There are many ways of placing a value on a domain. One of the most common and easy ways is to use some kind of earnings multiple, such as three or five years. For example, if the domain earns $1,200 per year, then it might be valued at $6,000 (five years of earnings).
Of course, this doesn't take into account the brandable / resale value of the domain. For example, I've sold a domain with very little traffic for a nice sum of money because it was short, memorable, brandable, etc.
But leaving brand and other intangibles aside, and just going by earnings (PPC, PPA, affiliate, etc.), I've come up with an alternative idea for placing a valuation on a domain. I'm wondering what others think, and if I'm missing anything...
Instead of using a multiple, such as five years, why not compare it to an investment that would yield a similar annual amount? In other words, how much cash would it take to earn the same amount in the stock market or money market per year?
So, using the above example of a domain that earns $1,200 per year, here are my calculations:
1) With money market accounts currently yielding about 5%, an investment of $24,000 would be required to earn $1,200 in dividends.
2) The S&P 500 has yielded approximately 12% per year on average over its history (many decades). To earn $1,200 per year, therefore, would require an investment of $10,000.
Conclusion: The domain is worth much more than 5 times earnings, or $6,000. It's worth anywhere from $10,000 to $24,000, or 8.3 to 20 years earning (depending on how conservative an investor you are), as that is how much you would have to save and invest in order to gain similar annual dividends/earnings. And, in fact, it may be worth more since my analyses did not take into account the time value of money, reinvesting dividends (compounding), etc.
There is risk, of course, that the PPC industry could go away or that payouts might shrink. On the other hand, the domain may have brandable value, as mentioned above.
Anyway, I'm just wondering what others think of this analysis.
Regards
Of course, this doesn't take into account the brandable / resale value of the domain. For example, I've sold a domain with very little traffic for a nice sum of money because it was short, memorable, brandable, etc.
But leaving brand and other intangibles aside, and just going by earnings (PPC, PPA, affiliate, etc.), I've come up with an alternative idea for placing a valuation on a domain. I'm wondering what others think, and if I'm missing anything...
Instead of using a multiple, such as five years, why not compare it to an investment that would yield a similar annual amount? In other words, how much cash would it take to earn the same amount in the stock market or money market per year?
So, using the above example of a domain that earns $1,200 per year, here are my calculations:
1) With money market accounts currently yielding about 5%, an investment of $24,000 would be required to earn $1,200 in dividends.
2) The S&P 500 has yielded approximately 12% per year on average over its history (many decades). To earn $1,200 per year, therefore, would require an investment of $10,000.
Conclusion: The domain is worth much more than 5 times earnings, or $6,000. It's worth anywhere from $10,000 to $24,000, or 8.3 to 20 years earning (depending on how conservative an investor you are), as that is how much you would have to save and invest in order to gain similar annual dividends/earnings. And, in fact, it may be worth more since my analyses did not take into account the time value of money, reinvesting dividends (compounding), etc.
There is risk, of course, that the PPC industry could go away or that payouts might shrink. On the other hand, the domain may have brandable value, as mentioned above.
Anyway, I'm just wondering what others think of this analysis.
Regards
