In the domain investing world there’s a relatively well-known concept of “shooting for the moon” pricing. Essentially, what this means is pricing a domain at what you think would be close to or at the maximum value anyone would ever pay for the domain.
The thinking behind “shooting for the moon” is that if the perfect buyer finds your domain, and by perfect buyer I mean someone who just has to have it, they’ll pay a lot more than anyone else to get it. I’ve seen this strategy executed successfully all the time, an investor who owns a domain that they had priced at $2,500 decides, what the heck – I’ll shoot for the moon on this one, prices it at $25,000 and yes, it sells.
Of course, on the flip side of “shooting for the moon” is what most people experience, a domain that just sits in their portfolio and never sells. Still, more and more, investors are looking more critically at their portfolio and pricing and picking some percentage of their domains to “shoot for the moon” on.
As a data guy I like to take concepts like this, turn them into cool sounding acronyms and look at how they relate to other critical concepts. It helps me make decisions since I’m a big believer that every decision you make, at least when it comes to investing, should be data drive in some way. Yes, gut feel play a role as well, but layering data can often help you make better decisions, or at least that’s my two cents.
This week I was pricing some domains and decided to bias towards a higher SFTM ratio than normal, this got me thinking, and well, now it’s Saturday morning and I woke up this post came to me. So let’s dive into the data here, or more accurately put, the relationship between some data points that I think are important when pricing your domains.
First, let’s define the numbers I’ll be talking about:
SFTM – “shoot for the moon” ratio (or percentage), this represents the number of domains in your portfolio with “shoot for the moon” pricing
ASTR – annual sell through rate, like the name says, this is the percentage of names you’ll sell annually
ROI – everyone knows this one, return on investment
NFCF – need for cashflow. Let’s call this a number between 0 and 100 (which means you could call it a percentage and you’d be a-okay) that represents how much you need your portfolio to be generating positive cashflow
Okay, now that we’ve got those defined, I’ll explain how I see the SFTM ratio changing based on external factors, and how it influences some of these ratios.
- If your NFCF is high, your SFTM ratio will be low, your ROI will also be lower, and your ASTR will be higher
- If your NFCF is low, your SFTM ratio will be high, this means your ROI will go up, but your ASTR will go down
- In general, your ASTR and SFTM radio will be inversely proportional
So how is this meaningful, helpful, in short – Morgan, why the heck are your writing all these weird acronyms and talking about how they relate to each other?
I’m doing it because I think it’s interesting, as an investor, to identify how you might want to augment your pricing strategy over time, as your life, and financial situation changes. So now let me talk about these rules at a high level.
In general, if you don’t need your domain investments to generate money for you, you can price more domains at super high prices. This means you will likely sell a lot less domains, but when you do, you’ll lock in a higher ROI, and since you don’t care if you sell 20 or 0 domains, you’ll be maximizing the value of the domains you have.
This first scenario can work if you have a smaller portfolio where renewal fees are not a big issue. For larger portfolios, you probably can’t think this way because your renewal fees are too meaningful to ignore.
On the flip side, if you need your domain portfolio to generate money, either because you’re a full time domain investor or you do really need to make extra money with domain names, you’re probably going to price your domains lower, reducing your ROI but increasing how many domains you sell.
This all sounds simple, and you’re right, it is. That being said, what I know I’ve made the mistake of doing over the years is not re-evaluating this every quarter or at least twice a year. By taking the time to look at how your own financial situation, life, etc. may have changed over time, you might find ways to optimize your pricing strategy.
My main point is that pricing your domains really shouldn’t be a one-time thing. Your pricing can and will change over time, and yes, some of this might be based on market conditions, but a lot of it will really depend on you and where you’re at in your life. So if you haven’t changed the prices on your domains in a while, walk through some of this for yourself and decide if your SFTM ratio is properly adjusted for where you are in life, if not, change it, you can always change it back.
Last but not least, I think you should always have a SFTM ratio of at least 5%. The amazing thing about domain names is that amazing, mind blowing sales, do happen. If all your names are priced at what you think are “realistic” prices, you probably are leaving money on the table. While yes, you’ll likely be optimizing your sell through, you’re missing one of the best, most magical parts of being a domain investor, that one big sale that comes out of the blue and creates amazing new opportunities.
Okay, phew – the words just flew out of me this morning, and I haven’t even had my coffee yet! I’ll end with my SFTM ratio at the moment and I welcome you to share yours, right now my SFTM ratio is right around 15%.
What’s your SFTM ratio?