Internet Business Guide

This Internet Business Opportunity caught my attention, as most do, because the price to value relationship is totally out of whack! Back before 2003 it was hard to put a valuation on a domain name; but this is 2009 and the parameters are clearly set. The valuation on a passive income Internet Business Opportunity, just as active websites, is based on a multiple of Seller’s Discretionary Earnings, or Cash Flow.

The Seller of this Internet Business Opportunity has hired a Business Broker to sell the Domain Name. The Broker is not versed in Internet Business Opportunities; although he does claim the Certified Business Broker designation. A designation that adds class to a Business Broker’s license. In other words he most likely relied on the Seller’s expertise to place a value on the domain name. The Seller also lacks the knowledge to properly value the domain name.

As a passive income Internet Business Opportunity the valuation for this particular domain name is between a multiple of 4 and 6 times Seller’s Discretionary Earnings (SDE), or Cash Flow. In this case revenue and SDE are synonymous; as there are no expenses except for the annual domain name registration fee, which is diminimus.

So without having to demonstrate our $1.5M “proof of funds” (required by the Seller or Broker) for this Internet Business Opportunity in a domain name can we make an educated guess on valuation? “Yes, We Can!”

First, we check the Vic Ratio, a measure of supply and demand for an Internet Business Opportunity category. In the case of this domain name:

“Economy Car Rental” – Average Monthly Searches: 33,325; Vicissitude Ratio: 1829.47 In its simplest form a Vic Ratio is a measure of supply and demand. A meaningful Vic Ratio is below 100; which indicates an imbalance of demand over supply.

If we were wanting to start an active Internet Business Opportunity in this category my only answer would be, “What, are crazy?” However, seeing the domain name in this analysis contains the search phrase, we have a slim opportunity of success; as active sites that contain the search term will almost always appear on the first page of search engine results. That said, we will no rely on the number of searches done per month to aid in determining the money we might make as a passive Internet Business Opportunity. From above we learn the average monthly searches is 33,325. As a passive site we are relying entirely on “direct URL type-in” as search engines to not index “parked pages”.

Now we try to guess the number of “direct type ins” related to the number of average monthly searches. For a single primary keyword, such as such as “car rental” (or carrental.com) we can assume 4% to as much as 10% direct type in relative the average monthly searches. For a three word phrase, such as “economy car rental” we can assume less than 4% for this Internet Business Opportunity. So our quick figuring says this site may achieve on average 1,300 visits from direct URL typein. Meaning people entering the domain name in the address bar of their browser rather than in a Search Engine search window. So we have 1,300 visits per month from which to generate passive income.

So how much money might we make. We have two streams of income from this Internet Business Opportunity on which to rely.

1. Pay Per Click

2. Percentage of Sale or referral fee from a car rental company.

There is a basic “rule of thumb” for passive income. $11.00 per thousand page impressions. There is a basic rule of thumb for percentage of sale. A 2% conversion rate. We now have to make a guess on what will be the income per sale for car rentals. For this, our plus/minus margin of error gets pretty big. That said, I would estimate $12.00; plus or minus 50% (that, is a big SWAG!)

Assuming we are in range with the above estimates we can now guess at average monthly SDE, or cash flow. That’s brings us to an estimate of $455.00 per month in SDE for this Internet Business Opportunity. Multiply this by 12 for annual SDE we arrive at $5,500 for this Internet Business Opportunity Using our valuation model from above we take this amount times 4 to 7.

The estimated valuation for this Internet Business Opportunity is between $22,000 and $38,000. If I were providing a valuation to one of my clients I would recommend to pay at the lower end of the range due to the high Vic Ratio; making it difficult to convert this passive Internet Business Opportunity into an active Internet Business Opportunity.

Internet Business Opportunity – Economy Car Rental

Internet Business Guide Listing #7823