> He said he would sell it to me for $40k. I offered $20k, which he refused but he said if I had any domain names generating ad revenue, we could do a deal of domains and cash. He said he would accept a lower amount if I paid in Bitcoin.
> So we worked out a deal where I gave him $20k in Bitcoin and a domain that was making about $9k/year in ad revenue, and he gave me the domain friendster.com. Now I was the owner of the domain name friendster.com.
I don't know anything about how to project future ad revenue of a domain, but would this be likely to be valued at only $10,000? Unless I'm misremembering my limits, even if it made $4,500 next year and continued to cut in half every year after that, it would still account for $9,000 of revenue projecting indefinitely into the future, even bumping that up to something like 60% of the previous year's revenue it would already put it at more than $10,000 (although I don't know whether ad revenue tends to scale with inflation or not; my instinct is that the prices of ads probably would roughly increase with inflation over time)?
I know I'm nitpicking a bit about the title, but I can't help but actually be curious now that I thought of this.
[delayed]
You are absolutely right and that jumped out at me. I should also point out the obvious: if people were selling online assets making $9k/year for $9k, there would be a line out the door of people lining up to buy them. If anyone here is selling an asset that makes $X a year for $X, I'll buy it! I make my money back in 12 months and everything else is profit.
So let's value it as it would be valued on, say, Flippa, a decent proxy for "the market." We would look at the monthly revenue: in this case, around $750/mo (which is 9k divided by 12). Then we'd do a multiple of the monthly revenue: 20 is low, 40 is normal. I would actually say 30 here, because this guy created the asset and I would bet he did it well and it's not junk. So let's say it's worth $22.5k.
So I think it would be more accurate to say, "I purchased the site in a deal through assets valued at about $42k, total."
[edit: updated the comment as I got confused about the thing being exchanged - it's a site the guy created that he transferred to make the sale]
Yeah, but you have to scale the projections for uncertainty about the future, and exaggeration by the seller.
In particular, if someone on the internet tells me they’re making $x a month from spammy ads on a squatted domain, I immediately discount the claim substantially due to bullshit. I increase the discount rate if the person making the claim is trying to sell me said domain.
True, but if the guy contacting you is the actual owner of the website you use to buy domains, his credibility increases enormously. He said this person was a customer on his platform. When that guy says "I have a website which is making 10k/year," and I already trust the domain platform he created because I use it as a customer, I believe him.
> I believe him.
Enough to be motivated to proceed with due diligence.
Whatever any potential buyer considers that to mean for them.
You really think the owner of the marketplace doesn’t have an incentive to convince you to make a sizable transaction?
Projected revenues for this domain is at $100k this year!
How much are you trying to sell the domain for?
Uhh...about $100k.
If you had a steady investment opportunity with 10% return (about in line with long-terms stock market returns), $9000 per year indefinitely is worth the same as $99000 now (in an idealized finance world. In the real world you can't invest $99000 and withdraw $9000 per year because withdrawals during downturns will take out too much. But it's a quick way to calculate equivalent values).
That's obviously an upper bound, because those domains won't make $9000/year forever. But valuing them at $10k if they make $9k/year is equally unsound. Not to mention the domain is worth more than its ad revenue. You could also end up selling it to a company that came up with the name and saw that the domain is available for purchase for some reasonable 4-5 figure amount (like in the example of this very article, where someone buys a domain for a five-figure amount)
Obviously there is a lot we don't know (is the $9k pure profit or are there substantial costs? How likely is the domain to sell?), but it sounds like the seller got the better end of the deal. He got more than $40k in value, in return the author got a deal he could afford
Good analysis. if I was the author I would have just borrowed 20k in a personal loan and paid it off in three years. Of course he may be exaggerating that he gets 9K in Ad revenue per year or he knows that it's going to decline
What's the best network currently to put a domain to generate ad revenue?
Adsense
Doesn't Adsense require website with proper Content ?
Yes this is what im confused about. They described it as a parking domain, but the old strategy of "buy a popular domain and put ads on a one pager" hasn't been something that pays substantively for a long time. Ads sales have plummeted in general but not being able to use adsense would make it worse.
Yes
I imagine that $9k ad revenue is a site that had an actual user base. And that the guy taking over the domain is going to just put all ads and no content, like he had on Friendster.com. And if so, the expected ad income is probably much lower.
I believe it's 9k/year in parking revenue.
Nobody gets 10% a year
...unless there's considerable uncertainty about future payments. And the world never runs out of people who can't resist a deal that's too good to be true, who won't look too close at that part.
From what I can tell, The upper bound on price for any site making less than 100k a month is 24 months of revenue, but the more common is around 12 months.
The buyer takes on substantial risk because it's easy to fake the numbers, and google updates can tank the site at any time.
Also, most sites will require maintenance/upkeep to keep earning, or they can tank quick. Even if they have got evergreen content, without updates google might drop their search ranking.
I see it more as 20-40 on Flippa. Where are you seeing 12x monthly revenue sales?
it's been a few years since I looked into it, but the 12x-24x was the range I saw for sites that actually sold. I guess it might have changed since then.
You can check out similar sales on flippa.com - ad revenue does not last forever, even if it’s existed for years. And revenue is very much not profit, you could create a site and get $100/day in ad revenue tomorrow but it would cost you $200 in ad spend.
What does the spend go to, besides hosting costs?
Advertising costs, to drive traffic to your site(s).
If Friendster.com was making around $9,000 per year, this would explain why paying $30k + domains returning a similar amount would make sense?