discuss Every wonder why domain industry turnover is a measly 1%?

[garptrader]

Given the constant attention by industry blogs and forums on four and five-figure sales, NNN or LLL buyouts, and upcoming TLD releases, an outsider might be led to believe domaining is easy money. It has long been understood that average domain industry portfolio is around 1%. For every 100 domains you hold, you are likely to only sell one. If your renewals are $10 each and you pay 20% marketplace commissions, you need to sell that one domain for $1250 just to pay renewals on the 99 domains you do not sell. Of course there are ways to impact the turnover ratio - focus on the types of names which are more likely to sell - one-word .COM or three and four-character .COM domains. Well, good luck picking up names like that for $10. As well, it is possible that pricing names more aggressively could lead to higher turnover.

Think about it though - if any normal retailer - Walmart, Best Buy, Macy's only sold 1% of their merchandise they would all go bankrupt. Domain margins are quite often a bit higher than mainstream retailers but domain inventory is not nearly as easily replenished. You may be able to liquidate LLL.com domains you acquired ten years ago but good luck buying cheap LLL.com domains today.

Outbound marketing can also improve one's sales ratio but the time involved in doing so is not free. Professionals in developed markets will normally earn $XX/hour in most any job so spending hours acquiring domains, finding end user contact info, responding to inquiries increases considerably the cost of a domain investment.

The reality is most end users value domains very differently than the way they are viewed by industry insiders. End users see the Godaddy ads advertising "get your .COM for $2.99" so that sets the expectation. When you quote them $XXXX for a domain, you never hear from them again.

Any idea what one should expect in terms of portfolio turnover for an alt TLD like a .Info or .CO? How about for new TLDs? I would suspect the average turnover would be even lower than 1% - but for some new TLDs the renewals are much higher making it even more difficult to turn a profit.

So is domaining as good of an investment opportunity as the registries and registrars make it appear? Thoughts?

 

[Kate]

Hi,

Another great post as usual
You hit the nail on the head again. Domains are heavily commoditized items, therefore end users don't realize their value. The registrars clearly set an expectation of low prices. Domain names are almost perceived like disposable items, in fact the emphasis is on having your own 'website', 'web presence'. The domain is bizarrely presented as ancillary, as if the website was more important than the brand.

I think there are different ways to make money with domain names.

For example some domainers provide tools and services to other domainers (at least they try...).
This is the digital equivalent of selling picks and shovels to the gold diggers

Or you can be a registrar. But the margins are low: for a discount registrar the net profit could be a bare $1 after deduction of registry and payment fees. So they have to sell volume.
But this business seems less risky, when you have achieved a certain threshold and you keep the loyalty rate high. From the POV of the registrar (or the registry), there is NO bad reg. They are all profitable

To increase turnover, you either have to be proactive but like you said, the time spent isn't free. It becomes an occupation. The other approach is to raise the bar and acquire high quality names only, in restrained quantities. Thus you'll get more inquiries and sales. But in order to achieve a good ROI, you'll still have to turn down many offers that are too low. By doing this, you bring turnover down.

No matter what, you can't do without quality inventory. There are simply too few buyers vs the available supply.
Domainers are more like stock traders or antique sellers, than retailers. The problem is that inventory needs to be renewed every year. Whereas a piece of antique normally doesn't have upkeep costs, but takes up storage space.... On the other hand, retailers usually pay rent and taxes, even if they sell nothing. So our trade isn't so bad but it's still hard to make it profitable...
Again, it is in your interest to keep the portfolio lean but high-quality. Keep operating expenses low, and sell high.

 

[RJ]

So is domaining as good of an investment opportunity as the registries and registrars make it appear?

Yes, of course, domaining is amazing! Wait... no. It's not. Well, actually sometimes it is. Really, it depends a lot of different things. Like poker, domaining is a game that combines skill with an element of luck. There are a few big winners, some people who break even, and some people who lose everything. The better your knowledge, skills, and experience, the better chance you'll have of coming out on top--but nothing is guaranteed. The monthly sales charts hyping the 4,5,6,7 figure sales keep this industry afloat with hope. Then we see the other, less-glamorous side by browsing through the 70,000+ .COM domains that expire every day. To me that's 70,000+ dreams tossed in the garbage heap.

Then there's the liquid domain market, which is a segment of the domain market that does not conform to the 1% turnover rate. These won't end up on the garbage heap. If they do, someone is there to grab them. 1,2, and 3 character coms have been in liquid for many years; if you had one, you could sell it as easy as a golden nugget. The newly liquid market for four character coms has finally made his type of domaining more accessible to the smaller investor who can't afford a lll.com.

Once a domain is truly liquid it should have a 100% turnover ratio for sales among other domainers, as long as the domain subgroup it is in remains liquid. It becomes less of a game of chance, and more akin to trading in stocks or commodities where you watch your asset rise or drop in market value, rather than try to force a profit by pricing all names at 1000% cost to cover renewal fees for all the loser domains we can't sell.

There are people who got in the business last year that are making more bucks than some of us who started in the 90s. It just goes to show it's never too late for someone new to jump into domaining. New opportunities are created all the time in this industry, you just need to look for them.

 

[nvdomains]

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Indirect message from Godaddy to business owners:

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[redesignunit]

Godaddy India homepage ad

PRANAV, BUSINESS OWNER & GODADDY CUSTOMER, TheGreatIndianAdventure.com

I unable to understand why they are showing such a worst domain name. Then, SME owners may think owning such a name is not a bad idea.

Godaddy like registrars want people to register worst names. These registrars know good names are in the hands of domainers.


Indirect message from Godaddy to business owners:

Search for Adventure.com - not available?

Then search for IndianAdventure.com - not available?

Then search for GreatIndianAdventure.com - if not available


Then register TheGreatIndianAdventure.com

great example and also great article.