Domain Spotlight:

Profit Dollars Vs. Return on Investment: How I Price My Domains

I am like most domain investors.  I prefer to put prices on my domains after I have interest rather than a Buy it Now type approach.  I do this for several reasons but the main being my prices are constantly changing.  The reason they are changing? The goals I set for a given year are total profit dollars rather than individual returns on investments. What I want or need at a given point in time is variable.

The goal of all my businesses is to generate profit dollars.  Profit dollars are what continue the growth and put money in my pocket.  I could care less if I make 1000% return or 500% return.  I want to make a certain amount of money with the minimum investment necessary to make that profit.  Yes I am always looking at margins and costs but my goals are profit dollars.   I was talking to Jacob Fedosky the other day on the phone telling him how I price my domains why occassionally I will flip names for only a 20% gain, and how people get too caught up in return and forget to look at how much money they made.  I told him this true story.

We sell a lot of gloves at the nursery.  We were paying $5 each and selling for them for $10, a 50% margin, 100% markup.  The next year we made a deal with the vendor and got the same exact gloves for $2.  That year my manager wanted to price the gloves at $5.  Now we would be getting 60% margin and 250% markup. On paper that was an improvement.   I asked him one simple question.  Versus last year, how many gloves do you expect to sell?  His answer was time and half as many.  I told him to switch the gloves back to last year’s prices.  The reason was simple.  If we sold the same as many pairs as last year we were going to generate $8 profit per pair.  At his prices we would generate $3.  We needed to sell 2.5 times as many pairs to generate the same profit dollars and reducing the price wasn’t going to help move enough more product to make it up. He didn’t do the math to figure out the effects on profit dollars with the change of price.  He merely thought, less cost, more sales.  It has to be better.

It’s a common mistake to think that just because you get a great deal on something that you should lower the price.  The reason you hunt for good deals is to make MORE profit.  Economies of scale should bring more profit dollars.  You only lower price if it brings in more profit.  Increasing sales is not a positive if you are bringing less profit.  Figuring out the ideal sales price to maximize profit is the goal of all good businessmen.

And that brings me back to my conversation with Jake.  On the exact flip side. I told him I have no problem buying a name for $10K and quickly flipping it for $12K.  While only 20% return which is low for our industry, the $2,000 profit (minus taxes) is a good profit and now has freed up my money to reinvest in another name.  I have made $2000, in this case it was in 3 weeks.  While not a lifestyle changer, it’s $2000 that I didn’t have 3 weeks ago and can now be put to work.  The goal is to make a profit and I did on that name.  On to the next one.   Could I have made more on that name?  Probably in time.  But at THIS point in time I chose to take the profit.  And that’s why my domains are priced differently at different times.

There are two things that effect my price.  One, am I making money at the rate I want for a given year?  This year for example.  I sold a lot more names than normal, and right out of the gate.  I met my annual profit goal by July.  I didn’t have as much incentive to make small returns on most names because I was making as much or more than I planned.  If I thought I was receiving a solid offer I took it,  but anything less than that I didn’t even consider.  If it had been slow or if sitting on a name that gets no traffic or offers and one comes along, I would be more inclined to make a little profit and move into something else. Which brings me to point two on my pricing.  Once I sell this domain, how easily is it for me to buy another name that is similar in value for this sales price.  Domains are not endless. Especially the higher quality names.  Finding quality domains to flip takes a lot of time and effort if you want to find one at a good price.  For instance.  If I bought a for $1000 7 years ago and I get an offer for $3K, it would not be in my best interest to sell it.  I’ve made a 300% return which in the investment world would be solid. But in this case I would not have made enough money to reinvest back into a similar name.   Most would say that this decision is easy, don’t take it, you can sell it for more.  To me it all depends on whether I have better opportunities for that money.  If I’ve earned a good profit on an investment I have no problem cashing out.  I never kick myself for not getting more later or would coulda shoulda.  My goal is to make as much money as I can with the least amount of investment.   Some times it will be in hundreds,  other times in thousands, and hopefully down the road,  in hundreds of thousands. Sometimes I will sell a domain to someone who flips it immediately for more.  Kudos to him.  I made a profit and he made a profit. We both hit our goals.

As my experience and bank account grows meeting my profit expectations have become easier.  I am now able to buy names in the $10 to $20K price and as we all know, making $5K on $20,000 is much easier than on $1,ooo.   It doesn’t mean that I don’t continue to fill my portfolio with $1000 (or less) names.  Because many of them are the $10,000 names of the future.  It merely means that I can continue to generate profit to pay the bills and continue to fill my portfolio with assets that will do the same in the future.

My method is exactly that, my method. It works for me.  Everything I have from domains to websites has an investment of  0 dollars.  That’s right 0 dollars.  I have built it slowly over time by making a profit and putting it into something else that will make a little more profit.  I now generate over $50K in profit and have $100K plus in domain assets all from nothing but working a few hours a night.  I do this for fun, on the side, in my spare time.  If that’s not doing it right then I can live with it.  I will never take it “to the next level”.  I have another business I need to take to the next level.  Domains will just be the extra millions on the side that will make the journey a little more fun.

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5 Replies to “Profit Dollars Vs. Return on Investment: How I Price My Domains”

  1. There’s a good reason your blog is so well trafficked; you have a great sense of humor, intelligent things to say and an enjoyable, easygoing writing style. You deserve to get paid.

    I read here often.

    Thanks for keeping it real (and real funny:)

  2. I’ll second Adam on that. The insights you give me Shane are both very useful and positively provocative. Many thanks.

  3. Another great post Shane! Always crunch the numbers, find a method that works for you, and have an exit plan for each domain.

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