discuss What does a 1% portfolio turn mean?

[garptrader]

Up until a few years ago, it had been a general consensus in the industry that average portfolio turnover was about 1%. Has that changed with the emergence of Chinese interest in numeric and hyper-short domains? Have millions of new TLD registrations in a short timeframe perhaps lowered the ratio? Who knows? However, let's examine the implication of the assumption that for every 100 domains that an investor holds, only 1 sells.

-assuming $10 annual renewals for each domain and 20% commissions at major marketplaces, this would mean that merely to have breakeven cash flow, an investor would need to sell that one domain for $1250 (excluding parking revenue which has been on the decline for years). But who invests merely to break even? Thus, many domains are priced higher.

-if only one out of 100 domains sells, why is that? Well, most people who want a domain name for a business or website just don't want to pay more than $25 for a domain. They often view people who resell domain names as borderline criminal or at least unethical. Yet, there is nothing wrong with making a profit on anything their business sells. However, regardless of the psychology, an extremely low turnover means that the vast majority of end users are not willing to pay the prices that domain investors put on their domains.

-of course if portfolio turnover were higher, a lower average selling price would result in the same cash flow. Say a 5% turn on an average price of $250 would generate the same result. Would pricing domains at $250 result in a much turnover ratio? Well, if most end users still don't want to pay more than $25 for a domain, even a $250 price is still going to be far above their budget.

-What about higher renewals for CCTLDs and many new TLDs? Well, that changes the needed selling price accordingly. Ouch! But are buyers willing to pay a higher price because of the higher renewals that you as an investor have to pay? Not necessarily because they have many options to choose from.

Thoughts?

 

[S-B]

Average turnover is actually 3.2% but turnover doesn't mean anything.

 

[bmugford]

Average turnover is actually 3.2% but turnover doesn't mean anything.

Where is that number from? Most people I know in the field are around 1%-2% per year.

The % can also vary greatly depending on the type of domains you sell as well as prices.

Some top domainers would be way under the average turnover, but at much higher average prices.
Some others might have a huge turnover rate with low profit margins.

Turnover matters, but only in the sense that it is a factor in total revenue.

Brad

 

[hookbox]

Way to many variables to pin down for certain what the exact number is. Take a guy that has 1,000 decent domains and does no marketing, doesn't list them anywhere and has no web presence and waits for someone to email him. Compare that guy to someone who has 1,000 domains of the same quality and markets them heavily, lists them at every sales venue, has a web presence and actively seeks out buyers. Same quality and quantity but their sell through rate will be hugely different.

 

[garptrader]

The scary thing is that of Godaddy's 14 million customers in Q1 that the vast majority are not buying aftermarket domains. So when that rare end user willing to buy an aftermarket domain is shopping, what are they looking for?

 

[Recons.Com]

"Natural" sell ratio for decent quality portfolio is probably around 0.5%.

An investor can get that number up to 2%-5% region depending on

- size and composition of portfolio (the smaller the size, the easier to put more individual effort per name)
- presence on brandable markets (BB, BR, N etc.), Afternic, Sedo
- Individual efforts like contacting end users by phone, email, social network etc.
- Reputation (example @Zandibot)
- Own sale channel (example @brandsly).

But, yes, @garptrader , thank you for the thread, it is absolutely true that high pricing of domains is factor of low turnover. If 10% of names would easily sell at low $xxx, many would choose to price that way.

 

[hookbox]

The scary thing is that of Godaddy's 14 million customers in Q1 that the vast majority are not buying aftermarket domains. So when that rare end user willing to buy an aftermarket domain is shopping, what are they looking for?

When Godaddy removed our premium domains from the suggested domains list and replaced them with gtlds those 14 million customers started buying gtlds instead because they don't know any better. It used to be that there was many dot com options available to buy when someone would check a name at Godaddy and find out it wasn't available. They would give you a long list of premium dot com options to buy. Now the whole list is filled with gtlds and only maybe two dot coms are listed. Those two names are most of the time owned by either Buy Domains or Huge Domains. Premium sales have dropped off big time because of this. Now you only sell a premium when someone types in that exact name but they still think they deserve 20% even though they did nothing to make the sale.

 

[brandsly]

I think a lot of things can affect the turn over rate, in the order of importance (imo):

-Name quality (direct type in traffic will always, always be the the biggest channel for sales, and highest conversion rate, always. If they thought of the names after brainstorming, it means they really like the names. Other sources of these traffic will be company name upgrades, extension upgrades etc.)

-Pricing. I could have sold a lot more names and have had much higher turn over rate in the past couple of months if I didn't reject about a dozen offers, these offers are anywhere from $xxx to mid $x,xxx for more premium names. I hold on to them because I know it will be hard to find similar names / costly to replace these names. There are many many other possible end-users. Even if I hold on to a name for 10 more years, it only costs me $85, why discount hundreds/thousands?

-Exposure on different marketplaces.

-Ease of buying the name. people like to be able to buy on the spot if they want to. Some people just don't bother finding the email in whois and having to contact, negotiate and go back and forth etc... most end users don't even recognize the fact that the parking page means the name is for sale unless there's some kind of prominent "buy it now" button.

 

[garptrader]

True if our pricing were sharply lower i.e. $100 avg there would likely be an increase in turnover. But how easily would you be able to replace inventory if you were selling great domains at cheap prices? You wouldn't have enough funds to win auctions or pay renewals and yet you would be out a lot of names. On the other hand pricing like Michael Berkens, Rick Schwartz, Mike Mann may mean you never sell a domain at all.

I have seen a drop in Godaddy Premium Listing sales since the launch of new TLDs. The home page does give a lot more visibility to new TLD options whereas before .COM domains with the same keyword would show up as suggestions. So premium listings sales are down because Godaddy is promoting them instead. Is Godaddy making more money selling new TLDs to its non-domainer user base than it was in commissions off premium listings? Who knows?

 

[Fancy.domains]

If my turnover was 1%, I would stop doing this today. Can anyone make a living from that?

Let's say that you have 1000 names and than the renewal fee is 10 dollars a piece. If you price them at $1000 per each, you'll have to sell 2,2% of your portfolio per year to make 1000 dollars a month (including renewals and before taxes). If you sell 1%, you will actually just lose money.

Edit: Guys like Rick the King can obviously live from 1% sales, just as Shane "is saying".

 

[S-B]

Where is that number from? Most people I know in the field are around 1%-2% per year.

The % can also vary greatly depending on the type of domains you sell as well as prices.

Some top domainers would be way under the average turnover, but at much higher average prices.
Some others might have a huge turnover rate with low profit margins.

Turnover matters, but only in the sense that it is a factor in total revenue.

Brad

I found the sell through rate through my own research/surveys in addition to a study that was published last year. I was trying to find the link but I seem to have lost it.

I maintain that it is irrelevant, unless your sell through rate is 0.

You could sell 1 domain for $1m while someone else sells 10% of their portfolio for a total of $100k... It doesn't directly correlate with revenue in any way.

I believe coupling indicators like average sales price with sell through rate is worthy of analysis simply because it allows you to optimize your process. However, without measuring it against another variable... it has little value.

Just my 2 cents.

 

[doubleU]

It really all depends on the quality of the names, if you had 100 popular one-word .com's then 1% turnover is fine.

In the past good professional portfolios will attract 2-5% turnover without outbound marketing.

 

[Asfas1000]

I tend to agree mostly with Shane. As there are so many variables (as mentioned by brandsly) that affect sales.

Still I use this metric for rough calculations. I believe it has some merit. For instance, let's say you have a portfolio of 100 strong 1-word .COMs. In the course of a year each and every one of them will receive a few offers. A seller could acheive a 100% sell-through rate if they wanted, by selling dirt cheap. In reality, whether a domain will sell depends mostly on the price a buyer is willing to pay. So this 1-3% sell-through rate reflects the likelihood that a fair-enough*** offer will be received within one year.

***According to the seller's perception of the domain's value

 

[Kate]

The domain market is inefficient. Domainers are partly to blame for that state of affairs. My thoughts:

• Too many domains are simply overpriced => Low turnover
• BUT like Garptrader suggests, pricing domains lower is not always the solution. If you ask $250 instead of $1000 most potential end users would still think the domain is worth $50 tops.
  
• Why are the domains overpriced ? Because:
  • lack of experience, lack of market insight, infatuation with one's own domain names
    
  • lottery mentality prevalent among domainers: aiming for unrealistic sales (instead you should aim for lower sales but repeat them often)
  • domainers have cash flow problems, because they are stuck with a big and costly inventory they need to raise a lot of money just to break even
• If you price your domains lower, you might increase your turnover and possibly your revenue. But you increase your overhead too. Every sale takes time and manual labor to complete. You have to deal with clueless buyers sometimes, and shitty registrars. Selling names for $250 is not very rewarding, especially if you have owned them for years, possibly bought them at auctions etc. Then you real profit is not $250 minus regfee. It could be closer to $100 after taxes and operating costs. If you bought the domain for regfee 6 months ago, the deal is slightly better.

What is the solution ?

1. Quality, quality, quality. There are many 'decent' domains on sale (millions in fact), but they are not great to the point that end users desperately need them and will line up in front of your door with checkbook open. You must own great names, not just decent names.
   Your turnover is directly related to the quality of your portfolio.
   A good name is a name that other people are looking for and would want to own . If you have a good name, people will think about the same name, they will first check if it's available to register. If it's taken, they will either try something else or visit the domain to see if it's being used. This is your chance to capture customers.
   Good names sell for themselves and require less effort. You can be passive: just list the domains and wait for unsolicited offers or until somebody buys at BIN.
   
2. Audit your traffic stats
   For example one thing I do is to check the listings at Sedo from time to time, you can sort the 'View of sales offer' column to see which names get the most interest. There might be interested parties, but they all think the asking price is too high. You can then lower the price and see if somebody is going to pull the trigger. Contrariwise, if you get offers on a regular basis, but no one is read to buy at BIN, you could increase the listing price a little bit to create a sense of urgency among the potential buyers and force an impulse purchase.
3. Make it easy for buyers. Rather than use some parking company you can set up your own landers, add a Paypal buy now button (also an escrow.com button). It makes it easy and straightforward for a buyer to take possession of a coveted domain.
4. Review your portfolio regularly and always be willing to question your selection of domain names. Dump the bad names. Bad names: get no traffic, make $0 on PPC, never get any inquiry, no 'obvious' end users in sight etc.
   
5. Keep track of your operating costs, expenses and revenue.
6. Quality > quantity. A big portfolio is expensive because of the renewal fees. Keep the portfolio lean. Thus you minimize your recurring costs, therefore improve your bottom line.
   Rather than buy hundreds of domains, buy a few dozens but quality ones. You need to turn to the aftermarket or the expired auctions. Regfee domains are most of the time hopeless unless you are very experienced.
7. As always, study the market, analyze reported sales. See what sells and what doesn't. This will help you determine what to buy. Why stock up on TLDs that have no sales history ?
8. Stay tuned for upcoming trends and new technologies

 

[Michael Ehrhardt]

The domain market is inefficient. Domainers are partly to blame for that state of affairs. My thoughts:

• Too many domains are simply overpriced => Low turnover
• BUT like Garptrader suggests, pricing domains lower is not always the solution. If you ask $250 instead of $1000 most potential end users would still think the domain is worth $50 tops.
  
• Why are the domains overpriced ? Because:
  • lack of experience, lack of market insight, infatuation with one's own domain names
    
  • lottery mentality prevalent among domainers: aiming for unrealistic sales (instead you should aim for lower sales but repeat them often)
  • domainers have cash flow problems, because they are stuck with a big and costly inventory they need to raise a lot of money just to break even
• If you price your domains lower, you might increase your turnover and possibly your revenue. But you increase your overhead too. Every sale takes time and manual labor to complete. You have to deal with clueless buyers sometimes, and sh*tty registrars. Selling names for $250 is not very rewarding, especially if you have owned them for years, possibly bought them at auctions etc. Then you real profit is not $250 minus regfee. It could be closer to $100 after taxes and operating costs. If you bought the domain for regfee 6 months ago, the deal is slightly better.

What is the solution ?

1. Quality, quality, quality. There are many 'decent' domains on sale (millions in fact), but they are not great to the point that end users desperately need them and will line up in front of your door with checkbook open. You must own great names, not just decent names.
   Your turnover is directly related to the quality of your portfolio.
   A good name is a name that other people are looking for and would want to own . If you have a good name, people will think about the same name, they will first check if it's available to register. If it's taken, they will either try something else or visit the domain to see if it's being used. This is your chance to capture customers.
   Good names sell for themselves and require less effort. You can be passive: just list the domains and wait for unsolicited offers or until somebody buys at BIN.
   
2. Audit your traffic stats
   For example one thing I do is to check the listings at Sedo from time to time, you can sort the 'View of sales offer' column to see which names get the most interest. There might be interested parties, but they all think the asking price is too high. You can then lower the price and see if somebody is going to pull the trigger. Contrariwise, if you get offers on a regular basis, but no one is read to buy at BIN, you could increase the listing price a little bit to create a sense of urgency among the potential buyers and force an impulse purchase.
3. Make it easy for buyers. Rather than use some parking company you can set up your own landers, add a Paypal buy now button (also an escrow.com button). It makes it easy and straightforward for a buyer to take possession of a coveted domain.
4. Review your portfolio regularly and always be willing to question your selection of domain names. Dump the bad names. Bad names: get no traffic, make $0 on PPC, never get any inquiry, no 'obvious' end users in sight etc.
   
5. Keep track of your operating costs, expenses and revenue.
6. Quality > quantity. A big portfolio is expensive because of the renewal fees. Keep the portfolio lean. Thus you minimize your recurring costs, therefore improve your bottom line.
   Rather than buy hundreds of domains, buy a few dozens but quality ones. You need to turn to the aftermarket or the expired auctions. Regfee domains are most of the time hopeless unless you are very experienced.
7. As always, study the market, analyze reported sales. See what sells and what doesn't. This will help you determine what to buy. Why stock up on TLDs that have no sales history ?
8. Stay tuned for upcoming trends and new technologies

nobody like your thoughts
nobody need your thoughts

 

[biggie]

i have about 450 domains, give or take a few

in 2015, sold about 7, maybe 8 names.


using my portfolio as example:

a sell thru of 10% would be 45 names and half of that or 5% is 22.5 names, and half of that or 2.5 % would be 11.25 domains and half of that or 1.25 % equals 5.6 domain names sales.

for 450 domain names, with average renewal cost of $10 each, is $4,500 a year.
(though currently we pay $8.50 for .com @ enom)

the last domain i sold in 2015 went for $2,800, a domain sold prior to that, sold for $2,500 and they were both BIN priced on Sedo.com

so, two sales or half of that 1.25% (0.625%), were sufficient to pay renewal cost on remaining portfolio, not to mention ppc revenue that provides additional capital to sustain.


imo....

 

[Recons.Com]

The domain market is inefficient. Domainers are partly to blame for that state of affairs. My thoughts:

• Too many domains are simply overpriced => Low turnover
• BUT like Garptrader suggests, pricing domains lower is not always the solution. If you ask $250 instead of $1000 most potential end users would still think the domain is worth $50 tops.
  
• Why are the domains overpriced ? Because:
  • lack of experience, lack of market insight, infatuation with one's own domain names
    
  • lottery mentality prevalent among domainers: aiming for unrealistic sales (instead you should aim for lower sales but repeat them often)
  • domainers have cash flow problems, because they are stuck with a big and costly inventory they need to raise a lot of money just to break even
• If you price your domains lower, you might increase your turnover and possibly your revenue. But you increase your overhead too. Every sale takes time and manual labor to complete. You have to deal with clueless buyers sometimes, and sh*tty registrars. Selling names for $250 is not very rewarding, especially if you have owned them for years, possibly bought them at auctions etc. Then you real profit is not $250 minus regfee. It could be closer to $100 after taxes and operating costs. If you bought the domain for regfee 6 months ago, the deal is slightly better.

What is the solution ?

1. Quality, quality, quality. There are many 'decent' domains on sale (millions in fact), but they are not great to the point that end users desperately need them and will line up in front of your door with checkbook open. You must own great names, not just decent names.
   Your turnover is directly related to the quality of your portfolio.
   A good name is a name that other people are looking for and would want to own . If you have a good name, people will think about the same name, they will first check if it's available to register. If it's taken, they will either try something else or visit the domain to see if it's being used. This is your chance to capture customers.
   Good names sell for themselves and require less effort. You can be passive: just list the domains and wait for unsolicited offers or until somebody buys at BIN.
   
2. Audit your traffic stats
   For example one thing I do is to check the listings at Sedo from time to time, you can sort the 'View of sales offer' column to see which names get the most interest. There might be interested parties, but they all think the asking price is too high. You can then lower the price and see if somebody is going to pull the trigger. Contrariwise, if you get offers on a regular basis, but no one is read to buy at BIN, you could increase the listing price a little bit to create a sense of urgency among the potential buyers and force an impulse purchase.
3. Make it easy for buyers. Rather than use some parking company you can set up your own landers, add a Paypal buy now button (also an escrow.com button). It makes it easy and straightforward for a buyer to take possession of a coveted domain.
4. Review your portfolio regularly and always be willing to question your selection of domain names. Dump the bad names. Bad names: get no traffic, make $0 on PPC, never get any inquiry, no 'obvious' end users in sight etc.
   
5. Keep track of your operating costs, expenses and revenue.
6. Quality > quantity. A big portfolio is expensive because of the renewal fees. Keep the portfolio lean. Thus you minimize your recurring costs, therefore improve your bottom line.
   Rather than buy hundreds of domains, buy a few dozens but quality ones. You need to turn to the aftermarket or the expired auctions. Regfee domains are most of the time hopeless unless you are very experienced.
7. As always, study the market, analyze reported sales. See what sells and what doesn't. This will help you determine what to buy. Why stock up on TLDs that have no sales history ?
8. Stay tuned for upcoming trends and new technologies

Great thoughts, and very structured too. As always.

However, few points. Rank your names by your subjective opinion which ones are the best and which ones are the most value priced.

And in 1 year you will notice that the ones that sold probably will not overlap with your lists above or might be completely different.

What I agree with is that you need regular pruning. When renewal time comes, prune off the absolute worse impulse buys that don't make sense and probably nobody will pay for in years.

Now regarding the point made by others that the sale % does not matter, I'd disagree.

$xx,xxx sales and above are outliers for absolute majority of investors that you can disregard for your "typical" portfolio. Last year I had two sales in $39K-45K range, but I still could analyze my ratios without those names.

 

[garptrader]

There is a clear disconnect between end users and domainers on what is a fair price for a domain. I realize after years in the industry that sales over $1500 are not common (at least for Spanish domains and brandables which comprise a heavy portion of my portfolio). However, as a financial professional, I see what companies spend on IT consultants, software licenses, legal fees, travel for execs, audit fees, business licenses, marketing, etc. It still amazes the mentality that a domain name should be a $XX expenditure when other much more costly and no more critical expenditures are normal.

What I have noticed over the years where I have segregated domains into different pricing tiers based on my perception of quality is that there are far more low $XXX sales than higher-priced sales even though the lower-priced domains are priced low $XXX because I do not value them as much as the others. Buyers just seem to want a domain for a website and are very price-sensitive.

 

[Federer]

When you are investing in good-great quality .COM (+top gTLD) inventory, and setting reasonable, affordable end user pricing across the board (sweet spot: $1,500-$2,850), the turnover rate is much closer to 1.5%-2% - as I can confirm with my own portfolio.

It is a profitable business model if you are targeting the right names. 2000 domains at 1.75% sell-through rate to end user sales ($1850/sale; some will be higher/lower) will NET $5.200 profit/month before renewals ($8.29/domain, GoDaddy Discount Club).

I purchased a portfolio of 300 domains in Nov 2015 (registration-fee-cost) at $5 each ($1.500 total investment) and have already sold 2 to end users (BIN pricing) for a total of $8,500, and received another $1,000 offer for a 3rd domain in that portfolio ($9,500 in offers in 5 months).

3 weeks ago, I picked up another portfolio/selection of domains (140) for registration fee and have already sold 1 to an end user ($799). There are all passive sales. Once you are confident that you are constantly loading up on domains that end users will/may want in the future, you can scale up and multiply the profits.
Of course, the ROI/profit margins on the few you do sell need to cover the expenses/fees on the ones that don't during the year. When the domains are brand-worthy, it really is a numbers game. BuyDomains.com/HugeDomains.com business models are based on the power of the portfolio - They very rarely churn out 6-figure sales; in contrast, a huge % of their inventory is priced in the $1.500-$2895 range for a reason. It works when you have 10s/100s of thousands of average-good .COM brands.

 

[hookbox]

I think the biggest problem with end users is they don't understand how something such as a name can cost so much money because never in their life have they paid for something that they can't touch and feel. They go to a store and buy a couch a jacket or a pair of shoes and it's real to them because they can physically see it, touch it , feel it. With a domain you are basically selling them air and that's hard to justify to someone that doesn't understand what it is and how important it can be to their business.
Trying to get them to understand that these names are worth more than $10 is sometimes very difficult because they don't know any better. They instantly put their guard up and possibly feel like they are getting scammed somehow. They may have a limited budget to work with and the first thing they try to buy is a domain name that they feel is so overpriced that this can't be real.
In my opinion $2,500 or less is the sweet spot. You have to be able to justify to them what they can buy for that amount of money. $2,500 gets you a beat up car, an old motorcycle, a shed for the backyard, etc....keep the price low enough where they can justify it with something that makes sense to them.