The #1 Business Mistake A Domain Investor Can Make

Many of you know Sahar, he is a domain investing legend and actually the guy responsible for getting me involved in the domain industry, not intentionally, but through his blog. It was back in the summer of 2007 that I literally stumbled on Sahar’s blog and said, “holy shit, people are making money with domain names?”

Yes, I was late to the game but I learned one lesson very quickly, it was all too easy to count single hits as successes without looking at the big picture.

Sahar posted some words of wisdom on Facebook yesterday about a topic that I think very clearly represents the #1 business mistake Domain Investors can make:

Why so many domainers who sell domains tend to look at the ROI as if the sold domain is the only domain in their portfolio? Those other domains you hold for all these years and other junk you will never sell are an integral part of the equation.

I see this happen all the time and while this topic is often absolutely fundamental to a business, many domain investors can easily gloss over it because Domaining isn’t their full time thing, they have steady income coming in from a day job and thus they can ignore this and focus on the home runs.

Here’s the harsh reality that I learned back in 2008 and you should definitely know by now, or if not, learn today. If you’ve spent $50,000 total on domain names and just sold a domain you bought for $50 for $5,000 that doesn’t mean you’re a successful Domainer. You have to look at the bigger picture.

Now if you’ve already made $60,000 on the $50,000 you spent then you can celebrate this 100x profit and do the happy dance. However if you’ve only made $20,000 so far, then you’re only at $25,000 which means that up until this point you’ve just found-out how to lose half the money you put into this hobby.

Yes, if you’re losing money it’s really not a business, it’s a hobby, and that’s how the IRS looks at it as well. I can’t tell you how many times at conferences I talk to someone who is telling me about all their recent sales and then I ask the simple question, “so is your business profitable?”

They look at me with a blank stare and typically say something like. “Well I have a bunch of other names I’m sure will sell and then it will be very profitable.” Great, then do it.

If domain investing doesn’t represent your primary income source it can be easy to get lost in the sauce and focus on your individual sales rather than the big picture – your business (or hobby).

Of course there are plenty of Domain Investors who know this, run a real business and carefully track their profit. The key is to not look at individual sales but instead take yourself up to 30,000 feet and ask yourself, did that sale make my business profitable or am I still trying to recoup the money I put-into this?

I learned this lesson the hard way in 2008 what I thought I was “killing it” with domains only to find-out I was spending more than I was making. Never again, I course corrected and have been running profitably ever since. So be honest with yourself because at the end of the day there are a lot of domain hobbyists out there that think they’re running a domain business, make sure you’re not one of them.

Photo Credit: Dave Dugdale via Compfight cc

{ 9 comments… add one }

  • AbdulBasit Makrani July 1, 2014, 7:01 am

    I have been doing full time domaining since several years and to answer your question…. Yes, my business is profitable 🙂

    Reply
  • Mike Maillet July 1, 2014, 7:22 am

    Interesting topic, would you suggest that we keep a very small inventory of domains and dump all the rest? How many is too many?

    Reply
    • Morgan July 1, 2014, 8:33 pm

      @Mike – good question. I always recommend that you have a good reason behind buying every domain name that you buy. Avoid buying in an entire category or trend before you’ve proven it. Buying too quickly can mean buying names that you have no idea you can sell in bulk until you’ve really proven they have the value you think they have.

      Reply
  • Tony July 1, 2014, 7:33 am

    Don’t necessarily agree with you and Sahar on this one. It really depends on the domainer’s portfolio. To use your example, if the person invested $50K in say 100 quality domains, that portfolio has an intrinsic value like a house or stock portfolio would. So to continue with your example, if that person just sold one domain for $5,000, they are already profitable in that they already can afford 5 years worth of renewals and one would assume that domainer would be selling more domains in that time. You can’t confuse cashflow with profitability and neglect portfolio value.

    Reply
  • Leonard Britt July 1, 2014, 8:39 am

    I believe Tony does have a point that one can have domains with value even though they don’t sell. However, Morgan your point is still more applicable to most domain investors. Carrying a portfolio of 100 .COM or .Net domains entails renewal costs of around $900 annually. Anyone who entered the domain space in the last five to seven years generally is not making significant parking income so assume zero. So if one domain acquired for a backorder at Namejet or Snapnames etc sells for $500 after sales commission, how does one evaluate the result? On that one domain, yes it was sold it for several times cost. However, the portfolio still generated negative cash flow as that one sale did not cover renewals (as well, if the investment is $69 x 100 domains or $100 x 100 domains rather than $9 x 100 domains, what is the portfolio ROI?). Does that mean the other domains are worthless? Not necessarily but why didn’t they sell? The issue could be price, quality or lack of marketing. However, outbound marketing requires resources – the value of one’s time or that of a broker who does the work. A portfolio generating negative cash flow does need to be pruned – either drop the lower-quality names or at least reduce the price to see if the issue is price. A negative cash flow portfolio is not sustainable over the long run so one has to make adjustments sooner rather than later.

    Reply
  • Joe July 1, 2014, 10:30 am

    I’ll either do not I’ll agree with you Morgan.
    I remember that post yours say dreamvodka.com be a purchase like that name and receive an email where you offer $ 10,000 but at the end only sell for $ 2,500.
    The ROI is a double-edged sword for us to use as if advertising for Google `is ruin for which to make lots of money now and you know very well, as many of your subscribers to comment your post.
    I remember you always write about domain names sell as month-end box thinking treasury because you have to pay expenses and spend the month to live and invest.
    I can say nothing of sales that have problems with registrars already know.
    Although if I can comment that the ROI without the ROE is not, in itself is the same but different. http://www.ehow.com/about_6725803_return-investment-vs_-return-equity.html.

    Reply
  • Snoopy July 1, 2014, 9:17 pm

    The easiest way to calculate profitability is simple look at your tax return. Those numbers don’t lie and it is the easiest way to overcome our own BS.

    Reply
  • Margerie Cooganghi July 3, 2014, 8:24 am

    Where have you found your most successful places to let folks know that you have domain names available?

    Reply
    • Morgan July 3, 2014, 3:29 pm

      @Margerie – I always list my names with Afternic, it’s my personal favorite platform, however the bulk of my sales come through inbound offers or by contacting end-users directly. Still it’s always good to have your domains listed with a marketplace and Afternic has a team of 50+ people who can handle inbound offers on your names which is a major plus.

      Reply

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