF you can purchase or create a DOMAIN that is your product
and IF your product is branded well enough to stand on its own

then there is a possibility of creating a NEW site with your NEW domain (url) creating an ADDITIONAL channel (and cashflow) for your product (business).

 

[anjur]

I already have several different site where I sell the product - some more and some less successful. (My main site -- companyname.com definitely beats the one I intend to purchase). However, it would be hard to replicate 10 years worth of edu backlinks. In particular, this site provides (a very complex complex type of) calculator, that I have no wish to replicate (and if I did, I would be basically completing with the site in question).
So when I have a bit of time, I do develop these 'satellite' sites I own, but this is definitely not my focus (I manage an outsourced programming team, tech support personnel , developing new advertising contacts --- basically I am already doing more than 1 person should be doing in a company)

 

[Gerry]

However, it would be hard to replicate 10 years worth of edu backlinks.

Ahhh, that says it all. It is a no brainer then to not lose that kind of impact.

 

[anjur]

Thanks a lot for your input!