Beginners love writing numbers on a piece of paper and calling it a plan, I was guilty of the exact same thing. Making plans about how you’ll buy x domains, then “easily” (oh, how I’ve misused that word over the years!) sell y% each year at an average price of $z and watch that sweet, sweet money come rolling in.
In reality though, only the first third of the plan (you buying x domains) tends to go as expected 🙂
The y% you thought you’d sell each year will most likely prove to be overly optimistic, whereas your average sales price of $z will most likely suffer the same fate.
I’m sure there are exceptions but I’ve noticed that for the most part, beginners tend to make overly optimistic initial plans. And yes, a lot of those plans look great on paper. For example, hand regging 1,000 domains at $9 each and passively selling 4% of them each year at an average sales prices of $1,000. I mean come on, that looks realistic, right? It does and please understand that I’m in no way saying beginners tend to make ridiculous plans such as selling 50% of their inventory passively each year at an average price of $1 gazillion. Not at all!
What I’m saying is that even plans that sound good on paper but aren’t backed by data end up turning into a disaster.
Let’s go back to our scenario.
So you spend $9,000 on 1,000 domains and sell 40 of them (4%) at $1,000 each. Essentially, you invest $9,000 and make $40,000 which sounds awesome.
Awesome? Yes. Realistic? No.
Simply because:
1) while 4% turnover may sound reasonable, the industry average across large portfolio holders is barely half that and realistically speaking, expecting 1% would be more reasonable if you’re a beginner who hand regs
2) An average sales price of $1,000 may even sound low but then you look at data from players like Sedo and realize that about half of all domain sales are under $500! So again, for a beginner who hand regs, perhaps an average sales price of $500 would be more realistic
… so, what ultimately happens?
Well, the year passes and the beginner most likely realizes that my rough estimates are closer to reality than theirs.
What does this mean?
It means that they invested $9,000 and ended up selling 10 domains (1%) at an average price of $500 each. In other words, they’ve invested $9,000 and made back $5,000. A $4,000 loss!
And as a blogger, I interact with a lot of beginners who ask me to take a look at their hand reg portfolio. I’ve seen many over the 8 years or so I have under my belt as a blogger. Based on the quality of the average beginner hand reg portfolio I’ve seen over the years, I’d say a 1% turnover rate and $500 average sales price is on the optimistic side 🙁
Now sure, you can try actively reaching out to end users, fair enough. But finding them, contacting them, negotiating and so on… all of this takes time, time that you have to factor in as well and when making end user outreach plans, you’ll probably end up being overly optimistic as well.
My main goal here is being realistic.
I’ve made the same mistakes, nobody’s perfect.
But here on DomainingTips, I really do my best to present things as they really are. It would be a lot easier for me to simply focus on the good stuff, to simply share stories about huge sales that make beginners drool and so on… but that’s not what this blog is about. If you see domaining through a “get rich quick” lense, you’ll fail. If you’re realistic, I’m not going to say you’re guaranteed to do well but I am going to say you’re on the right track.
I keep repeating this on the blog but I do it for a reason, because it’s very important:
By all means, be optimistic in life but not when investing. In fact, when making investment-related plans/calculations, I for one prefer being pessimistic.
A good plan, to me, should be:
1) backed by data (your own data or at least industry-related data, you have plenty of information out there)
2) at the very least realistic but preferably pessimistic; if the numbers make sense even in a pessimistic scenario, well.. then that’s what I’d call a good plan 🙂
That’s it for today.
At the risk of being considered a downer, I’ll keep making such posts because I really think reading a post like this one is a lot more useful than reading about huge sales and what not. Again, just my 2 cents though.
February 10th, 2017 at 9:29 am
Well said Andrei. Optimism inspires in small doses, just don’t drown in it. Also, very general but #1… avoid buying crappy names. You can always recoup or double your money on average names, you’ll make your money on good names, crappy names are quicksand. Learn what sells before trading your cash for a portfolio.
February 10th, 2017 at 11:40 am
Here’s a good example of that, I think it’s worth publishing just to see the stupidity of the data:
https://youtu.be/48TR0vUPQCs?t=1m28s
February 10th, 2017 at 2:04 pm
I can’t tell you how many times in my life I’ve heard “if I only sell 1%….” or “if my marketing campaign just receives 1% sales…”
Things are not so neat.
As to how this applies to what is probably the majority of inexperienced to below-average domainers, well, it’s got to be abysmal. When I look at the crap names that people either hand reg or purchase at auction, and then see the insane prices they slap on the name, or expect in negotiations, it’s simply mindboggling. Not only will they not get the prices they want, they won’t even get ten bucks for them. I don’t doubt that many “domainers” even with a thousand names will be able to sell even a single name in a year.
And I watch on Godaddy Auctions, the crap names that people are buying. Are they former owners of the names trying to win them back? I don’t think so, so much. Are they buying them simply for any traffic? That’s a minor league strategy. I think most of all people see a keyword in a name and think that somehow searchers will come to any site with that name. Maybe 10 years ago, but not now. The only thing I think about when I buy a name (unless it’s like a 3-4 letter commodity investment), is, are there buyers that are end users (not domainers) who could really benefit from this name, and are there not too many other ways to say what the domain says? And then I price the names reasonably to sell.
Today’s domain marketplace is no place for beginners.
February 10th, 2017 at 4:02 pm
I am actually guilty of this and are going to look at some of my “investments”after this article. Because I have never actually run the numbers. But by looking at your figures I think for me 1% might be a little optimistic. I wonder is it better to do a bit of work on a domain or just have it sitting. For instance for a good domain ie kerosene.com (not mine) build a bit of a website around it to make the sale easier and better value.
February 10th, 2017 at 4:28 pm
This is good advice. Over the years, as a website developer, I’ve picked up numerous domains that I feel have good brand and search results promise. Very few of them are sold, however, without aggressive promotion and reasonable pricing. I agree with “wayno” – add some value to the domain with a relevant website under it – and then offer your other, content related domains – on that site as well. I’m optimistic, though. The current 2/3/4 L/N market frenzy is, in my opinion, an Asian driven ‘black tulip’ craze that will eventually flatten. I expect in the years going forward that domains (even 3 and 4 word) that accurately brand/name what the website is selling – will have their day in the sun. That main ingredient here is Patience.