$100, just kidding, it’s not quite that simple. It comes down to three simple letters, R, O and I. What Return On Investment you are seeking. The online world is high volatile, compared to real estate as an investment. This is why we have .com companies with p/e ratios of 30-50 (company valuation 30 to 50 times annual net profit), because its possible their profits could go up 10 times or more, as we have seen it happen so many times. The internet is still a growth industry.
With that being said, due to such rapid growth, we see quick and fast change regularly, particularly in marketing, what worked last year, might not work today. We see new opportunities open up, even new advertising mediums created. Usually if you get in quick they can be amazing, then everyone jumps on the band wagon, and saturates the market, and suddenly they no longer work as well.
This is where I place expired domains. Although they can contain many avenues of return, it is possible the return could dry up tomorrow in some cases. Therefore, you want to get the right return for your risk. In addition to that, there is likely actual time involved too, and you want to make sure you are paying yourself for your time. So let’s run through a few scenarios on what people do with expired domains.
If you are buying an expired domain, for the sole purpose of being able to resell it, as you feel it is a great domain, and it would be a suitable domain for someone later on down the road, then you want to try and work out how much you think you could sell it for, and how long it might take to sell at this price. You are buying it as an expired domain, likely the price it can generate in a quick 30 day auction, so if you try and sell it over a 12 month period, inject a little cash in, to provide it with more exposure, you should hope you get a lot more than you paid.
For flipping, it is likely very little time involved, relative to setting up a whole new site for the domain. If you do it for a living, then it’s probably less than 30 mins to add it to your inventory, set up your redirects or a for sale page, and create some ads on domain marketplaces. The running cost too is going to be about $10/yr for annual domain registration.
As you are likely not trying to monetize any of the existing traffic, and just banking on the intrinsic value of the name itself, then you don’t have to worry about the domain losing traffic or links over time.
Having factored all this in, I would aim for at least a 200% return. By which I mean, you want to double your money on it taking 12 months to sell. If you do this for a living then you would have a better idea on what sells, and what is a bargain, and could probably get closer to 1000% in some investments, likely higher returns with the cheaper domains under $1000.
If you are intending on making an entire web site from the domain you purchased, using its already established status to build on, then there will be significant work and expense involved in setting up the site in addition to the cost of the domain.
In regard to the site’s existing metrics, you will want to make sure that these remain, which will mean your new site will need to be very similar the previous site, and ideally drastically improved.
Having an existing foundation to launch a new site is very valuable, particularly if it comes with traffic and Google rankings. But how much is it worth? There will be the initial traffic value, so for example if each visitor is worth $1, and you get 30 visitors a day, that’s instantly worth $30/day, or around $11,000/yr. As mentioned for how much to pay when flipping, around 200% ROI was suggested. In this case with $11,000/yr income, you could look to pay about $5,500 for it. If the site you set up was just a simple WordPress site (i.e. minimal coding and expense), and the content was only about 2 weeks work, then you can factor that in too. If you value a week’s work at $1,000, then that’s $2,000 of your time you have spent, take that away from the $5,500, then you are looking at spending $3,500 for the domain.
But like I was saying, starting a new site, with an established base is valuable. You might be ranking around #15 for your keywords initially, and once you put up this great new improved site and build a few more links, over time, these rankings could get up to the top 5. The higher your rankings get, the higher the traffic increases – exponentially! It has also been my experience that the visitors are more qualified when they are clicking on pages higher in the rankings too, i.e. worth more.
Now, that $11,000/yr income, could be creeping up closer to $50,000. Which is getting close to “quit your job and work full time on this” money. Of course, to get those rankings up, it’s going to take more time than just 2 weeks, you will need be working hard on great content and experiences, a truly valuable site, that Google wants to see in their rankings, and people want to share on social media. It just gets there a lot quicker, when you have that initial base, and it’s nice to start off immediately with visitors and income.
If you are buying a domain solely on directing traffic to your site, then it’s quite simple to work out the value of what the domain is worth to you. You should know what an average visitor is worth to you site. Let’s say a visitor is worth $1, so if you can find a site that gets 10 visitors/day, it would be worth $10/day to you, or $3,650/yr.
Redirecting a domain to your site, takes hardly any time, so we don’t really need to factor that into the cost.
You need to estimate how much traffic the domain is getting, Alexa is a good tool for this (although there are others on the market), but you will never know exactly. From there try to guestimate the minimal amount the domain might be getting (be pessimistic). Then bid for the domain up to the value you have decided. I think 200% ROI is probably about the most you want to go, so in this case around $1500.
For any other reason you might be buying expired domains, you really want to decide on what your ROI is to be. Also bear in mind, that it may not work. If you buy a site for traffic, once you buy it, you might lose the traffic, other sites might pull their links to it, or Google might not rank it in their results. That’s why it’s always very important to spend some time on you due diligence. You don’t want to spend $1000 on a domain, that gives you no value. Hence, why we want to see good returns, you might even decide the risk/reward ratio entitles you to chase 500% returns instead.
If you are new to this, it might be sensible to start out with cheaper domains first, just a few hundred dollars, rather than thousands. Make mistakes that you can afford to lose, and then learn from them for next time. The more you do it, the better you will get, and eventually you will know how to find some real gems, or possibly decide this game is not meant for you.
Also bear in mind that the value you are placing on the domain, is your ceiling price. As it’s an auction, in most cases the domain might likely go under this price, is some cases, way under.