In a previous article I discussed the topic of what a domain is actually worth and suggested that the great majority are actually worthless. So the questions that needs to be asked is why and how can we price domains effectively to maximise their sale potential.

So let’s open up the stock item sales model of domains. This is where you have a lot of keyword related domains and are wanting to sell 1% of them each year for some average amount. This business model was first pioneered by Fabulous (remember them?) and Buy domains (now owned by Godaddy).

We’re going to use a really simple case study to help us understand how to price domains using this model. Let’s imagine I have a 1,000 domains that cost me $10/year to register. My cost is going to be $10,000 per year (ignoring my time for now).

If I want to make 100% return on my investment, then I will need to do $20,000 in revenue for the year. If I think I can sell 1% of the domains each year (ie. 10 domains) then what is my domain sale price? Pretty simple, it’s $20,000 divided by 10 domains which is $2,000 per domain.

Since stock item domains typically sell for $1,000 each then it looks like my price of $2,000 is a little aggressive. It just so happens that in order to satisfy the price point of $1,000 I will then need to do a 2% stock turn or sell 20 domains per year.

My guess is that the great majority of people don’t sell anything like 2% of their domains each year so this is going to be a challenge. Two other costs needed to be added into the equation. The first is stock replenishment and the second is the value of your time. If you decided to spend an average of 1 hour per night working on your domain business (ie. your part-time) and charge out your time at $100 per hour then you will need to add in a cost of $36,500.

The reality is I don’t know any part-time domain investor that actually incorporates their charge-out rate into their business. This means they are really running a hobby more than a business…..which is fine as long as they realise this.

In terms of replenishing stock….let’s imagine that there are enough domains to hand register so they only cost you $10 each. Fingers crossed on this one J

If you take into account all of these costs, then selling 2% of your portfolio per year will mean that you need to sell 20 domains at an average price of $4,670 per domain. To get the price per domain around the $1,000 mark you need to sell 10% of your portfolio per year and around 8-9 domains per month. Good luck with that!

Here’s the mistake that many domain investors do. They sell one domain for $1,000, attribute a cost of $10 to the domain and then cheer because they made 10,000% on their money. For that domain they did but across their portfolio their more than likely losing a bundle.

So what is it that we all believe will happen to get across the economic irrationality of our situation. The first is that our time is free and the second is that we will sell a domain for not $1,000 but for $1,000,000. The domains become like buying lottery tickets and if only just one of them comes off we can be financially free!

So when an offer of $1,000 is received some investors convince themselves that maybe, just maybe this is the potential buyer that is going to save our bacon. So they respond to the offer with something ludicrous. Remember these are stock-item domains not premium domains. The goal here is to increase the speed of sales, NOT to sell for a crazy price. Nine times out of ten the sale is lost due to the outrageous response.

So far everything sounds a little depressing…..but don’t worry, there is light at the end of the tunnel. This article and the preceding one laid out the situation for the majority of domain investors. The next article in this series is going to throw out just about everything I’ve said in the last two as it unpacks what is happening at a domain economic level. It will cover additional thoughts on pricing, supply and more importantly demand.

I was asked in a forum what I mean by stock-turn domains. These domains are typically multi-keyword names that have a price tag of around $1,000. Like a supermarket selling low-margin goods, the aim the domain investor is to increase the number of domains they sell each year. So what are some things you can do to increase the number of sales of stock-turn domains?

There are some really basic things you can do. For a start, make sure that you have correct whois information with your contact details. Lots of buyers use this information to contact sellers and you can end up having a lot of very frustrated buyers out there if your details are incorrect or out of date (ignoring the fact that ICANN requires correct information).

There are two main markets where you can sell your domains. The first is the wholesale market where you are selling to other domain investors. You’re not going to get the best prices in the world here as they need to make a margin when they onsell the domain to an end user. The advantage of the wholesale market is you typically don’t have to educate it on the value and importance of a domain name.

The retail or end-user market is a little different and I would suggest that you have a selection of stock-item domains in a number of discreet market verticals. This will then allow you to target prospective buyers and potentially upsell them into higher value domains.

Many people sit around and wait for inbound calls to magically come in from red-hot buyers. Since I’m a little impatient I’m not going to do this…..so it’s time to throw some mud at the wall and see what sticks. The first thing I do is map out a typical call that I’m about to make that will help me to glean information or even possibly sell my domain.

This may be a little scary to some people but I pick up the phone and call perspective buyers in a market vertical. Let’s face it, the worst they can do to you is hang up…..so relax and enjoy meeting a few new people. You’ll be amazed at the responses and in the process you’ll either learn a lot about the true value of your domains or amazingly even make a sale.

I’ve found that if you carefully map out your call then you will dramatically increase the chances of selling the domain. If you just pick up the phone and call then don’t be surprised at the negative reaction.

If you have domains in a market vertical, then it may be worthwhile reaching out to the blogging community in that vertical and educate them on the value proposition of a good domain. You may even consider throwing a few sponsorship dollars at some of the more popular blogs. Remember that you’re selling a $1,000 item so don’t get too carried away.

Generally speaking, think of all of the places where your target market will be and think of creative ways to be there as well. For example, if it’s forums, then participate (don’t just spam). Get involved in your target market’s community and with any luck you’ll make a few sales and contacts along the way.

Waiting for inbound enquiries is one thing but flipping the business model and really thinking about generating interest in your products is quite another. Just like a grocer, you are selling products. I’m amazed at the number of domain investors that do no outbound marketing effort and not surprisingly they don’t sell a thing.

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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.

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.

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.