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  1. #1
    Join Date
    Dec 2010
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    79

    Valuation of domain names when selling hosting business

    i have often heard that domain names are not accounted for while selling a hosting company.. example

    If you company's hosting total revenue is $30,000 / year
    out of which, domain name registrations are $10,000 / year

    when you sell your company, you will expect to to featch a bid of 1x-2x your yearly hosting revenue ... which is $20,000

    if this is the case, then what happens to the value of the domain name? Understandably you will not retain the domain name, you will bundel them with the sale.. so does this mean that the domain name go for free??? there is no vale to the domains at all??

  2. #2
    Join Date
    Mar 2006
    Location
    UK, North East
    Posts
    173
    I think it boils down to the fact that if you buy a web hosting company, you're essentially buying the potential ongoing revenue from the clients that host through the company. It really depends however on the sort of web hosting company that is being bought and the potential buyer. For example if you have a very small hosting company and the majority of the clients have been obtained through friends and family, its unlikely that the website itself and the domain have been the deciding factor on them signing up with the company. So you'd only really be bothered about the domain if it were an exceptional domain such as "hosting.com", otherwise its only likely to fetch a minimal amount if the domain and the company are bought as a bundle.
    On the other hand, if a large company is for sale with a few hundred clients, it is likely that their website played an important role in them choosing that company's services. So it'd be beneficial for the buyer to retain that property and is therefore more likely to pay a premium to retain the use of the domain name.
    Essentially it isn't a given that the domain comes with the company, it depends on a few different factors that I've briefly touched upon in this post.

  3. #3
    Join Date
    Dec 2010
    Posts
    79
    @papa_face: i did not mean the domain name of the hosting company itself but the hundreds of domain names registered with the hosting company... e.g if a clients buys hosting, he is also buying domain name for his website from the same place. this way there are hundreds of domain registered with the company.

    I am talking about the value of those domain names.

  4. #4
    Join Date
    Mar 2006
    Location
    UK, North East
    Posts
    173
    I was a little confused because at the end you say:
    if this is the case, then what happens to the value of the domain name? Understandably you will not retain the domain name, you will bundel them with the sale.. so does this mean that the domain name go for free??? there is no vale to the domains at all??
    Which reads as if you're talking about the actual website domain.

    To answer the real thing you were asking about. Yes - domains can be factored into the sale. It just depends on how much profit is actually being made on each domain renewal/registration as to what valuation is put on them. You'd get very little for each domain I'd suspect because they only happen annually and profit margins are usually very tight anyway.

  5. #5
    Join Date
    Dec 2010
    Posts
    79
    Sorry for the confusion..

    So lets say that you have till date sold about 2000 domain names and the profit from all the sale would have been $2000 , so you can only get an additional $2000 for it or would there be a premium on it like 2x-3x?

  6. #6
    Join Date
    Jun 2003
    Location
    London, UK
    Posts
    1,733
    Most providers roughly break even from domain names so they don't generate profit in and of themselves. That said, to a potential purchaser whilst not generating profit they do often represent an opportunity for an up-sell. So a company that generates a third of its revenue from domain names may suggest that a lot of domain customers either don't have hosting with you (possibility of up-sell/better cross promotion), or conversely it may suggest you have lots of domains per hosting customer.

    Analysing the make-up of the customers, what each customer purchases or doesn't purchase you can often read a lot in to the potential value of a company, and should always be included in any due diligence process.
    Darren Lingham - UK Webhosting Ltd. - (0800) 024 2931
    Tsohost.co.uk - Quality UK Windows and Linux hosting since 2003
    UK WordPress Hosting - Fast, easy, cloud based WordPress Hosting

  7. #7
    thanks bro ...

  8. #8
    Join Date
    Dec 2010
    Posts
    79
    yes, up selling to domain customers does add value but unfortunately there is no way to calculate the value added and most buyers will simply dismiss it.

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