Successclick, Domain Monetization

WHICH IS BETTER? 300 NEW REGS OR A $2500 AFTERMARKET DOMAIN?

(This blog article is entirely inspired by my friend Elliot Silver’s blog article)

Elliot Silver, who I respect in the highest regard, stated on one of his recent blog articles: 

“I would much rather own one good name that I bought for $2,500 than 300 newly registered names. If you don’t end up selling them, you’re just going to double your carrying costs the next year.”

I had a different viewpoint that was too long to voice in a comment on El’s site, so I wrote this blog article answering his comment. Let me present these two different scenarios of what would happen if an experienced domain investor bought 300 OOTB (Out Of The Basket – meaning “new registrations”) domains compared to spending the same amount ($2500) on one premium domain.

If you have the stomach for details, read below:

1) I am already guessing that you’re an experienced domainer. If you buy 300 OOTB’s, I assume you’ve done your homework and these domains are already giving you the hand-jive, or you wouldn’t have registered them. (New domain investors and their domain buying obsessions don’t apply to the following)

2) Now you have 300 OOTB’s, which your experience has told you, “I won’t buy a domain like a noobie, these aren’t all .biz domains, they’re all .coms or one word high trend noun ccTLD’s”.  You know that at least some of these 300 domains have some value at a profitable resell level, (or you realize you bought them on a drunken domain raid and all bets are off.)

3) You want to test out your new purchases, and set up 50 of them to sell cheap quick. You sell 25 domains quickly for only $100 and get your investment back. That leaves you with 275 other domains to play with.  You find that you have a great eye for domains, and you’ve done your research like a bio-physics student at Stanford.  If you scored with a domain that was just waiting to mature or hit the consumer trend index, that would become apparent within a year or so. Now you have a domain in your remaining list that is worth maybe $2500. You sell that domain name and you’ve doubled your investment now, leaving you with 274 domains to play with.

4) The following year, you do a followup on SE analysis for search and page results from quoted queries on each domain as they come up for renewal. You consider if they need to mature, or whether you were not thinking when you registered it. Let it drop, big deal. Let’s say you let 20% of your domains to drop, leaving you with about 220 domains.

5) You invest another $1700 to renew those domains.

6) The next year, you discover that another one of your domains is hot, and someone gives you $1600 for the domain. You’ve just covered your renewal fees for 224 domains. Now you’re looking at your list of 220 domains a lot closer, because you’re seeing why YOU BOUGHT THEM OOTB IN THE FIRST PLACE!

7) You watch the progress of the domains while parked at a PPC or at WhyPark to check OST or TI traffic… and you discover that either one or both are making some rev for you, and you’re getting a few purchase enquiries a week. You sell a few for $250 each on average.

The next year, you dump those domains that are not performing, or are similar to other domains that are.  Now let’s say you’re left with 150 domains. At this point, you’ve made your money back, and about $4000 in profits from sales on your original 300 domains, yet you still have half of them left.

9) You decide you want to focus on a select powerful group of domains falling into a limited niche group. So, you put up a sale of the remaining 150 domains at $100 each. The sale goes well, and you sell 75 domains for $100 each. You’ve made $7,500 in profits. You still have 75 domains left.

10) You have 75 domains left from your original 300. Eh, you decide to lower your price to $35 each after renewing them for two years. Your profit would be about $20 per domain. You sell them all and make another $1,500.

From those 300 domains, you’ve made about $15,000 in profits over two years.

Now, let’s go the “premium domain for $2500″ aftermarket route.

1) You buy a nice domain for $2500. You build it out, hire developers, etc, pump it with SEO and do some advertising. Your wallet is pried open and $10,000 has been taken out to achieve a minimal setup you want following these guidelines. Now you’re in for $12,500. You admit you’re not a brick and mortar end user for this domain.

2) You start getting traffic, and you are looking at your monetization paths for the domain site. Maybe PPC is an antithesis to the product/service you’re selling, so you prefer to go the CPA route, featuring some storefronts, and maybe you engage your visitors with a forum or blog. You answer questions, you build up a following.

3) You find out you have 500 people registered for your site, and 100 of them have bought something from your site at a CPA payout (let’s go middle ground and say 7% on a $30 sale, which is about $2.10 per sale commission – multiply by 100, you’ve made $2,100).

4) You’ve invested about $12,500 in a domain name, and after a year, your return is $2,100.  You have to pay out another $2500 in updates and maintenance on the site. You’re now in the hole for $12,900.

5) You continue focusing on how to get great PR, and getting more visitors to your site. You set up an email system that you hope your members won’t unsubscribe from, and maybe will buy something from you. You make a few more sales, but it only covers operating costs.

6) Now it’s your second year, you have over $13,000 in the $2500 domain you fell in love with and decided to build out. You see that you’re going to need a good amount of cash to really make the site a powerhouse that will give you a good return. Now you are looking at getting an angel investor, or equity partner.

7) You sell 40% of your domain website for $50,000. That money is immediately invested in building out the site better, having a consultant assist with streamlining your GUI, redesign of the site graphics, promoting the site to a focused market. (blatant self-promotion here)

You get a better commission rate from your CPA producer, but for some reason, even 10% of sales averaging even $50 per order is not cutting it. You see 1000 buyers come in and purchase at the $50 average, which gives you $5 at a 10% comm.  Now you’ve grossed $5,000 that year. After expenses, no profits yet.

9) You’re weary working on this one domain, because you have other domains you’re working on too. Each domain costs a lot of money to develop into viable revenue generators. You have partners calling you every several days wondering about their money they invested. You tell them things are doing well, but you’re getting tired of hearing from them so often.

10) In the start of the third year, you ask your partners to buy you out for your original investment, which was $2500 and about $15,000 in further development costs out of your pocket ($17,500). The partners agree to buy you out for $15k.

11) After three years, a lot of work and money, you’ve sold the domain and lost about $2500, not counting your time.

12) ERASE #1 – 11 above, and say you flip the domain two years later for $7500 after parking it, for a 200% profit. WHEW! Smart move!

13) (Ahhh… the magic number 13). Wait, forget #1 – 12 above. The domain you bought can be made into a directory! Whole new story here, because now you can sell ad spots to your domain’s relevant market for $50 – $500 a year. Auto-renewal is sweet if you get 1000 advertisers and 25% of them check this on signup.  Hire one or two cold callers to get the advertisters in (have a nice site built out and offer free listings in limited scope). Depending on the market of your domain’s relevance, and your design features, this is the best way for a domainer to go in to buildouts.

14) Let’s say you didn’t see #12 and #13 above. You learn your lesson trying to do a CPA build and…

….a month later, you do your research and buy 300 domains OOTB.

My firm belief is that if you don’t have $10,000 to develop a domain, (and that domain MUST be a viable product/service generic domain that can be made into a directory), then don’t pay more than a few hundred dollars for it, based on paying about 20% or less than its retail value.

In other words, if you pay more than $2000 for a domain, you better expect that you will need at least $5000 to make that domain perform as a DIRECTORY for you to recoup your investment. That’s only if your domain has that “branding” power to do it.

In my own world, I own two domains I bought for $2000 each. These domains are keyword category killers. They are huge medical domains with 100 thousand google results, and are THE medical term used for what the medical procedure is. However, they aren’t big PPC winners for some reason, and to flip them, I have to go find the online marketing directors of some billion dollar companies that manufacture the machine that performs this procedure. I haven’t done that yet, but that’s all I can do with them UNLESS I DECIDE TO BUILD THEM INTO DIRECTORIES.

Then I have to compare their total cost ratio of ROI to the other 500 domains that could be great directories, too.

What a mess!

I have over 1000 OOTB domains I’d like to build out but the cost is beyond my current financial capabilities (and my wife’s “yes” factor). After serving as an equity partner for a corporate company, I definitely don’t want to go down THAT road again. I’m too old, plus, I like having fun and my freedom.

So, my good buddies — just flip those mothers for that 500 – 1,000% or more profits per domain. Then pick TEN of your best domains to build out, as directories. The rest of your domains are financial teets for your ten best.

This is what I learned from Zappy and Andrew of Internet Real Estate.

So with all due respect to my buddy El-Silver, if you have the experience El has in knowing a good domain when he see’s it, and he buys 300 of them OOTB, I will bet on the return of those 300 domains against his purchase of a $2500 domain and building it out, or even flipping it for three times his purchase price.

If you got this far, you learned a lot. Re-read it if you’re serious about making money in domaining.

cheers!