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.
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