Buying and Monetizing Exact Match Domains with Michael Jackness

Finding the right domain for your business can be a long process and one that requires a smart strategy. Questions abound when it comes to finding the right domain. Should you find an exact match domain? If your top choice is already claimed, should you try and buy it? We dive into the best methods for finding and buying domains and clarifying the difference between spammy names and exact matches.

eCommerceFuel forum member Michael Jackness, owner of Cuttingboard.com and Gunsafe.com, joins me to talk exact match domains. Michael is known as the expert in the forum by successfully buying and selling domains with ever-increasing margins. Michael explains his process of effectively selling at a 4x sales multiple and the steps you need to take to ensure that when you buy or sell, you are setting yourself up for the most profitable deal possible.

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The Full Conversation

(With your hosts Andrew Youderian of eCommerceFuel.com and Michael Jackness of MikeJackness.com.)

Andrew: Hey guys, its Andrew here and welcome to the eCommerceFuel podcast, so glad to have you with me on the show. Today, in this episode, I’m joined by Michael Jackness. He’s a private forum member that joined fairly recently in the last couple of months and just had a really cool background. He came out of the affiliate marketing space and knows a ton about high-end domains, high level domains. He owned and sold treadmill.com, he owns cuttingboard.com, I think he owns gunsafe.com – a bunch of these high-level domains. He knows that market well and he monetizes them by building e-commerce stores on the back end of them. So he really has a lot of expertise in the domain world which we’ll be talking about. We get into his sale of treadmill.com – which had a lot of similarities to the sale of trollingmotors.net. Some of the reasons he sold and why I did – we had talked about that and also talk about travel and lifestyle. He used to have a ton of employees. He’s pared that back quite a bit and give us some tips for traveling and working and he’s been all over the place. So it’s a discussion all over in a lot of different topics but I hope you enjoy it. So let’s go ahead and dive right in to today’s chat with Michael Jackness.

Mike, originally I had wanted to lead off with talking about high-end domains which is something that I know you have a ton of experience in talking about your treadmill.com sale, but we got talking about some stuff right before the interview and now I’m just going to bump it up to the top talking about travel and lifestyle and specifically, to lead with that, managing tons of employees. You were telling me, right before we got on, that you used to have a company with 60 employees and now you’ve thinned that down quite a bit. What was that like? How was it trying to manage a company that size and do you miss it? Are you intentionally keeping things lean now? What’s the back story there?

Michael: When I was in online poker affiliate marketing, which is the first online business that I had, there was explosive growth for quite a long period of time there and we actually got up to 66 employees at one point and it’s something that I don’t miss at all. It was a lot of HR issues and personality issues and things that on a day-to-day basis I wasn’t really thinking about running the company anymore. It’s like that old cliché of “your business runs you.” It definitely got to that point and it’s something that I really don’t miss at all. I like having my pulse on more things in the business and nowadays we run as lean of a company as possible and I basically look for needing 60 or 80 hours of additional help before hiring that next 40-hour-a-week employee and spend a lot more time in the interview process and making sure we get the highest quality people possible versus just hiring the first person that comes along because you’re so desperate for help. So I definitely don’t miss the larger company aspect at all.

Andrew: It’s funny because it seems like so many people aspire to just grow big companies and from people I’ve chatted with like yourself who get there, some people really love it but more often than that, even times it feels like a lot of people just feel really pinned and trapped and it’s funny. One metric I don’t think people track very often which is one that I think has a lot of importance is the revenue per employee and profitability per employee. Did you find that as you grew up to be a fairly larger organization that adding additional employees didn’t increase the profitability in a linear fashion, that you added an extra employee but it really is maybe for just a much smaller amount of revenue or profits?

Michael: Yeah, definitely. It’s something that I’ve read about even more recently because you see revenue per employee of companies like Facebook or Google and the number is just astronomical. We had good intentions. We were running, like I said it was an online poker affiliate space. I call it “funny money” nowadays. It’s probably something I’ll never replicate again in my life, but the intentions were good. It was basically, we’re making a lot of money and I really want to reinvest in the business and continue to have exponential growth and expand into other areas. The reality was that we were getting a fraction of a return on the additional employees we were adding and it was probably detrimental to our other parts of our business that we were losing focus on. So I actually think that in the end we would have been way better off just staying as a five or ten-person company and really focusing on the things that we did well versus expanding so much and taking our eyes off the ball of the things that really got us to be successful to begin with. So it’s definitely been something that I’ve been real cognizant as we’ve doing this e-commerce stuff as a new business model.

Traveling While Running a Business

Andrew: I want to segue into travel here and in terms of being able to travel while running a business, you could maybe make the argument you have 60 employees, lots more people to do the work for you and so you can get off and take off without having to worry about it. Was that the case? Did it make it easier to leave the business and just unplug and come back? Or was it completely the opposite?

Michael: I think it was basically the opposite. At the time that we had all those employees, I was living in Costa Rica actually. We had moved down there and opened an office down there. That’s when we had all the employees and I saw less of that country than any of my other business partners or a lot people that I knew because they had time to go on the weekends to see the volcano or go see the beach or whatever it was and most of my time was spent catching up on things that were happening during the week that I just couldn’t get to during the week and spent the weekends doing that. When I was travelling, it was usually outside the country because I had a lot of commitments for business, to go to conferences and other business meetings. So I was doing a lot of travelling out of the country. I definitely don’t think that having more employees necessarily gives you more freedom in your lifestyle. There’s definitely a lot of people, a lot of other podcasts and people that I follow that work on that specifically. Basically having a lifestyle where you can work from anywhere and not being tied down and that certainly wasn’t the position that I was in then and it’s not really the position that I’m in right now either as we’ve gotten a warehouse and into our own fulfillment and such but it’s something that I’m really cognizant of and want the ability to have flexibility to travel and do things when I want them. We’re getting back to that point though slowly but surely. It’s something that when we got our warehouse and started doing our own fulfillment I was like okay, well for the next 12 to 18 months I’m going to basically be stuck here and having to deal with this stuff. But as we hire people it will give me some more leeway to travel again.

Andrew: We’ve talked about a lot of travel within Costa Rica. You’ve been all throughout the US. You did a six-week RV trip of the West Coast, which I thought was really cool, and it’s sounds like a lot of that time it hasn’t necessarily been unplugged. It’s been hopefully productive time where you’ve been getting stuff done on the road. Any tips for doing that? For me a lot of times it’s easier to be either in travel mode or in work mode. Any suggestions or recommendations on how you can effectively work from the road really well?

Michael: Yeah. I definitely have a lot of experience with this especially with the RV trip. One thing the RV trip taught me is that the infrastructure in this country is pretty awful compared to other parts of the world. Obviously there are places that are way worse. I was incredibly surprised as we were travelling up the Pacific Coast Highway that fairly large towns in Northern California would have no cell phone service at all. You have to drive 20 minutes just to go make a phone call or if you did have service, you’d be on 3G trying to get on the internet with 3G and it was tough. So my biggest tip would basically be if you plan on travelling and are planning on getting work done while you’re travelling, which is definitely a really cool lifestyle and I enjoy that, I would recommend spending as much time in larger cities as much as possible so you have the infrastructure, the connectivity to get stuff done. If you travel to major cities in the US or across Europe or even South America etc., just being in the city quarters with the hard wired or wireless internet connection that’s hardwired somewhere in that building is a lot better than trying to live your life off of a hot spot.

The Pros of Owning High-End Domains

Andrew: I’d love to talk to you about domains because you have a ton of experience investing in premium keyword domains then building them out into income-producing properties. It’s something that I have a little bit of experience with on a much smaller scale, but off the top, what is it you like about them? You own treadmill.com, I believe cuttingboard.com, a bunch of others, why exact match domains like this? I know in the past Google used to favor them quite a bit but it seems like two or three years ago they changed their rules. They maybe still have a little bit of SEO benefit to them but not as much and sometimes they can be harder to brand in terms of people remembering your company and your name. So what is it that you love about those high-end domains for building out e-commerce companies?

Michael: That’s actually a good question and my thought process has certainly evolved on this for the past decade for sure. The thing that initially turned me on to them was the SEO power that they had and I didn’t really care about building a brand as much five years ago when I was just in the affiliate marketing game and the search engine game thinking, “Okay, well someone’s going to type in xyz into Google and I just want them to click through my link and make money doing that.” So it was great while it lasted and certainly Google has done their best to push affiliate sites down the search results pages as much as they can, but in this day and age I do agree that there’s definitely some value lost in keyword domains, no doubt about that. But I think that what Matt Cutts has said and what Google has done and people haven’t read between the lines I think enough here, is that basically the spammy keyword domains have lost all their value. If you have something like best-cutting-boards.net I think that domain is basically worthless now. But I would argue that cuttingboard.com is still quite valuable. I think it’s a decent brand name, I think that it’s still is good in search. So when someone types in ‘cuttingboard’ it’s something that we rank first page for and we’ve done relatively little SEO efforts to get there. Everything is completely white hat, ultra-organic, we just haven’t got in a tremendous amount of links. I know from being in the SEO industry for ten years that if we had just some random brand name.com and we were selling cuttingboards and then we would not be ranking where we are at with a random name. So I disagree a little bit that keyword domains have lost their value. I think that the ultra-premium keyword domains like treadmill.com or cuttingboard.com still carry a lot of weight and I agree they’re not quite as brandable per se as some of the more clever brand names. But I still think they’re brandable nonetheless.

Andrew: How do you acquire them without paying through the nose for them? I think anyone who has been in the domain industry tried to buy anywhere from a medium to a decently valued domain knows that sometimes sellers can be just outrageous with what they want. So how do you get good deals on domains? Is it where you look for them? Is it approaching people at the right time? How do you get them without losing your shirt?

Michael: That’s a great question and actually something I can probably go some pretty decent advice to. And of course it’s all relative. It’s in the eye of the beholder what they’re worth and what a good deal is. There’s definitely some subjectiveness there to that but I definitely have contacted people about domains before and gotten silly numbers back like, “I want $10 million for this,” or whatever. My first tip would be you can’t be married to a particular name and that’s something people ask, “How did you come up with Treadmill, or Cuttingboards and Icewraps?” these obvious disparate products. And the answer really is that we’re interested in anything that I have some level of interest in, that is a keyword domain, but I’m not married to any one domain and I’m looking for the deal. So in the case of treadmill.com, we know a lot of brokers. We bought and sold a lot of domain names and we’re on a lot of lists and know them personally. So when a deal comes up, they know that we’re not retail buyers or whatever they contact us. So I think that that’s probably tip number one, is to be looking for somebody who’s a motivated seller. And tip number two would be to just be patient. Treadmill.com was a name that we were actually looking at for multiple years but the guy was looking for $250,000 for the domain when we first got in touch with him and we ultimately ended up buying it for $81,500 which obviously is still a lot of money but significantly less than what they were originally asking for it. In the case of cutting board I think we bought it for something like $12,000 and icewraps.com was an existing site so it was a little bit different situation. It had existing sales and stuff so I think that just being patient and waiting things out definitely helps. My third tip would be to try to do stuff towards the end of the year. A lot of domain owners are looking to make sales around the end of the year for tax purposes and the vast majority of the domain names as it kind of works out we picked up in the month of December.

Andrew: Really? So someone would want to sell and have a huge amount of income at the end of the year?

Michael: I think that it’s just tax planning. It’s hard to say exactly what it is. Maybe they have other losses that they’re trying to write off against for the year or maybe it’s a situation of they know that they’re going to be in a higher tax bracket the following year. Maybe they need to make the sale just to pay for taxes. I don’t really know why it works out that way. I do know that in 2012, I think it was, there was a tax code change for long-term capital gains and the tax rate that was applicable there. So there was a huge advantage of selling before the end of that calendar year and that’s when we picked up a lot of domains. It’s been a while and it’s hard to keep track, I’m not a tax attorney or anything, but I do remember capital gains getting different treatment. And it might have actually been more like 2013 or 2014 that that change actually went into effect but there was definitely some tax code changes that precipitated us getting some deals at the end of that particular year.

Negotiating Domain Prices

Andrew: Got you. And you mentioned originally that treadmill.com, the seller wanted $250,000 and you got it for $81,000. How did you do that? Was that just an issue of sticking around, pinging him once a month, just not going anywhere, no one else came in and just over time you just stuck around and stuck around and made sure he knew you were there and you said, “Hey, here’s what we’re willing to pay. We’ll pay $81,000 for it.” How did you get from $250,000 to $81,000?

Michael: When we originally contacted him, because we at one point we actually contracted to write a crawler, we were looking for keyword domains that had some rankings and fit some particular criteria. It was an internal tool that we used for ourselves and we ended up contacting a bunch of domain owners at that time and treadmill.com happened to be one of them just randomly. The guy came back and was like, “We want $250,000 for it,” and we just knew that was way too much and eventually, like a year or even more later a broker contacted me about it and was like, “That’s a name I’ve inquired about before,” and I looked at my old emails and found it and at this point his price had gone down significantly and we were like, “Basically we were looking to pay $75,000 for it and so we came up a little bit from that price. But yeah, it’s mostly just waiting around. It’s something that comes with age and maturity. Basically I’ve realized a) how difficult it is to resell these domain names because it’s not a liquid market. Even if you get a really great deal on it, domains are not liquid. So you got to be patient and you know that you’re buying it for the long term. And also always realizing that there’s going to be another train that pulls into the station. It’s something that again that just comes with maturity and just realizing that if someone else ends up buying treadmill.com, so be it. There’ll be some other project that I can invest that money in and work on and realizing that we have a finite amount of money but there’s basically an almost unlimited amount of domain name opportunities that come up, just being patient from that perspective.

Andrew: How do you know that it’s worth paying $75,000 for treadmill.com? Do you have a pretty straight forward process where you look at the keyword search volume, you make assumptions about what you think, what kind of e-commerce business in terms of revenue and profitability go into there? Do you look at age of the domain? What goes into saying, “Hey man, we’re willing to pay the better part of $100,000 for this thing?”

Michael: This was going to eventually lead into a big segue, probably a cool segue of the conversation, but I’ll get to that in just a second. But fundamentally you look at search volume. That’s obviously a huge part of it and then you look at cost per click and the data that the Google keyword tool or now the Google keyword planner spits out at you. You know there’s this many exact match searches, there is this many broad searches and this is what the cost per click is and we have a spreadsheet that we put together internally that maps that out. At the time that we were looking at treadmill.com we saw that it got a huge search volume and the costs per clicks were huge. It was I think in the $4 to $5 range. The thought process basically was we’ll buy treadmill.com and turn it into an e-commerce site, it will be easy. And this was the segue and it was, this is embarrassing to admit here on the podcast, but I think just some little bit of cockiness and doing affiliate marketing in the past and never really being told no, it was a real eye-opener. After we bought treadmill.com and we started approaching vendors and they were like, “Oh, well we’re not going to sell to e-commerce stores. We only deal with brick and motor stores.” So it was definitely an eye-opener and definitely a lesson learned there where we should have done a lot more research on the marketplace before diving two feet into a segment and it’s something that we’ve gotten a lot better at now as we evaluate the e-commerce names, we talk to all the vendors involved and make sure that they’re interested in selling to us and think about other things. Here’s where the seque comes in with treadmill.com the thing that we learned about it is we’re not real huge fans of drop shipping and we’re definitely not fans of selling things that have to go by truck, by LTL – Less Than Truckloads shipments, a huge eye-opener and I’m definitely happy that we’ve now sold treadmill.com and we can focus on other projects.

Selling a Premium Domain

Andrew: There’s an entire thread in the private forums about LTL and some of the nightmare stories behind it and how to use it properly and prep customers that only kept to that in the show notes for this. But it’s funny I was reading through your blog, and you’ve got a couple of great blogs one of them michaeljackness.com and the other one over at ecomcrew.com and again we’ll link up to both of those as well. It was funny when you were talking about treadmill.com because so many of the things that you had problems with were problems that we had with trollingmotors.net specifically shipping enormous items. Trolling motors aren’t quite as big as treadmills but they’re in the ball park. Things and models that change a lot, just completely having no control over the shipping process for big, bulky items that break a lot of times, there’s all these things that we both looked at that gave me deja vu and you sold it eventually. Is that one of the reasons that you ended up selling the store?

Michael: Yeah, that was the reason we sold it. I’m kind of OCD about providing great customer service and just being in control of my business and with treadmill.com we had no control and because I couldn’t provide good customer service it was basically awful. It got to the point where I woke up every morning and didn’t enjoy going to work at my own company, which is not a great situation to be in. It was definitely a huge sense of relief when we sold it. I definitely think it’s a great industry for the right person. It just isn’t for us. I mean for somebody that isn’t as obsessive about customer service and things of that nature, and there certainly are some extremely successful e-commerce fitness equipment stores out there. But if you read the reviews on most of them, they are all two stars or two and a half stars kind of thing where people are just frustrated with the company. And if you’re the type of person that can run a business like that, where you’re not necessarily ripping people off or screwing them but you’re not able to provide that Nordstrom’s level of service. If you can be somewhere in-between and be okay with that, yeah it can be a great business for you. But that just isn’t my personality.

Getting a Premium 4x Sales Multiple

Andrew: Yeah, and you mentioned on your blog you sold it for 4x sellers’ discretionary earnings which for e-commerce businesses is fantastic. Two and a half to three is a decent multiple. How were you able to get such a good price for it?

Michael: Full disclosure here, I think a lot of the reason why is because we just didn’t have huge profits. We had huge top revenues which is great if you have an ego, which I don’t. I just need to say we ran a million dollar e-commerce store but I really don’t care about that. What I care about is putting food on the table and at the end of the day the bottom line was pretty pathetic when you take into account the fact that we were dealing with very low profit margin items and we were trying to provide that really high-level of customer service, you can’t have both. You can’t have thin profit margins and provide great customer service and take all of your own product photos and do all your own product videos and descriptions and still make a good net profit margin at the end of the day.

Andrew: Were you in the 10% or 15% range for gross margin?

Michael: Yeah, I was right about 13.5%, which is really pretty pathetic in my opinion. Things that we are looking at now as far as gross profit goes-, and that was gross profit was 13.5%. That was before taking any expenses. Now we’re looking at, I won’t even discuss the products unless we’re at 40 points and really want to be at more like 50, and as we continue to evolve our business and are looking at white label products, we’re really looking at 200% to 300% as a minimum margin. As I move forward, just realizing that it’s all about margin, and shifting more that way but just getting a little off topic obviously on the treadmill sale. The reason I was able to get 4x is because there was a cross between selling goodwill and the domain name and the process in which we did the transition for the people allowed us to get some additional money that probably wouldn’t have otherwise been there. The buyer of the site, it was his first e-commerce site, and he felt comfortable with us because of the type of people that we are and knew that we were going to be there for them. It’s one of the things that I feel really proud if. On the last day…we had a 30-day transition period and the guy just couldn’t have been more complimentary and even went as far as to reach back out to the broker who brokered the transaction for us and just tell them what kind of people that we were. That stuff makes me feel good at the end of the day. It makes me feel like we did the right thing and that’s why we were able to get a little bit higher price because he was buying an existing business that was really polished. It would have been pretty difficult for him to start that from scratch and do that on his own. I think that that helped command a little bit extra money. But the 4x is a little bit of a fuzzy number, an unfair thing because it wasn’t like it was a store making millions of dollars a month that we sold 4x.

Andrew: Even still if you’re not making crazy margins 4x- some would argue that you’d even see a lower multiple then your margins aren’t as high. I think it’s fantastic that you were able to get that. How’d the process go? It seemed like you, and again I’m just taking some really rough cues from what I read on your blog, but it seemed from offer to closing was very quickly like maybe a month, month and a half? It went really fast. Was it a pretty smooth closing? Was there anything you learned throughout it or big mistakes you made in the process of getting that sale closed?

Michael: It was actually incredible that it happened so quickly and it basically we had a couple of people involved in this project, business partners. My partner Grant, who I do a lot of stuff with, I’ve known him for ten years, another partner of mine in Chicago that we did this one off e-commerce site with because he’d been looking to do something with us for a long time and it was an evolution for each of us of when we were fed up with all those things I mentioned previously. At the end of December we were like, “I think we’re all ready to get out of this business. This isn’t for us. We can be spending our time on other things and making more money with our time,” is really what it came down to. At that point we reached out to people in the business. We reached out to all the manufacturers and we reached out to all of our direct competitors and some affiliates that we had and from that we got some level of interest and actually got a legitimate offer from one of them. It was a little bit lower than we wanted but we got an offer from one of our direct competitors. We told the guy, “It’s not quite what we want so we’re going to shop just a little bit longer. Is that okay with you?” and he was fine with that. At that point I went to some broker friends that I have just because, again we’ve bought and sold on domain names and this is where those relationships really helped. One of the brokers said, “Look, I’m looking for existing e-commerce sites that make a profit,” which we were, “I know some people. Let me get back to you.” Literally the next day, he came back to me with this guy and he knew what basically the situation was, what our offer was from the other party. I was like, “Look, you got to be able to beat that including your commission for us to consider it.” And he came back with an offer that was something like 35% or whatever higher than the offer we got from our direct competitor and he closed amazingly fast. The guy actually wanted to close quicker than we did. It was mid-January and he was like, “I can close at the end of the week.” I was like, “I think that we should close on February first just to use a round accounting period and everything and have time to do some transition.” I don’t think that he quite understood that you had to update credit card processing and get accounts created with all the different vendors, and all these different things that I think he took for granted. It happened amazingly quick. It was crazy actually but great obviously, we just got lucky.

Andrew: That’s crazy. This is the first e-commerce business that you founded and you sold it obviously. Was there any emotions involved there with letting that initial baby go or were you so fed up with the model at that point you said. “You know what, I’m glad to move on to other things.”

Michael: It was both. I was definitely a bit sad because we’d put so much effort into it and I was the one that was basically involved with it on a day-to-day basis and anything that I do I get really emotionally invested in it, probably more than I should. So it was definitely sad to see it go because I obviously- when we bought it and started working on it we had high hopes for it and it was definitely sad but then at the same time I was incredibly relieved because it was just so stressful dealing with that business model that we talked about, especially the LTL drop shipping type model. You mentioned earlier there was a thread in the forum about how to be successful with LTL and I want to go find that thread and make a post that the way to be successful with LTL is to sell your business because LTL [inaudible 29:04].

Andrew: I’ll ping you on it. As soon as we get off the call I’ll ping you on it. I’d love to see that addition. Michael, I think that’s an awesome place to end. Thanks first for coming on, it’s been a pleasure having you in the forum. I’m looking forward to connecting with you in Chicago here in a couple of months and its great dive into your experience.

Michael: Definitely, thanks Andrew.

Andrew: That’s going to do it for this week but if you’re interested in launching your own e-commerce store, download my free 55 page eBook on niche selection and getting started. And if you’re a bit more experienced, look into the eCommerceFuel private forum. It’s a vetted community for store owners with at least 4,000 of monthly sales or industry professionals with at least a year or more experience in the e-commerce space. You can learn more about both the eBook and the forum at eCommerceFuel.com. Thanks so much for listening, and I’m looking forward to seeing you again next Friday.

What Was Mentioned

Photo: Courtesy of Michael Jackness

Post tagged in: Operations, Podcast, Starting a New Store

1 Comment

  1. Very interesting article, this goes into some of the tactics that I mention to clients. Enjoyed the podcast and subscribing now to listen regularly.