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Categorized | Domaining Tips

High Returns vs. High Inventory Turnover

Posted on 06 March 2014 by Andrei

A lot of people are excited about the fact that when selling to end users, the returns are often *very* high. A lot of people frequently turn registration fee purchases into let’s say 4 figure sales, so again, the returns can be impressive.

But (unfortunately, there’s a “but” involved) if we also analyze the inventory turnover variable, things become a bit tricky. To illustrate why, I’ll resort to an over-simplified example.

Let’s assume you purchase a domain at a $10 registration fee and end up selling it for a 100x return 5 years later.

In other words, you invested $10 and made back $1,000.

Great.

Now let’s assume someone else has an entirely different business model. He buys a product for $10 and sells it for $12 but instead of only selling after 5 years, he makes one such sale each day.

Buying for $10 and selling at $12 may not seem as exciting as buying for $10 and selling for $1,000 but let’s see how much money the second person would make after 5 years.

He basically makes $2 per day, in other words $730 per year (since this is an over-simplification, we’ll leave the leap year factor aside).

The grand total:

$730*5 = $3,650

As can be seen, the person who buys for $10 and sells at $12 once/day makes considerably more than the person who buys for $10 and sells at $1,000 after 5 years.

Now of course, both approaches have advantages and disadvantages.

For example, maybe the most important advantage of the first approach is the fact that there’s considerably less effort involved. I understand that and this post doesn’t represent an attempt to discredit the approach in question, not at all.

My main and actually only goal was giving you guys something to think about and I hope I managed to help you understand that a superficial analysis of a business model may paint a picture that’s far more “glamorous” than reality :)

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1 Comments For This Post

  1. Savio DSilva Says:

    Me and several other domainers have been using the “buy low sell low” strategy and have been reasonably successful. Yes, $2 is a bit low for me. We normally hand register domains at discounter prices ($4 or less) and sell them off between $10 to $40. I guess this works pretty well for guys like me since I have sold over 2000 domains in less than 3 years using more or less this strategy. And by the way, I have made a few big sales along the way as well. Both approaches work but I’d go for the “buy low sell low” one anytime. I am not a full time domainer. Don’t aspire to be one either. I believe that living a simple life with less work and more relaxation is the key.

 
 
         
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