For all the factors that can affect the final price of a domain purchase or sale, it still comes down to a unique agreement between two parties.

Your domain may have all the traffic in the world, high conversion rates and a big fat upward trend surrounding it.  It may be the best ExactMatch.com in the big money niche.  Still –

A domain is worth what someone will pay for it.

Investment bankers and the big companies that gobble domains (Demand Media, Internet Brands, Bankrate, QuinStreet, medical conglomerates) will regale you with their ‘process’ of valuation.

Key factors?
- Organic traffic
- Trend in that traffic
- Over/under monetization
- Domain strength (i.e. Exact match? .com?)
- Clean SEO
- Competing sites

That’s important stuff to consider and to know, yes.  But there’s so much more that affects how much one party will pay another for a domain.  Largely, these are factors that are out of your control.

Things like:
- Is your niche hot?
- Have competing sites been bought already/recently?  By who?
- Is VC money flowing in to your niche?
- Is someone trying to go public, so they’re buying up domains like hotcakes?

This list could go on forever.  The point is, with so much that’s decidedly out of your control, can you ever sit there and place a dollar value on your site?  Can you reasonably expect to sell it any time you get the urge?

No and no.  A domain is only worth what someone will pay for it, at a specific time, if you’re lucky.  It’s got so much more to do with the unpredictable factors than the ones you can control.

Talking from Experience
On the selling side, we’ve sold 2 “companies” that were akin to selling “domains”.  Both were sold to buyers who were looking to add assets (read: traffic, properties) with an eye on going public or getting acquired themselves.

The price we were paid was more about them managing their budget and expectations of a future payout on their end, rather than anything we created consciously with our business.

The acquiring companies got bought and went public, respectively, and now our old properties are on the sale block. Our achievement was simply a means to an end for someone else’s purpose.

Buying
We buy domains all the time.  You know how we price them?  Might as well be a dart board.  Seriously.

I think $25,000 is a sweet number to ballpark a great domain that is currently doing nothing and could become a real business.  So that’s where we start.  No idea where this came from.  It’s just what I’ll pay for a domain.

Other buyers on the market are just as likely to have obscure, unscientific reasoning behind what they offer you.  We were offered $1 million for a domain a few weeks ago, and it had nothing to do with some multiple of revenue or a trending market.  The offer had more to do with the buyer’s desire to accumulate assets, and leverage other related properties in the mortgage and lead-gen space.

See?  Right there, the offer doesn’t have anything to do with the investment banker checklist.  We couldn’t chase it intentionally.  We wouldn’t get the same offer from anyone else, competitor or otherwise.

The domain is worth what someone – some 1 – will pay for it.

It’s Dangerous out There
This makes for a proverbial field of landmines for most domain owners.

So many questions arise about how to price a domain you’re buying, how to trust the other party, how to gauge the potential, etc.  When selling, there’s questions of seeking professional counsel and the buy vs. hold arguments that go through your head.  It’s rough.

The best advice I can give you is to talk to people who’ve done it before. You can pickup some lessons learned the hard way, and try to apply it to the situation at hand.

Every single domain sale in history is a different situation, though.  What Johns Wu did isn’t what Shane Pike did, it isn’t what we did, it’s not what you’ll do.

Takeaway
In buying and selling domains, there’s no blueprint.  It’s a freaking blank canvas, so proceed accordingly.  Go off your instincts.  Don’t bank on building a site only to sell it.  Too much is out of your control.

Images: Hibb08 and Leona Shanana

What is the low end?
Anything under $100,000 is a pretty small deal in the grand scheme of things. At this level, you’re not likely to need tons of lawyers pounding out purchase agreements (try something like this instead), nor will you need to spend months bickering on every detail. Often times, buyers and sellers can agree to a deal and do a simple transfer via Escrow.com. This size of deal is sometimes just a domain or a site with no revenue.

Pricing theory
There’s a lot of volatility in lower end website purchases. Revenue is obviously low and tends to be concentrated–coming from a single, potentially unreliable, program like Google’s AdSense. Another issue at this level is accounting related. Most webmasters report profit as simply Revenue – Expenses but don’t include their own labor as an expense. This is a pretty common problem and definitely an issue. Adjusted net profit numbers for small websites can change significantly when accounting for labor–even at a low hourly rate.

Multiples
Predictably, websites in the low end usually sell for a pretty low multiple. Generally, one year revenue or up two 2x net profit would be a pretty reasonable price. This sounds low to many but the problem is the fact that there’s so much uncertainty at this level. Generally, sites for sale under $100,000 aren’t even a real business–they are simply part of something bigger or a sideline for someone. Unsustainable revenues with a relatively short history also come into play here.

Where to sell
The biggest marketplace to buy or sell sites under 100 Grand is Flippa. Be forewarned, the quality of websites for sale on Flippa is all over the place. Some websites are a complete scam and others posted are legit–do strict diligence before transferring any $$$ for a site for sale on Flippa. Beyond that, try business for sale marketplaces like BizQuest and BizBuySell. These sites target pricier listings but due to the mobility of an internet business, websites are likely to generate a lot of interest from people across the country (or world) even with smaller selling prices.

Who might buy your site?
There aren’t many “strategic buyers” looking at this level. A strategic buyer is someone in a related business that acquires you website because of what it can bring to their core business. If you’ve built a solid niche site such as a tool that’s relevant to an ecommerce site or something similar, you might be able to approach some people directly.  You would most likely sell your site to another individual (as opposed to a larger company) who probably operates a network of sites for a living/sideline.

Creative Commons photo courtesy of amagill.

One of the most exciting parts of being an entrepreneur is an EXIT a.k.a. a liquidity event.

Liquidity event = selling all or a piece of your business.

Selling a business is a common path to individual wealth. (There are other terms for “selling”, i.e. refinancing, selling partial ownership, and so on. These all fall under the category of a liquidity event.)

Many people say real estate is where the wealthy keep their net worth… well, selling a business is where they earned that net worth.

Selling Your Website or Web Business
Selling your website may not necessarily make you a millionaire, but a liquid six-figures or more sure sounds like a nice shot in the arm, eh?

Especially if your website is a sideline to a day job, that amount of money could allow you to become self sufficient and work on growing businesses that you own, day in and day out.

The sale itself isn’t making you rich in many cases, but it’s sure affording you the opportunity to have a better shot than most!

Our Experience
From our experience, there are a few categories of internet business sales. We’re not VC-backed, Silicon Valley hippies, we’re just a group of hard working entrepreneurial marketers that build real businesses on the web. We’ve had 2 successful exits and created many more sustainable businesses online.

That’s where we’re coming from.

On that note, our numbers may reflect “regular Joe” dollars. The fact is – the vast majority of internet businesses are sold in the sub-$5,000,000 range and this area is really our sweet spot.

Here’s the deal sizes we’ve had experience with and I’ll delve into more deeply in this series over the coming weeks:

Low End – Sub $100,000
Middle Market – $100,000-$2,000,000
“Big Deal” – Over $2,000,000

This represents our experiences and what we’ve learned over the years. It is NOT necessarily representative of anyone else’s experiences.