I thought that I’d take a break from the series on “Building a Business” and examine what underpins the domain sales market. There are a huge number of domain investors that have bought into the market purely to sell their assets onwards…..so is this a sensible thing to do?

In my investigation into the domain sales space I thought I’d first of all outline the two fundamental domain sales business models.

Domains as Stock Items

Stock item domains are those that sell for sub $2,500 and represent around 87% of domain sales by volume. The goal here is to move greater numbers of domains and NOT necessarily increase the sales price. The business focus is therefore to increase the stock-turn from 0.3% to say 0.6% of your domains per year….it’s all about speed and automation of transactions.

Think of these domains as the fast food end of the industry….so many people make the mistake of trying to sell their burgers at high end French restaurant prices. Not surprisingly they don't make any sales.

This business model is the bread and butter for companies like Afternic and Sedo who have done whatever they can to get wholesale domains exposed to potential buyers. You really need to have your domains listed in both these major marketplaces if you are to maximise your ROI for this business model. There are other markets but they are substantially smaller.

High Value Domain Sales

High value domains are typically single word .com or prominent ccTLDs (eg. .de, co.uk). There have been a few new gTLD sales for high value and this will increase as adoption of the new gTLDs become more widely accepted.

It should be noted that only about 1% of domain sales are over $50,000 in size. So the next time you try and push a buyer up over this amount you’re really in the stratosphere as far as typical domain sales are concerned.

So who wins in the domain sales market? The registries, registrars and governing bodies all get their fees when domains are renewed or first registered. The marketplaces take a commission on each sale and the buyer secures their long-lost domain. The seller…..well in some cases they win but not always.

Back in 2013 Sedo produced a wonderful infographic that outlined Sedo domain name sales and the fact that they conducted $70.5m for 37,241 domains. This provided an average $1893 per sale and a median of $577.

So why am I reviewing this bit of history? Let’s imagine Sedo did around $100m in 2016 and I think I’m pretty safe guessing they are about 33% of the market. Afternic is the other 33% with everyone else (private sales included) are the remaining third. This means the total domain sales aftermarket industry is around $300m per year. This is not big by global standards.

What’s interesting is that it also means that around 100,000 domains are sold each year in the aftermarket. Given there are approximately 340 million domains registered in the world these sales represent about 0.03% of the total domain market.

If all of the averages play out and you have a portfolio of 1,000 domains, then you should hope to sell 0.31 domains per year at an average price of $1893. This means your average revenue line will be $584 per year. Assuming an expense line of $10,000 for your renewals you are a long way short of the mark.

To have a profitable business you need to believe that your domains are 17.12 times higher quality than the average in the world. I calculated this by taking the direct costs of $10,000 and dividing it by the expected average revenue line of $584 for the year. This of course assumes domains are re-registered each year due to economically rational reasons…..which is not always the case.

If you sold $5,000 last year then your domains are only half as good as the average in terms of quality. On the other hand, if you sold $20,000 then your domains are on average twice as high quality than the average. There are a lot of questions in here such as, did you sell one domain at $20,000 and received no offers on any others……but let’s stick with the averages for now.

I should also state up front that I’m ignoring the cost of your time. Sadly, most people ignore this cost and continue to run their businesses more like a hobby.

So why do domain investors hold onto their stock? I’ve concluded that many people approach domains as something on the side which they hope will blossom into a lottery sized windfall one day.

It’s so easy to read about huge domain sales and hope that if you just hold on a little longer than it will happen to you. Hope is a very dangerous thing if  you've just mortgaged your house to take “advantage” of the domain opportunity.

So why am I laying out these numbers? Have I decided to become a cosmic killjoy and rain on everyone’s parade? No….but I hope to bring a dose of reality. Domain sales is a really tough game and if you are new to this industry then don’t expect to make an instant killing.

If you’ve been sitting with a portfolio of domains and wondering why you can’t make ends meet, then just do the maths. I hate to say it but the market has valued your domains and most of them should be dropped. Why renew something for the last ten years if you’ve never received an offer?

What the larger portfolio owners believe is their expertise combined with scale will allow them to become profitable. Along the way, they also get other income streams from their domains (eg. revenue from traffic) that help cover some of the renewal fees. Even still, many of the more skilled industry players have been reducing the size of their portfolio to remain profitable.

Ultimately, the question that every portfolio owner needs to answer is whether they are 17.12 times smarter than the average domain purchaser. By the way…..as I’ve outlined above, this is one of those cases where you can actually measure how good you are.

If you come up short, then think about getting a mentor who has a lot more experience in the industry than you do. It could be the best investment you’ve ever made and either save or make you a lot of money.

In the last article in this series I began to unpack the importance of the demand curve for accurately pricing domain names. My experience with domain sellers is that most of them price their domains more by gut then attempting to apply a process. In this article I want to move my line of thinking forward to help sellers more accurately price their domains and buyers know if their getting a fair deal.

I should say out the outset that I’m going to keep everything as simple as possible by minimising the number of input data points and mathematics…..but hold onto your shirt as it can still get a little tricky! Remember the goal is to see if we can create a demand curve for a market vertical and then attribute pricing to this curve. So where to start?

We can use the google keyword tool (remember there are a LOT more other data points) to provide us with both quantity and price for an individual keyword. It just so happens that the price is more often than not a reflection of the demand for that keyword due to the Google auction system amongst advertisers. Google also provides a competitive index which is really interesting and bears a lot more thought…..I won’t be applying the index for this analysis.

So I entered a whole lot of “gaming” keywords into the keyword tool and out popped the data that I was after. After a bit of manipulation, I was able to produce the following chart (price is the vertical axis and quantity the horizontal). I really haven’t added a huge number of data points but it provides a reasonable picture of demand for the gaming market vertical.

The next thing I add is a power series trend line (blue dashed line) which I can then use to approximate the demand curve for gaming traffic. It just so happens that Excel has a great feature that allows you to display the formula of the trend line on the page. In this case it’s 40.053X^-0.0537. For those of you that have forgotten your maths, this is 40.053 times by an X-value raised to the power -0.537. Basically it’s the formula for a nice curve.

After some more complicated mathematics using some integral calculus I was able to determine the area under the blue line. Why is this important? What we do know is the average domain name sells for $1,000, therefore the mid-demand point should reflect this valuation. It just so happens that the mid-point is at (1510,0.786). I’ve highlighted this on the graph below.

So what do we now know? Right up the top of the demand curve are the generic category killer domains and rightly, this is where the curve asymptotes into the stratosphere for pricing. For instance, games.com is worth a LOT of money and this is where this domain would reside on our chart.

At the far right hand end of the blue curve we have a rapid drop off in demand. Any keyword domains that find themselves out this end of the spectrum should be dropped. This is where domains such as reallyawesomegames.com belong…..just drop these ones or at the very least put them up for sale at just above registration fee.

By using the Google keyword tool I can now type in any of my domain names to get the suggested price for that keyword. I can then plot the price on the demand curve and determine whether the domain is above or below the $1,000 point.

Now here’s where it gets tricky. What we don’t know is whether the pricing scale on the right is linear, logarithmic or some other scale all together. My intuition suggests that this scale must relate somehow to the size of the market and the overall demand for the individual domain we are trying to price. I need to think about this a little more.

So what can we now do? We can generate a demand curve for any market vertical, plot the mid-point to work out whether our domain should be priced above or below $1,000. We should also be able to view those domains that are category killers and those that should be dropped. It’s a start in the analytical process…..and hopefully I can refine this further.

As I said in my previous article, I really value feedback (good and bad) that provokes additional ideas….so feel free to pitch in with questions and suggestions.

Many domainers need to appreciate that we live in a world where the is massive oversupply of domain names and a steady demand. Sadly, the domains in your portfolio are not immune to this state of affairs.

While on my recent trip around the world I met a domain investor that has several thousand domains and hasn’t sold any in the last few years. It was clear that they were getting a little desperate as the renewal fees kept on coming in each year. My advice was to drop the majority of their domains and take a look at the price of the ones they just can’t part with.

Just think about it for a second. What business model was the domain investor I spoke with applying to his domains? Was it the stock-turn or high value model? He was actually unclear and the result was no sales.

Many domain owners should actually be in the stock turn game where they are trying to sell 1-2% of their portfolio each year at an average price per domain of around $1,000. The problem is they have big prices on their domains and no sales result. They aren’t actually realistic about the pricing of their domains as they fall in love with much of the hype promoted by the “big sales”.

It’s like trying to sell a burger as a $200 five course dinner at a high end restaurant. Despite the burger being a awesome, no one in their right mind is going to pay $200 for one. My advice is stop trying to sell your burger domains at ridiculous prices and get realistic.

Let’s do the maths. If you’ve hand registered a domain at $10 and sell it for $1,000 then the return on the investment is 10,000% which sounds pretty good to me. The challenge is to repeat this over and over again NOT get more for each domain and scare away potential buyers.

If you have your domains priced at around $1,000 and you aren’t getting any enquiries, then you’ve really got to reassess whether they are sellable. You may believe in your heart that the domains are really awesome but the market is telling you something different. Stop listening to your emotions and go with the market…..after all, this is business.

I’m really sorry that I may have upset a few domain investors with this article but the sooner you become realistic about your pricing the better the financial shape you’ll be in. Don’t be fooled, although the massive influx of the new gTLDs haven’t really changed the top-end .com domains they have sorted out the wheat from the chaff with a lot of the others.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

A ParkLogic client is cleaning out over 80 three and four character com/net/org domains! Some of the domains contain repeatable characters like pppp.net and there are a number of three-character dot net and org’s as well.

The domains are priced to sell and we anticipate that they will be snapped up quickly by a buyer. The first buyer to reach out to Chris (see contact details below) and make an acceptable offer will secure the portfolio.

The domains will not be sold piece-meal but rather as a complete group. If you are interested in getting the full list of the domains then don’t hesitate to reach out to Chris Leggatt. He can be reached at “cleggatt at parklogic.com”.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

I was reading a forum recently and another domain investor was asking about how to price and how to buy traffic domain portfolios. It was a really interesting question that caused me to think about how I price my own portfolios and what I look for when seeking to buy.

It should be stated right up front that everyone has a different risk/return appetite. Some people love to live on the edge and push the limits while others prefer to have a more sedate, stable investment profile. Whatever your risk/return ratio I’m sure that you will appreciate the following pointers.

Traffic domains are typically sold on multiples of months of revenue. So if a domain was earning $10 per month from being “parked” (ie. advertising revenue) then you may pay 24 months revenue for this domain. This would make the purchase price $240. Note that this equation inherently takes into consideration the registration cost of the domain for the two years.

The number of months that you pay for a traffic domain is greatly influenced by a number of factors that I will go through in this series. How much you are willing to pay will ultimately depend upon your risk profile. As a benchmark a domain traffic portfolio typically sells for 24 months revenue but like I said this can be dramatically influenced by your risk profile.