Industry professionals occasionally debate about whether buying based on a pay per click revenue multiple is smart, and on what revenue multiple is appropriate to make a purchase. Naysayers (like myself) will argue that there is much more to a domain name than PPC, so simply using a revenue multiple is short sighted. Many who use revenue multiples argue that it’s one of the easiest and best ways to value a domain name, and it is especially important when buying a group of names or a portfolio.

While I don’t believe names should be bought or sold simply on a PPC revenue multiple, I do believe domain names should be bought based on some sort of revenue multiple. In any major business, marketing spend is typically allocated based on the return that is expected from the investment. Most of the time, the company will use a model to project a return based on expected response, lifetime value, depreciation, attrition…etc, etc. They will input the variables they know from past experience and make an educated guess on variables they don’t know. This gives an annual rate of return and can help place a value on an investment.

Using similar calculations based on my past experience, I come up with a value for a domain name before buying or selling it. I like to use 3-5 years as the amount of time to earn back the initial domain investment, but it varies depending on the domain name and my plans for it. With geographic domain names, I can determine approximately how much revenue I will be able to generate based on advertising sales, and I can justify a purchase price based on that. Had I used PPC multiples, I probably wouldn’t have been able to justify my purchase price.

When doing a calculation such as this, keep in mind the cost to develop and maintain the website, the cost of data and data entry, and the time it will take you to make the sales or the cost of paying someone to make the sales. Just because a domain name can make $100,000 per year as a website doesn’t mean the name is worth $300-500k based on my thinking. Since the cost of building and maintaining a website can be high, and the time considerations can be great, it is important to keep these figures in mind. While this isn’t perfect, it can help determine the value of a domain name to make an offer or a sale.

Kevin posted an interesting article about analyzing your own click through rates rather than relying on an outside source to do it for you.

“It’s time for everyone to realize there is no stats uniformity between all the ppc providers, nor the click rev programs at G & Y. Trying to figure out and compare programs is simply a waste of time. You have to create your own analysis methods and bottom line everything.

Kevin is pretty good with numbers, and his post is an interesting read. I’ve noticed differences in how stats are reported between parking companies, stat counters, and server logs. While the bottom line is always the revenue generated, it’s important to know the actual click through rates so you can determine if you are presenting your visitors with relevant information.

Read the rest of Kevin’s article on his blog.

Back in April, I received a phone call from a person with Sendori asking me about an application made using my domain names. The submitted email address was different than my Whois email address, and they wanted to verify the application. I thought it might have been made by a web developer working on my behalf since I never heard of the company before the phone call, but it turns out a scammer had applied for an account using my domain names and reputation.

For a couple of weeks in April, I put 5 domain names in my DNForum signature, and I had one new registration listed for sale in the offers section. Someone used those 6 domain names to apply for at least one parking company account (ParkingPanel.com) in addition to an account at Sendori. Perhaps they applied to other companies, but these were the two that contacted me due to the difference in the application email and my Whois email. The purpose of doing this, as I later found out, was to generate click fraud. The scammer somehow masked traffic and clicks to generate revenue. I am not good with the technical aspect of domain management, but apparently traffic looked like it was coming from these domain names even though the DNS was set elsewhere.

When ParkingPanel caught on, they immediately called me and told me what occurred. The account manager heard of me on one of the forums and knew I wouldn

People have been speculating about what impact the struggling mortgage market will have on PPC advertising, a source of revenue for many domain owners. New York Times blogger Brad Stone blogs about how Experian’sLowerMyBills.com has reduced its web advertising in light of the recent mortgage crunch.

While LowerMyBills.com is a big internet advertiser, I don’t believe there will be a major impact on PPC revenue. While the mortgage market is under pressure due to subprime mortgage borrowers defaulting on their loans, other types of mortgages are still in high demand. I believe other advertisers will fill the void, competing for the lower risk (and higher value) mortgages in the form of keyword bidding. I don’t own many high performance mortgage domain names, but it would be interesting to see if there has been an impact on revenue.