discuss Did we get the entire ROI concept wrong?

[abstractdomainer]

Lately, I realized that I have been calculating the entire domain investment ROI pretty wrong.

Here is what I calculated:

Bought 200 domain names at $10 a piece
Sold 3 domain names for $1,000, $2,500 and $2,000. Platform fee and other charges - $500.

Thought Process
Domain 1 - Bought for $10, sold for $1000
Domain 2 - Bought for $10, sold for $2500
Domain 3 - Bought for $10, sold for $2000

ROI - 100x or 10000% on domain 1
ROI - 250x or 25000% on domain 2
ROI - 200x or 20000% on domain 3

That is how most domain investors share their ROI. But is that correct? I don't think so!

Here is what is missed out:

1) The domains which did not sell - I actually made $5,000 over an investment of $1000. So my profit is $4,000 or 400%.
2) The profit is on the portfolio and not on a domain name
3) The profit should be per year (Revenue (Sale) - Cost (renewal+acquisition+platform fee))

So I think any profits (not sales) should be:

1) Reported per year and not per domain name
2) Should factor in acquisition cost, renewals, platform fee, PayPal fee, escrow fee etc.
3) Should factor in the opportunity cost (what you would do and earn if you didn't do this)

Do you agree?

 

[bmugford]

Agreed, I am just saying that $2 flip to $20,000 is not the right representation of ROI, as we sometimes think. Not to say that people should share or not, but just saying, $2 --> $20,000 is not a 10,000x return. For people to understand that behind every sale, there could be a portfolio involved instead of a single domain name that sold.

I agree. You are preaching to the choir.

You can probably find many comments from me in various threads on NamePros, on blogs, etc. where I say something like "You have to account for all the domains you don't sell in a year, not just the domains you do sell".

Brad

 

[dirk]

Hey, thanks for that! Too much of an imagination here.
The aim is only to help as I do my own domain name investment. I do not have any blog or a website whatsoever! A lot of topics come up which I realize I have been doing wrong and hence, rise up to state the same!

Call it a creative mind Well if you say so I'll take your word for it. Back on topic then...

 

[Ostrados]

I agree with you ROI should be calculated on your entire investment not on each domain individually. That's said, ROI is not calculated yearly, instead you should calculate total expenses and revenues for each year, then calculated ROI for the whole investment period (ex: 5 years of domaining).

How many of you publish an annual report or a PORTFOLIO ROI? None! Everyone publishes a sale - Bought for $2, sold for $10000. But how many did you buy? How many did you sell? No one does! Not even me!

Very few do that. Read this excellent thread by @Nikul Sanghvi
(Almost) A Decade of Domaining...

@Bob Hawkes described above thread perfectly as "NamePros post of the century" which I totally agree with because Nikul contributed a very valuable and rare analysis. I hope more successful domain investor do the same and share their portfolio wide performance.

 

[karamakate]

( INCOME - EXPENSES ) = PROFIT

Basic math.

 

[MadAboutDomains]

( INCOME - EXPENSES ) = PROFIT

Basic math.

Minus tax

 

[alop]

Minus tax

Tax would be an expense

 

[MadAboutDomains]

Tax would be an expense

No it isn't, you get taxed on your profits.

 

[alop]

No it isn't, you get taxed on your profits.

That depends from country to country

Tax is an expense. Time is an expense

 

[MadAboutDomains]

That depends from country to country

Tax is an expense. Time is an expense

hmmmm expense seems like a bit of a strange way to categorise it, I suppose it depends on what you're trying to calculate too.

 

[abstractdomainer]

Minus tax

How could I forget t

 

[Soofi]

Subscribed

 

[karamakate]

Minus tax

Depends on your location and knowledge to trick the system.

 

[karamakate]

No it isn't, you get taxed on your profits.

From the mercantile point; technically every kind of thing is an 'expense' when you're forced to pay: buying domains, renewing domains, venue commissions, taxes, electric bill, rent, food, etc.

The 'profit' is what's left after all those fundamental cuts and the money that you can freely spend.