All Domainers are equal but some are much more equal than others. Most domainers will never hit the heights of a Rick Schwartz*, Frank Schilling, Mike Mann et al. Most of us fall into the realms of making $1k - $5k profit on a domain sale if we are lucky.
As a broker I regularly ask potential (and existing) clients to "get real" with their pricings. In this post I will explore the flip side to that argument. If you consistently pitch your names low you will never get a good price. I’m not talking about countering $5 million to an inital offer of $50 every chance you get but trying to get what could be considered a reasonable return on a domain name you own. For illustrative purposes I would consider a profit in the $1k to $5k range to be reasonable per sale.
Let’s assume you have an average quality portfolio of say 400 domains none of which contain any domains of obvious value to other domainers (ie 3 letter coms etc) although they have no clear market value these 400 names are still good names including brandable coms / product names etc.
Suppose this portfolio is made up of 100 one word coms and nets (but nothing spectacular) and the other 300 are two word coms. Lets also assume that all 400 are hand regs and none have been bought on the aftermarket, not even via snapnames or namejet. Let’s also suppose that all names have been paid for without using a credit card so that there is no cost (other than inflation) for the initial investment of $3.6 k. Economists amongst you will also say that there is a tangible "opportunity cost"** which put simply means an attempt to factor in the cost to you of investing $3.6 k elsewhere, ie in a stock or by keeping the funds in your bank account and thus receiving interest etc.
Clearly your total registration fees will be the cost of registration (lets assume $9 each) x 400 = $3600
Lets now assume all these domains are parked and that the total annual parking revenue is $300. Already your break even point is down to $3.3 k discounting any "opportunity costs etc"
You might break even in your first year with a few respectable sales or even have a reasonable profit or at best a relatively good profit, but say you don’t what will you do? Of the 400 how many will you renew? Let’s now assume that you renew 100 of these names. Even if you haven’t broken even in your first year you shouldn’t have faired too badly. Unless you can’t spell or you totally suck at picking names.
Of your original 400 the total costs are $3600 (first years reg fees) + $9 x $100 = $900 renewal fees so total costs are now $4500 less your parking revenue for 2 yrs (assume $375 in total, $300 year one for 400 dns and $75 year two for 100 dns) = $4125
So put simply the very worst you can do (assuming you haven’t sold anything in yr1) is begin year two with a deficit of $4125. This would quickly turn into a profit with a sale of one of your names for $5k.
This route is one taken by the vast majority of new domainers. Most don’t start out with a mega budget. Other domainers would say to hell with hand registering speculative names. They would invest their initial $3.6k in a couple of names which have perceived value ie 3 letter nets. The "putting all your eggs in one basket" approach can prove very profitable but it too is high risk as what happens if you buy at the top end of the 3 letter net resellers market and then the market crashes!
Personally I feel that if you are not making money out of domain names there is something seriously wrong. Gone are the days when a chimp randomly typing letters into a domain availability checker could come up with a domain that sells. For obvious reasons people are much more cautious about buying anything that moves. That mentality will return I am sure, but it won’t be for a good few years yet.
thanks for reading,
* Bear in mind that it’s widely accepted that Rick started out in late 1995 with just $1800. Detractors will say that if they could have started over in 95 with that same amount of cash they too would have made millions, but I figure most wouldn’t have, as most wouldn’t have had the nerve. I also do feel strongly that some beginning their domaining career today can become highly successful. I also believe that many so called average domainers, who have been around for years, can break into the big league at any stage. All it takes is either a few lucky breaks and/or some extremely astute buys.
** Opportunity cost is the cost of any activity measured in terms of the best alternative forgone. It is the sacrifice related to the second best choice available to someone who has picked among several mutually exclusive choices. It is a key concept in economics.