Over the years I’ve gone through a number of iterations when it comes to reinvesting my profits after selling a domain name. This is something that I honestly didn’t think about much for the first few years I invested in domains, but now I’ve tried to turn it into a bit of a science, albeit a simple science.
There are a lot of different factors you need to take into account when managing a domain name portfolio, the first is – do you want to grow to own thousands of domains or aim for less? I started out trying to build over 1,000 and then after starting Bold Metrics decided I didn’t have the time to manage a large portfolio and would rather manage a smaller portfolio, but with higher value names.
Initially I was buying domains in the $100 range, as I sized down my portfolio I started spending more per name. Now I find myself buying domains in the $1,000 range more than ever. So it should come as no surprise that over time my strategy for reinvesting profits after a sale have changed.
Here’s the current simple formula I use.
First I calculate my true profit. too many people calculate their profit on a sale by looking at the price they sold for minus the price they paid. Don’t do this. It might look good on Twitter but this isn’t your profit.
I calculate my profit as how much the domain name sold for minus:
- Price I paid for the domain
- Renewal fees paid over time
- Any commission paid
- Taxes on sale
Historically I’ve reinvested 100% of the profits back into my portfolio since I don’t use any of the money I make from domain investing to live off of, but lately I’ve been putting some of my profits into stocks and crypto. So to make sure I maximize the chance to turn my profit into an even bigger profit I follow a pretty simple formula.
My inventory replacement formula:
- For every domain I sell where the profit is 5x or greater I replace the inventory with a domain name of the same extension at 2x – 3x of what I paid for the domain.
- If my profit is less than 5x, I replace the domain at the same price.
Like I said, pretty simple science. What’s important to note is that when I’m looking at my profit here I’m making sure to use the calculations above to determine true profit.
This means that every time I sell a domain I’m either replacing it with at the same price point, or if I hit a 5x profit margin or higher, I’m replacing it with a much better name. This week happens to be an interesting example of this formula in action.
I sold two domains this week, both .COM, one for $4,000 and one for $5,000, one through Squadhelp, one through Uniregistry. Both were replacement names for domains I bought under $200. The domains I replace these two with will be priced in the $10,000+ range.
It’s a bit like starting with a paperclip and trading up until you drive away in a new car. Takes time but if you stick to the formula, it works, just requires a lot of patience. As many people learn the hard way, domain investing is one of the worst ways to get rich quickly, and it’s far from passive income, but domains are the best investments I’ve ever made.
If you feel the same way this is why it’s so important to replace the names you sell with new ones, and if you can, better ones. Thanks for reading and if you have your own formula for replacing domains in your portfolio feel free to share in the comment section below.