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Domain Sales Needs a Revolution

20180817_revolution

Out of all of the different domain investment business models I find myself still a little stumped by some of the actions who invest for domain sales. I understand traffic monetisation and development makes sense but sales is one where I scratch my head…..

Escrow.com

I know there are people that make money from domain sales, but it almost seems like a lottery where a domain name is the ticket. The only way to win is to keep on increasing the number of tickets you have in the draw. Inevitably the law of diminishing returns comes into play and a pile of domains are dropped as they were obviously the wrong tickets…..sigh.

Being a numbers guy, I wanted to dig into what was going on in this part of the industry so the first thing I did was make some back of the envelope calculations in Excel. I’ve often commented that Excel is the best computer game on the market….it allows you to model just about anything and then time travel into what would happen in the future. Awesome!

I should say at the outset that I’m looking at the domains that fall into the stock-turn category. So those of you that have the premium top of the line domains should block their eyes at about now….actually, keep them open them for the next couple of paragraphs.

Premium domains….are an interesting concept. You speak to most domain investors and they’ll tell you about their awesome list of domains and like a guy selling you watches down a dark alley they’ll ask you if you want to buy one.

I’m going to be really controversial at this point and speak in a generalisation. When you look at your portfolio you'll find that 10% is worth monetising for the traffic, 10% is worth keeping for sales and the rest should be dropped. I know you have a great story about how you acquired that DOT horse domain but for heaven’s sake, just bite the bullet and drop it.

Of the 10% of domains that have some sales potential (possibly base this on those domains that receive enquiries) you are now looking for the magic percentage of these domains you will sell each year. With a bit of the Excel wizardry I mentioned early you end up with a simple chart like the one below.

Stock turn

I should mention a few of my assumptions. $10 for domain renewals, $100 per hour for your time and it takes 2 hours on average to complete a sale. Yes, you can argue around the edges and some people still have the silly notion that their time is worth $0 as, "What else would they be doing?" Go figure?

What this chart suggests is if you can do a 1% stock-turn per year then you will have a ROI of around 40%. I’ve heard that the major industry players sit around a 1.5% stock-turn….not sure if that is accurate information though. What the chart also captures is the concept of buyer perceived quality.

For example, if you’ve curated your portfolio really well then you will have more enquiries and ultimately a higher stock-turn. On the other hand, if you’ve done a bad job then your stock-turn could spiral your business into a negative ROI.

What the chart also indicates is whether you have a good or bad portfolio compared to the industry average. Are you doing more or less than a 1.5% stock-turn?

Now there are a whole lot of other factors that come into play with increasing or decreasing the stock-turn level. For example, let’s imagine you never returned any emails from enquiries (some domainers do this BTW) then your stock-turn would be much lower compared to someone who hustled every lead.

As is often the case, domain investors make their money on the buy, not the sell. This is a sage warning for all those people wanting to jump into buying lots of new gTLDs….they will be a LONG term play at best and it will mean you are carrying a lot of non-performing inventory for an extended period of time. This may force your stock-turn into the negative ROI region.

I'm going to continuing pondering the domain sales business model and I'm sure to do a few more blogs on it. Let me know your own experiences in selling domains.

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Comments

Guest - Snoopy on 20 August 2018

Michael, where is the ROI calculation coming from? The post doesn't seem to say anything about the price the domain was sold for.

Michael, where is the ROI calculation coming from? The post doesn't seem to say anything about the price the domain was sold for.
mgilmour on 22 August 2018

My apologies.....forgot that figure! Since they are stock item domains they sales prices is between $1600-$2000. BTW - love to have a chat if you have some time. Ping me the best way to contact you.

My apologies.....forgot that figure! Since they are stock item domains they sales prices is between $1600-$2000. BTW - love to have a chat if you have some time. Ping me the best way to contact you.
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