Whether you’re buying or selling domain names, there is definitely some “science” involved when it comes to negotiating a price.
Having been on both sides of the negotiation many times, I’ve encountered all types of buyers and sellers.
Sometimes you can acquiesce too easily – and, as a seller, you leave money on the table. Or if you’re a buyer, you could have got a better price if you had been firmer in your resolve (or a bit more patient).
Sometimes though, you can push too hard as either a buyer or a seller – and you lose.
On one occasion when I was trying to buy a domain name, I walked away in frustration because I felt the seller was being unrealistic. When I went back to them about a week later to try again, they gleefully told me that they’d sold the domain to someone else. 🙁 I can understand that, because as a seller, I’ve done the same thing. If a buyer plays a “hard game”, nothing gives me a greater pleasure than selling the domain elsewhere!
So it’s a fine line – and whilst practise doesn’t make you perfect; it certainly makes you better.
So Here’s A Formula
I’m indebted to an online friend of mine from Canada (George Kirikos) who recently shared the following with me when it comes to negotiating prices. Makes a lot of sense.
(These comments came about when the recent massive sale of LasVegas.com was uncovered by George).
- Strong buyer vs. strong seller = high price! (As in the LasVegas.com transaction).
- Strong buyer vs. weak seller = low price
- Weak buyer vs. strong seller = no deal
- Weak buyer vs weak seller = low price
Factors That Count
The following can be related to the formulas above:
“Level of Urgency”. e.g. If you desperately need the domain for whatever reason, and you encounter a strong seller, be prepared to pay! Or be prepared to lose.
Same goes if you’re selling and you need the money urgently.
“Doing your homework”. i.e. Do you know who is behind the offer to buy? Doing some digging can elevate you into the ranks of a “strong seller”. Not doing it can conversely put you into the weak seller category.
There are probably lots of other circumstances, but to me these are the biggies.
What do you think?
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Patience has served me well as both a buyer and a seller (although admittedly more so as a seller). As a buyer often it can be difficult to take the emotion out of the process, which is why sometimes I will seek the help of a 3rd party – something that’s not uncommon when buying real estate.
Good article, on a topic that will interest many. I’ve heard it said by a few domain investors that they ‘got into’ domains because they couldn’t buy the name they wanted, and soon realized that generic domain names are ‘worth something’. Contrary to what many end user buyers believe, many domain name investors are somewhat sophisticated and WON’T sell out at the first four figure offer they receive.
To sellers:
Build a domain name portfolio, mitigating the risk of non-sale by holding a variety of high quality names (ie. diversification). Several years ago I heard a great piece of investment advice: ‘If you’re selling more than 5% of your portfolio each year, you’re too cheap. If you’re selling less than 2% of your portfolio each year, you’re too dear’.
Remember that domain names are the foundation of the Internet and will be good for decades to come, so there should be no hurry in selling, especially if the name is .com or .com.au.
Domain names should be priced based on ‘value-in-use’ to the buyer in question, factoring-in the ‘value-in-use’ to your best buyer (if different). ‘Value-in-use’ can be difficult to determine for some, but consideration should be given to (i) business size/market cap (ii) industry and the importance of ecommerce and/or having a generic domain name within that industry (iii) the level of investment to date in the brand, made by that business, in terms of ad spend (what kinds of marketing are they engaged in?) and IP development & protection (how many trademarks do they have? by whom are they represented?) (iv) number of employees (why should you sell a name they can’t do without for less than 50% of the annual payroll tax bill?) (v) the use to which the name could be put (names that lend themselves to ecommerce, or names sought by a company with ecommerce operations, are automatically worth a lot more).
Keep your portfolio small, as smaller portfolios are easier to manage and you won’t get stung by renewals. Monetize your names, as a cash-flow positive portfolio enables you to ‘set and forget’. Sit back, let the offers roll in, and turn down four and five figure offers as you please, knowing that your buyer will be back (half the time) or that other buyers will come along in the future – after all, there is no substitute for your name!
To buyers:
Be upfront about who you are. Failure to disclose your identity will often mean no response or that no sale will result due to the absence of good faith. By all means use a legitimate proxy, but just know that most serious domain investors in Australia are exceptionally good at working what’s going on. Many Australian domain name investors are lawyers, accountants, brand managers, IT consultants etc and there are dozens upon dozens of strong, informal relationships built over many years between many of the key players. They all talk to each other, share information and share resources. So don’t expect a reply if your inquiry has come from a Gmail or Hotmail address, especially if no phone number or ABN is provided.
Recognize that you have the ‘crap’ hand, and the complete absence of bargaining power. (Or did you not know that domain names cost less than $30 each biennially and most of the time are cash-flow positive?). Show respect, and act in good faith. The best way to do this is to have a senior person within your organisation send an email directly from their company email address, with full contact details in the signature line. Don’t put a junior on it. Don’t put your IT guy on it, as the decision is 9/10 times not within his pay-grade. To show that your inquiry is made in good faith, first acknowledge the name-holder’s rights to the name, “I understand that you currently hold and have rights to the domain name http://www._______“, and be very clear about the purpose of your communications, “I am acting on behalf of _______ and we would like to buy your domain name”.
Your opening offer should be more than 40% of your total budget. A high four figure offer or low five figure offer should be the minimum starting point for any .com.au name. Bitter pill to swallow? Then go and register a .web or a .company like all the other losers.
At all times keep in mind that you are ‘Johnny-come-late’. You either weren’t around 15-20 years ago, or you made the silly decision not to pursue the name sooner. The premium you are paying, in many cases, is a result of your own poor decision-making in times past. Giving up, deferring or abandoning the acquisition yet again will only make things worse. Bite the bullet, and know that buying today means you’re paying a lot less than you would need to another five years down the track.
Just remember, the seller has other names to worry about, and doesn’t need your money. Australian ecommerce grows 11% pa. and there is a tidal wave of generational change coming, which will see Generation-Z dive into ecommerce.
If the price is too high, stop thinking about how you can scam the seller or buy the name on the cheap. Instead, talk to finance, talk to marketing, and start working out how you can justify the purchase. Start thinking about the ROI. Start thinking about what costs you can cut so that you can afford it.
At all times remember, you are buying an asset that will probably appreciate in value over time, and that can be re-sold if no longer needed in the future.
Start building a domain name portfolio of your own, so that you will have names at the ready for whatever purpose you envision now and in the future!