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Why Development Can REDUCE the Resale Value of a Domain

Posted on 22 August 2010 by Andrei

Lots of people think that developing their entire portfolio or at least a decent percentage of it is the way to go. After all, even if the domain doesn’t end up generating more revenue, development at least increases the resale value of a domain. Right? WRONG!

Revenue Multiples 101

Most of you probably don’t buy sites on a regular basis but those who do can confirm that there’s a HUGE discrepancy when it comes to revenue multiples. On the one hand, if you have a website which relies exclusively on search engine traffic and want to sell it at its market value, you shouldn’t expect more than 6x – 8x MONTHLY revenue. Yes, m-o-n-t-h-l-y!

Now, of course, a complex site with a consistent traffic/revenue track record as well as with plenty of room to grow and an actual business model (not just a traffic source or two, not just a monetization method or two etc.) can be sold for a lot more in terms of multiples but let’s face it, most websites developed by the average domainer do NOT belong in this category, as I’ve explained here and here :)

OK but What If I Only Sell the Domain Based on Its Inherent Value?

It should be clear that you shouldn’t expect more than 6x – 8x monthly rev based on the fundamentals of a mediocre website. But doesn’t having a premium domain help? Of course it can help but a lot of times, you are doing more harm than good by turning a good domain into a mediocre (at best) website.

If the domain is actually great, then a serious developer who has a respectable budget and wants to turn it into a website which actually provides value will think twice about buying it from you if it has been turned into a mediocre website.

Why? Because the average domainer who develops websites usually ends up screwing up royally by:

1) Building links too aggressively -> a Google penalty
2) Using too many ad units -> AdSense issues
3) Turning the domain into a thin site which didn’t pass a manual check -> a Google penalty

… and so on.

In other words, if I’m a serious developer and want to buy a domain from you, I’ll think twice about doing it if you turned it into something like a minisite for one simple reason: crappy development carries more risk than you imagine.

If the domain got banned by Google because the previous owner built links too aggressively (for example), I’ll have to work a lot harder and invest more money in order to fix everything.

If the AdSense account of the previous owner got closed because the domain was turned into a MFA (Made For AdSense) site, I might end up being in trouble.

The list could go on and on but since I don’t want to turn this post into a novel, I’ll stop here and make it clear one final time that:

Crappy development REDUCES the resale value of a domain!

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61 Comments For This Post

  1. Xdreamer Says:

    Agree, tough job selling a banned site. Better to build only a few good sites with less risk if you want to sell them.

  2. Mike Says:

    Yes, but proper website development would definitely increase the income from domain per month and sale value of the domain/website and only a crazy person would sell a premium domain for multiple of income.

  3. jb Says:

    Putting a decent site on a valuable domain name ALWAYS increases its value during a sale.

    Sell it offline through a broker and you can easily get 5 to 10 times yearly rev.

    Also…

    Building too many links aggressively is not a Google penalty. Building a lot of links over a couple of weeks and then stopping is what gets you flagged.

    Adsense sucks for monetization. There are at least 5 other services that beat it everytime.

    Building a thin site that doesn’t pass manual check…

    First of all very few sites even get a manual review. You have to have a site ranking in the top 10 of a very competitive market to even get a review. Google knows the value of every keyword on every organic listing. They know how much you’ll make in the #1 spot.

    Second, there is no such thing as a “thin” site to Google. I have 6 page sites that rank in the top 3 all over the place.

    I do agree with your last statement that CRAPPY sites hurt you. However, you probably should have added that to your title.

  4. Domain Sales Says:

    Other domainers understand penalties and such, end-users do not, they fall in love with the domain name or idea… not the development already done – good or bad they just want the name, they may find the domain name in the search engines if its listed.
    Penalties are usually short lived, 60 days or so, it takes a lot of abuse by a domain owner to have a domain permanently banned if ever.

  5. Andrei Says:

    @jb: AdSense sucks for monetization? Don’t take this the wrong way but this statement is so hilarious that I don’t even know where to start. I’d love to hear what the 5 other services that beat it every time are :)

    Oh and of course I’m talking about SCALABLE solutions because it all ultimately boils down to scalability, not an affiliate program for a product/service related to just one niche. Lots of people hate on Google but the thing is, most publishers would be screwed without AdSense. Love them or hate them, they are huge and that’s not going to change anytime soon.

    Finally, as far as your 6-page website is concerned, there’s no doubt in my mind that it’s ranking now. Anyone can provide lots of examples but here’s what they can’t do: provide verifiable examples of 6-page websites such as the one you’ve mentioned which have been ranking for decent terms over a period of 3-4 years or more. I’m sure I don’t have to explain why.

    @Domain Sales: this post is not about selling to end users, it’s about selling to serious developers at fair market prices. As explained here:

    “If the domain is actually great, then a serious developer who has a respectable budget and wants to turn it into a website which actually provides value will think twice about buying it from you if it has been turned into a mediocre website.”

  6. Leonard Britt Says:

    I’ll agree that many domainers including myself have to continue learning about the development, design & SEO process but I sold a domain in June for $3K which hosted a website I had developed (I relaunched on another domain a couple of weeks later). The buyer never inquired how much I was making on the site but that domain sale was for more than a thousand times my monthly earnings. The buyer was a developer who already had other sites in the same category and knew they could do a better job with it than I was doing but the site had somehow made it to page one of Google, Yahoo, Bing for its keywords and so from day one the buyer’s site was already receiving traffic. Since then, it has moved to the top spots of page one because they do a better job of providing fresh content.

  7. Andrei Says:

    @Leonard Britt: glad to hear that things worked out for both parties involved, I always love win-win situations. Maybe your website was decent, maybe he analyzed your backlink profile and didn’t find lots of questionable elements, there are lots of possibilities and referring to them would be pointless since I do not know anything about the website in question.

    Or, even if we’re talking about a low-quality minisite, there are definitely always exceptions but for the most part, developers will think twice before purchasing a domain if it is currently being used as a mediocre website.

  8. Steroids UK Says:

    as someone who has been too lazy to develop any of his domains i loved this post.

  9. Rob Monster - Epik Says:

    Seems like a provocative post to me.

    Yes, people die flying in planes. They usually don’t.

    Yes, you can destroy value be developing. You usually won’t.

    I think the biggest risk is legacy — if you sell Malware or Adult content, a future buyer may not be interested in that baggage or prior association.

    For example, we are developing Cuffs.com for the owner and will auction it on 9/16 at Epik DevCon. Cuffs.com used to be an adult site. We developed a product site which should go live shortly.

    Other than that, I can’t really think of an example where a domain is better off parked. Seriously, parking just trashes all indexing and pagerank value of the name and pays not much. Why bother.

  10. Andrei Says:

    @Rob: I am not referring to meaningful development when I’m saying that it reduces the resale value of a domain. I’m referring to crappy sites built by people who want to make a quick buck.

    Each and every year, the Web is flooded by beginners and a lot of them think that a “register 100 domains and turn them into minisites” business model makes sense. After buying DomainingTips.com and my other blog, I’ve been receiving quite a few emails from beginners who expect to succeed with such a way of thinking.

    Unfortunately, they’ll only end up learning a few painful lessons the hard way and that’s what my series of posts is all about: making it clear that having a business model which revolves around minisites just doesn’t make sense.

    There are far better ways to make money out there, crappy development does not increase the resale value of a good domain and the list could go on and on. I know that the current parking situation makes people jump on the mass development bandwagon but that’s just plain wrong IMO. Polluting the Web with crappy sites is just not worth it in the long run and as domainers, we’re better off turning a handful of excellent domains into sites which actually provide value and finding other ways to monetize the direct navigation traffic of our remaining portfolio.

  11. Rob Monster - Epik Says:

    @Andrei – Thanks for clarifying. On this we can agree. Amateur development can be damaging to your domain’s health. A lot of folks really underestimate the importance of (1) business model, (2) design, and (3) SEO. Nailing these 3 is half the battle.

  12. jb Says:

    @Andrei…

    The one thing (among many) that you’re ignoring about Google ranking is relevance. It is the core of their business model. The reason why 6 page or 10 page or 12 page sites can continue to rank for years and years (now and into the future) is because the content on them is the most relevant for a particular search query.

    Tapping into the long tail with a well done site that was only created as part of a domain flip/sale is far more valuable than parking since you:

    A – establish legitimate search traffic and increase value.

    B – age your domain with content that is thematically relevant to your domain’s suggested topic (athough admittedly, this is not always possible – as in the case of short brand oriented ones). This builds Trust Rank on your domain – which is HUGE in today’s SEO world. Again, increasing value.

    C – Develop PageRank which increases value.

    And btw – if you think Adsense is a the best bang for the buck, that, my friend is what’s hilarious. You clearly do not do much development and monetization outside of parking.

    Adsense revenue is now calculated on a domain and page basis. You can get traffic in credit cards and get $.30 a click with a crappy site.

    Again, crappy development hurts. Unless you have large, evergreen market single word names.

  13. Andrei Says:

    @jb: you haven’t answered my question. Forget about 5, name just two or three scalable alternatives which were able to outperform AdSense time and time again. Again, scalable, not just something that worked great for a site or two.

    Let’s assume that 1,000 site admins (various niches) want to try something different. What should they replace their AdSense code with? I’ve asked this question to lots of folks who bash AdSense (I know they’re not perfect but on the other hand, we can’t ignore their HUGE role either) numerous times and, needless to say, I’m still waiting for an answer :)

    And as far as small sites and your “(now and into the future)” statement are concerned, please take a moment and review Google’s attitude over the last couple of years. They do not like small sites and while you can indeed get them to rank, it’s a constant cat & mouse game and playing cat and mouse with your main traffic source is not exactly what I’d call a sustainable and especially scalable business model.

  14. Poor Uncle Says:

    You made some great points. I guess it is like owning a foreclosed abandon piece of property trespassed by druggies and homeless on a prime location.

  15. Stephen Douglas_Successclick Says:

    @ Andrei,

    You completely leave out the “brand” equation of a domain name. It doesn’t matter to any company who KNOWS they need a generic descriptive domain, or someone who likes an unusual brand, like “pearlrain.com”.

    If anything, a LANDING PAGE turns off more buyers than a nice little minisite when a business decides it needs a domain name for it’s online marketing top positioning. You really think that any domainer is going to do “bad SEO” and get banned on Google — I sense a subtle referral to two year old complaints about Whypark here.

    @Rob Monster – If anything, Rob Monster is correct. If a domainer has a nice site (and most of them do if they decide to build out), a potential buyer who is interested in the domain will be encouraged to nab the domain because they don’t want this domain to compete with their current site and prodserv.

    Your logic here is based solely on negative values, without taking into consideration any “smarts” used by most domainers, and the fact that the domain itself sets the value, regardless of its “m-o-n-t-h-l-y” revenue. I paid thousands of dollars for DigitalMammogram/s.com before most people ever heard of the new breast cancer testing process, and it made nothing for years.

    I built it out with some custom pages on Whypark, probably spent about 90 minutes total on it… and since then I’ve turned down several high four figure offers for each of the domains (more than 300% profit than what I paid).

    You can’t ever compartmentalize a domain name… that what makes them so valuable. You based your blog article on one small faction of “website” mediocrity, and tried to apply it to domain value. It doesn’t work that way.

    But it got you some nice comments and traffic! I like smart thinkers in that sense… ;-)
    *Let The Bodies Hit The Floor

  16. Andrei Says:

    @Stephen Douglas_Successclick: the title of this post is “Why Development Can REDUCE the Resale Value of a Domain” and not “Why Development Will REDUCE the Resale Value of a Domain”, please read my reply to Rob’s comment.

    I’d be the world’s biggest moron to say that development in general reduces the resale value of a domain, that’s definitely not the case. What I’m referring to is crappy development and not development in general.

    And as far as this question is concerned:

    “You really think that any domainer is going to do “bad SEO” and get banned on Google”

    My answer is a very clear “Yes” because let’s face it, most domainers are beginners when it comes to SEO. There’s nothing wrong with that, we all started somewhere but we do need to see things for what they are.

    You are mistaken if you think that only extreme approaches such as blatant spam will get you in trouble with search engines, especially the big G. Things have changed and this is only the beginning, let’s just say that managing the “love-hate” relationship everyone who optimizes sites has going on with search engines is already extremely hard if you’re interested in long-term sustainability and it will only get harder.

  17. David Says:

    Assuming the minisite content is targeted to the domain keywords I don’t believe a site will be a negative. With that said, a site will also likely not increase the domains value.

    A benefit to the minisite is your domain can slowly grow its traffic thanks to SEO work but a parked page will not.

    As far as revenue goes, a parked page will do much better but that assumes the domains get the same traffic numbers and the parked page gets typein traffic. If not, development is much better.

    As a side note, never had an end-use (non-domainer) buyer ever ask about the website, its revenue or traffic stats. Even if we offered to give that information the buyers did not want to look at it. Only domainers ask those kind of questions.

  18. Andrei Says:

    @David: when it comes to end users, you’re right, most of them won’t care but this article is not about how poor development can affect the resale value in the eyes of end users. It’s about how it can reduce the resale value in the eyes of professional developers who buy domains/websites at their fair market value :)

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  20. Stephen Douglas_Successclick Says:

    @Andrei,

    Sorry, I didn’t know you were referring to “noobie” domain investors. I don’t call “beginners” the title “domainers” unless they bought their at least one domain for $1000+ !

    ;-)

  21. Attila Says:

    Just curious, is there a website or list where you can search to see if domain is blacklisted with google? Or is it one of those risks you take when buying a domain.

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  25. David Says:

    A major negative and significant issue with potential sales of developed websites (even a very small site i.e. 1 or 2 pages) is when a potential domain buyer goes to the URL and sees an active website he may assume since it is a site it’s likely not for sale.

    Therefore, the possible buyer (end-users in particular) may think why bother inquiring, and they quickly exit the page looking for a different domain, or maybe hand registering an alternative extension, or going with a slight name variation.

    For those working on developing all their names thinking development will help sales, this may come as a surprise.

  26. Stephen Douglas_Successclick Says:

    @David

    Whypark has a very distinct, top of the page “This Domain For Sale” link, so that’s doubtful. You do bring up an important point though. Maybe a developed site needs more than one link to announce the domain is for sale.

    Maybe, the “DOMAIN FOR SALE” link needs to be double-sized and bolded!! Oh no, now you got me paranoid! Thanks a lot, David.

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  34. David Says:

    Stephen Douglas earlier said “Maybe, the “DOMAIN FOR SALE” link needs to be double-sized and bolded!! Oh no, now you got me paranoid! Thanks a lot, David.”

    However, there is still a problem Stephen because an obvious Domain For Sale announcement can make the visitor a bit uncomfortable seeing it and may also has negativity on potential PPC clicks too (and a much greater impact on any product sales a site may be hoping to get).

  35. Stephen Douglas_Successclick Says:

    Hi David,

    It’s not a secret that I’m not a big PPC fan. Non-Transparent “revenue providers” such as the top SE’s, are not my cup of tea. Plus, I know the secret of the PPC winners in this business, and they aren’t making money off great generic descriptive domains on PPC (cuz they will have built out significant websites utilizing direct sales, affiliates sales, or inhouse fulfillment prodservs).

    The people who make the most off PPC are typo investors and TMers. This isn’t my area. My area of expertise is flipping or selling to end users. This is, in fact, the safest and best way to make fast money if you’re paying attention.

    I don’t care if anyone clicks on adlinks on my sites. What I want is at LEAST ONE visitor to be a potential buyer as an end user worried about what a competitor might be putting up with that domain name if that visitor doesn’t purchase it.

    In other words: My 12 years of domain monetizing experience has shown that the amount of time you spend parking your domains hoping for PPC payouts can be obliterated by the sale of ONE domain to an enduser.

    Few domainers make more than $3000 a month in PPC revenue. However, a LOT of domainers make over $10k a month FLIPPING their domains. Which is more important to any domain investor? Trickling monthly revenue, or a smash hit that pays for renewing 200 domains they own and can continue trying to flip?

    It’s about the math and the types of domains you buy. I GUARANTEE YOU that no typo or TM domain investor will NOT sell you their domains for a price you can’t recover in 10 years. Why should they?

    Hope this clears up why I like Whypark and building up sites that end users will be anxious about… and motivated to make offers to buy.

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