The Quality of Your Domains

This is one of the most difficult topics to cover and it’s easy for a domain investor to throw their hands up in the air and say, “It depends on the buyer.” Although this is a true statement, it is sometimes used as an excuse for lazy thinking. Let’s begin to unpack this most difficult of topics.

For a start, everyone will have different opinions on pricing and much of it will be tainted by their own experience. Selling a domain for a lot of money doesn’t make you a genius, it just means you’ve sold a domain. What makes you smart is if you’ve had a deliberate strategy for the sales of your domains and that strategy is unfolding in a successful outcome.

A fundamental error that many domain investors do is look at their portfolio of a thousand domains and multiply it by an average sales price of $1500 per domain. They then congratulate themselves on owning a $1.5 million-dollar asset. If this was true, then what would stop you from buying 9,000 more domains so your portfolio is now worth $15m?

The reality is that unless you have a very unusual portfolio, 90% of the domains aren’t getting any offers. If you look at your offer stream over the past 10 years (assuming you’ve been around that long) then you’ll probably discover that number is pretty close. This of course, depends on the quality of your domains…..more on this later.

So are the 90% worthless? Ask yourself this question. If I have a shack that’s falling apart on the edge of a crumbling cliff in the middle of the desert. How much is it worth? At some stage, I’ll pay someone to take it off my hands so you don’t have do to any maintenance!

The second question you need to ask is, “Do you feel lucky?” If you answer “yes” then keep the shack and pray that someone comes along and puts an offer in to buy it. If this miracle happens, then grab it with both hands. Don’t negotiate…..just sell the shack!

Many domains are like this. They are ramshackle shacks in the middle of nowhere that no one wants to buy.....I hat to say it but just drop these domains. The market has spoken and no one is making offers.

Here's the trap many investors fall into. Logically, a domain renewal fee of $10 per year is small compared to the potential windfall of selling it for $1500. You can convince yourself that even if you waited 150 years you would still be profitable. What’s the problem with this perception?

The problem is that having one domain dramatically reduces the likelihood of a sale. It’s like buying a single ticket to the lottery and you have a very small chance of winning. You can double your chances simply by buying another ticket…..but you also double your ticket expenses.

If we were to apply this to domains, then having two domains means you’ve just dropped your “time for a sale” to remain profitable from 150 to 75 years. At 3 domains, your number drops to 50 years and at 100 domains the figure is now 1.5 years. If you have 1,000 domains, you need to sell a domain every 55 days just to remain profitable.

So far I’ve been talking about average figures but let’s take this a step further with applying the thinking to the quality of a stock domain portfolio (ie. All domains selling at $1500). The below bell curve shows that for a portfolio of 1,000 domains those with higher quality will experience a sales events on average less than 55 days and those of lower quality will have much longer sales cycles.

The more or less domains you have will simply alter the position and value of the average point. What’s interesting about this curve that it potentially shows you the quality of your own portfolio. I should also mention the underlying assumption is that a portfolio is high quality if it is profitable.

If you are sitting with 1,000 domains and you have a sale a few times per year then my advice is to start dropping domains immediately. You’re effectively subsidizing your business every year as you reach into your pocket to pay the renewal fees. You're on the wrong side of the curve....

There’s another curve that needs examination and has a lot to do with supply and demand. More on that in another article.