Domain Name Value & The Secret for every Domain Investor
Posted 1st November 2013 at 05:39 AM by prot
The Secret when Investing in Domain Names
There is a little secret that every domain investor should know, here is:
“Never buy or register for free a domain name worth less than $450.”
Here is why..
In order this analysis to be accomplished we treat a domain names portfolio as any other asset class (stocks, bonds ect). The concept is that a domains portfolio must be able to pay its yearly expenses plus to generate a fair return, as any other investment. A fair return is basically covering the effect of inflation plus a fair growth.
CALCULATING YEARLY REVENUE AND EXPENSES
Revenue derives from domain sales and domain parking while expenses derive from yearly registration fees.
The basic question to be answered is how much a domain name should worth (and then be sold) in order a domain portfolio to make fair profits in the long-run. Don’t forget that when you are holding a domain you must pay yearly registration fees. On the other hand you may receive revenue from domain sales and revenue from domain parking. So let’s put all these factors together in a single equation and calculate the potential yearly revenue and expenses of the average domain portfolio. Our calculations will be based on a portfolio of 50 domain names.
1) FORECASTING DOMAIN SALES OF THE AVERAGE DOMAIN PORTFOLIO
Based on experience, per 50 domain names you hold, you sell 1 domain per year.
That means that if you hold 150 domains you will statistically sell 3 domains per year. That assumption is based:
i) On the average value of the average domain portfolio
ii) On fair Domain Name Pricing, close to market past sales
iii) On a basic domain name promotional plan (for example domain parking and listing in domain markets as SEDO).
So let’s calculate the minimum value of the average domain in order a domain portfolio proves profitable in the long-run. (i)
2) CALCULATING YEARLY PARKING REVENUE
If we assume that we park all our 50 domains and that we will earn statistically about $0.08 per domain per month, here is our annual parking revenue:
0.08 x 12 x 50 = $48 (ii).
3) CALCULATING YEARLY REGISTRATION EXPENSE
Each domain costs about $9 per year (that is how much I pay). That means that for a whole year we will need to pay about $9 X 50 = $450 (iii)
4) CALCULATING BREAK-EVEN
The break even between domain parking and registration expenses can be easily calculated by deducting $48 (ii) from $450 (iii)
$450 - $48= $402 (iv).
That means that if the average domain value of a domain portfolio worth $402, this domain portfolio will neither make a profit, neither make a loss (in the long-run).
But, this is the basic break even value ($402), something is missing, and that is the annual return of this domain portfolio.
5) ADJUSTING VALUATION –ADDING ANNUAL RETURN
Holding domain names as holding any other asset class must pay you back a minimum rate of return. In investment valuation that is called as the IRR –internal rate of return.
Adjusting Domain Value by Calculating the Internal Rate of Return (IRR)
A general internal rate of return is about 8-12%. It depends of course on general investment, macroeconomic and other variables such is the current GDP growth, inflation rate and the level of interest rates etc.
As domain industry is extremely dynamic we shall use the maximum value of this short IRR range (8-12%), meaning IRR at 12%.
Calculating Domain Name IRR
If we pay about $450 each year for registration fees, then our minimum profit should be 12% x $450 = $54 (v)
If we add the dollar value of our IRR $54 to our previous breakeven price of $402, we get $456 (i).
That should be the minimum value of each domain that we accept to register free or buy in order to make long-run profits.
CONCLUSION
■ If the Average Domain Value of a portfolio is below $450 then this domain portfolio is probably losing money.
■ If the Average Domain Value of a portfolio is above $450 then this domain portfolio is probably gaining money.
This conclusion is based on an Annual Domain Sales Frequency of 1:50 (one domain sale per fifty domains -per year).
»Read my full aticle at Qexpert.com Blog
George Protonotarios
Financial Analysis / Web Projects
Qexpert.com
There is a little secret that every domain investor should know, here is:
“Never buy or register for free a domain name worth less than $450.”
Here is why..
In order this analysis to be accomplished we treat a domain names portfolio as any other asset class (stocks, bonds ect). The concept is that a domains portfolio must be able to pay its yearly expenses plus to generate a fair return, as any other investment. A fair return is basically covering the effect of inflation plus a fair growth.
CALCULATING YEARLY REVENUE AND EXPENSES
Revenue derives from domain sales and domain parking while expenses derive from yearly registration fees.
The basic question to be answered is how much a domain name should worth (and then be sold) in order a domain portfolio to make fair profits in the long-run. Don’t forget that when you are holding a domain you must pay yearly registration fees. On the other hand you may receive revenue from domain sales and revenue from domain parking. So let’s put all these factors together in a single equation and calculate the potential yearly revenue and expenses of the average domain portfolio. Our calculations will be based on a portfolio of 50 domain names.
1) FORECASTING DOMAIN SALES OF THE AVERAGE DOMAIN PORTFOLIO
Based on experience, per 50 domain names you hold, you sell 1 domain per year.
That means that if you hold 150 domains you will statistically sell 3 domains per year. That assumption is based:
i) On the average value of the average domain portfolio
ii) On fair Domain Name Pricing, close to market past sales
iii) On a basic domain name promotional plan (for example domain parking and listing in domain markets as SEDO).
So let’s calculate the minimum value of the average domain in order a domain portfolio proves profitable in the long-run. (i)
2) CALCULATING YEARLY PARKING REVENUE
If we assume that we park all our 50 domains and that we will earn statistically about $0.08 per domain per month, here is our annual parking revenue:
0.08 x 12 x 50 = $48 (ii).
3) CALCULATING YEARLY REGISTRATION EXPENSE
Each domain costs about $9 per year (that is how much I pay). That means that for a whole year we will need to pay about $9 X 50 = $450 (iii)
4) CALCULATING BREAK-EVEN
The break even between domain parking and registration expenses can be easily calculated by deducting $48 (ii) from $450 (iii)
$450 - $48= $402 (iv).
That means that if the average domain value of a domain portfolio worth $402, this domain portfolio will neither make a profit, neither make a loss (in the long-run).
But, this is the basic break even value ($402), something is missing, and that is the annual return of this domain portfolio.
5) ADJUSTING VALUATION –ADDING ANNUAL RETURN
Holding domain names as holding any other asset class must pay you back a minimum rate of return. In investment valuation that is called as the IRR –internal rate of return.
Adjusting Domain Value by Calculating the Internal Rate of Return (IRR)
A general internal rate of return is about 8-12%. It depends of course on general investment, macroeconomic and other variables such is the current GDP growth, inflation rate and the level of interest rates etc.
As domain industry is extremely dynamic we shall use the maximum value of this short IRR range (8-12%), meaning IRR at 12%.
Calculating Domain Name IRR
If we pay about $450 each year for registration fees, then our minimum profit should be 12% x $450 = $54 (v)
If we add the dollar value of our IRR $54 to our previous breakeven price of $402, we get $456 (i).
That should be the minimum value of each domain that we accept to register free or buy in order to make long-run profits.
CONCLUSION
■ If the Average Domain Value of a portfolio is below $450 then this domain portfolio is probably losing money.
■ If the Average Domain Value of a portfolio is above $450 then this domain portfolio is probably gaining money.
This conclusion is based on an Annual Domain Sales Frequency of 1:50 (one domain sale per fifty domains -per year).
»Read my full aticle at Qexpert.com Blog
George Protonotarios
Financial Analysis / Web Projects
Qexpert.com
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