One easy mistake new domain investors (and gamblers) make

gambler

I had a friend who used to brag to me about how much money he made playing poker. It felt like every time I saw him he had a new story about how he made $5,000 in the last tournament. Eventually I realized that over the last year, every time we spoke I only heard about him winning at poker.

So I asked him, “you certainly have won a lot of poker tournaments this year, have you lost any?”

I could see the gears turning. “I have lost quite a few, I’m not sure how much money I lost in total but I’m sure if you added it all up I’d come out ahead.”

To this my reaction was the same as yours likely would be, probably most aptly represented by the facepalm emoji.

face-palm_1f926

This same kind of logic happens all the time in the domain name world, and if you’re not careful, you can end up in the same situation as my friend the gambler, because well, you’re playing the same game.

As a new domain investor it usually goes something like this. You spend $5,000 hand-registering domain names, and you now have a portfolio of 500 domains. A few months later you sell one of your domains for $600. Immediately you think, wow – so that $5,000 I spent has allowed me to build a portfolio worth $300,000 or more!

So what do you do? Buy more names! I’ve nicknamed this little right of passage as the “great domain name buying spree” and I did the same thing myself as did just about every other domain investor out there.

The problem is, you buy more names, now you’ve spent $10,000. Six months passes, no names sell. A year later, still nothing. Now the domains are up for renewal and you’re convinced that you’re onto something, hey one sold for $600, you just know that next year is going to be your year…so you renew everything.

Now rather than buying more names, you’re letting it ride, and playing the same names for another year. Sometimes it takes two or three years until you realize that over that time period you’ve spent thousands in renewal fees and that money could have been used to buy much better domains since you now actually do have more industry knowledge.

Of course, just when you’re getting ready to drop a bunch of names, one sells for $5,000 and you tell everyone you know. Suddenly, you’re a successful Domainer, you can buy domains for $10 and sell them for $5,000 – boom!

Well, not really.

Instead you’re just like the poker player. You’re still forgetting to factor in the money you’ve spent initially buying domains, then renewing them, even with that $5,000 sale the reality is that you turned $10,000 in $5,600 in two years. Guess what, a lot of people can do that…and with a lot more to show for it.

If you’ve been running your business this way, it’s time for a change, you don’t want to be a gambler, you want to be an investor.

There’s no better way to start out 2019 than to look at the numbers and really see where you stand. Ask yourself these three questions:

  1. How much did you pay for all the domains in your portfolio?
  2. What is their renewal fee each year?
  3. How much do you need to make to actually turn a profit?

Imagine if you started each year taking every dollar you made from the domains you sell and putting it directly into paying yourself back for what you originally invested? Then, once you hit that number, taking every dollar you make on sales and putting it into renewal fees for the domains you own.

Then, finally, after doing all of that – taking a percentage of the money you make, which now is finally a profit, and putting that money towards adding new, quality domains to your portfolio.

You can break this down into what I’ll call the three Baby Steps of Domain Investing:

Baby Step 1: Pay yourself back for all the money you invested in your portfolio

Baby Step 2: Pay all of your renewal fees for the year (for the domain you want to keep)

Baby Step 3: Use a percentage of your profit to buy more domain names

Until you get to Baby Step 3, hold yourself back from buying more names, just try to sell what you have and drop what you think/know is garbage, stop renewing junk. Then, when you sell a domain for $600 or $6,000 you can actually say that you made $6,000 and mean it.

The moral of the story here is that you need to actually keep track of how much money you spend building your portfolio and how much your portfolio is going to cost you to keep each year (i.e. your renewal fees). It can be all too easy just to focus on your sales (just like the gambler does on their winnings), but don’t forget that as an investor you’re trying to reliably make a profit.

What do you think of the three Baby Steps of Domain Investing? Am I missing a step? Over-simplifying? Just plain stupid? I want to hear from you – comment and let your voice be heard!

{ 8 comments… add one }

  • Snoopy January 7, 2019, 9:13 pm

    Absolutely, getting a few sales is worse than getting no sales most of the time. Look at new tlds for examples of this where the individual sales get celebrated whilst people will not talk about overall portfolio profitability. Even for a really well chosen new tld portfolio is will take 20k in reg fees to generate 10k in sales but people keep playing because they think the % selling will grow over time (which is highly unlikely).

    Domainers should look at their end of year taxes to work out whether things are really working or not.

    Reply
  • Frank Mueller January 7, 2019, 11:35 pm

    how long would that baby step approach take
    until you can live on your names?

    Reply
    • Snoopy January 8, 2019, 12:39 am

      For 99% of the people the answer will be never.

      I think if people go into with that idea from the outset they will probably never get there. Usually it is a hobby that can morph into something else if people find they are really good at it.

      Reply
    • John January 8, 2019, 3:08 pm

      As usual I will be the only one willing to do what everyone can see – tell you that you are in big trouble with your domain there. I haven’t looked at your site, but the domain in your link here is a disaster, so I imagine your site maybe be full of domains that are a loss of time and money for you. I’m doing you a good deed that others won’t do.

      Reply
  • Kemal Goksu January 8, 2019, 3:36 am

    Thanks Morgan!
    I always think that domain name business needs a meticulous accounting. If you don’t count, you can’t make money or you don’t know even if you can.

    Reply
  • BullS January 8, 2019, 11:40 am

    You see those casino commercials- always showing gorgeous women/men happy drinking, dancing ,playing and showing the cash dropping all over the floor winning….
    but
    in real life- you see old geezers there at 4am getting their free coffee and lurking with those young gals with uplifted boobs.
    At the end of the month, bus loads of seniors which they picked them up at the senior homes, asking them to cash their SS checks and play …and they wow them with all you can eat buffet, how much can the seniors eat?

    Reply
  • x January 8, 2019, 12:49 pm

    These are the mistakes I should avoid at all cost.

    1.Buying names with a credit card you can’t pay back in a month.
    2.Not keeping track of the money you spent and made.
    3.Not being honest with yourself about your domains value.
    4.Not listening to what the pros are saying.
    5.Not keeping money for your Tax report.
    6.Buying TM domains
    7.Registering random tlds

    Reply
  • Mike January 10, 2019, 6:38 am

    Good post, I have seen so many products on the web promoting the domain business as falling of a log easy, buy a name send an email to a potential end user and voila!
    Nothing could be further from the truth, I feel sorry for the people who get suckered into this.
    I have noticed recently that there are absolutely tons of domains being dropped that defy logic as to why they were ever registered in the first place, some that have been renewed for years and years.
    I have looked at some of the names out of curiosity to try and see if I was missing anything and almost without exception none were ever developed, so presumably they were bought with a profit motive in mind.

    Reply

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