Which Kind of Domain Investor Are You? Cost Side or Revenue Side?

Apr 07 2011

Domain Investing is no different than any other business in the world.  There is the cost/buying of a domain and the revenue/selling side.  We all like to pretend that we pay attention to both sides but 99% of business owners I talk to seem to concentrate on one side more than the other. It’s not always how much money we have but rather our personality or training. It’s also a business decision. Sedo makes you pay to hide your sales price while 4.cn asks for permission to repeat the sale price publicly (you can follow the public auctions only.

Elliot’s piece on sharing domain sales prices inspired this post because it featured a nice back and forth between him and David Castello that point out both approaches. Among the reasons why Elliot doesn’t like to reveal prices were,  buyers don’t like others to know what they paid. Two, it will cause prices to rise if they know he is looking for certain names.  He finished with this

Thirdly, I don’t want a seller to know I just flipped a domain name I bought from him or her for a significant profit. It’s no fun knowing you could have sold a name for more, and I don’t want to cause someone to feel that way. I also don’t want my future acquisition cost to go up if we do business together in the future.

David Castello responded with

I have to disagree here, Elliot. We’re still an industry that is not respected by investors at large. Does it matter? Absolutely. If we had 1/1000 the number of players the stock market has our domain name values would skyrocket overnight. The more public learns about the consistency of our marketplace the better it is for all of us.

Elliots response summed up which side both are on in one comment

We have different objectives here….

Are you still buying six figures worth of names a year?

Your objectives are to increase the value of your holdings, while mine are to get good deals!

This is a perfect example of two different approaches to the same goal.  Make money selling domains.  I’ve come to realize I am a revenue driver.  I am all about profit dollars.  I don’t care what I pay for something as long as I can get the revenue dollars I need out of it.  Let’s use an example the other day (true story) that explains how my brain works.  We were buying a pair of gloves for $2.50 and selling them for $7.95 and doing well with them.  This year we were able to buy those exact same gloves for $1.12.  I noticed the gloves were now priced $2.95.  I buy and price every single plant in the nursery but allow my managers to price interior products because they don’t make up a very large portion of the business.  I do have a margin for them to work with and in this case, that’s what they followed.  Unfortunately, these gloves are now only bringing in $2.82 in profit dollars when I used to be making $5.45.   I want to make the most money on a product I can.  I don’t care how much I paid. Yes I want pay as little as possible but I start with margin and then work on profit dollars.  I want the product that makes me the most money.

Some people may say.  “Just keep them at $7.95” but it’s not that simple.  It is human nature to mark things up only so far, especially products.  Domains are a little different but again, it’s human nature to feel a domain is worth more if you paid more for it.  Elliot is smart enough to be able to buy the cheap domains and knows he can keep his high price but Elliot is special.  He is known throughout the industry for being a very tight buyer.  He is one of the best in the industry in driving down a price.  A skill that lets him make a living flipping domains.  And while he certainly gets good prices for his domains, he is not known for getting the highest prices for his domains (of course, he doesn’t release his prices, but people talk). He can make a living flipping domains without reaching top dollar because he buys at great prices.  A model that certainly works well for him.

Others like Rich Schwartz, the Castello Bros, and Michael Berkens sell at top dollar.  They will outbid you for the top domains and then turn around later and sell it for even higher.  They are the epitome of the unmotivated seller.  They are more interested in maximizing price.  They want all the high sales numbers to be released publicly because they are willing to trade higher buy prices for a higher overall price appreciation.  They applaud and cheer the overall rising costs of dot coms because they own a ton of them and can buy more if needed.  I can’t speak for them but I believe they think like me.  They are looking to sell their domains for as much as they can and are still actively buying names for top dollar.  They are paying top dollar because they feel comfortable they have a product that despite its price, can generate maximum profit dollars.  Domains that generate maximum revenue usually can’t be low balled.

In short, both approaches to domain investing are correct.  They are just different.   Elliot most likely realizes that as an industry we have to have sales numbers to establish pricing.  Every product in the world needs some sort of price guide.  Without it, we have no starting point for negotiation.  Without parking revenue to give a multiple, it’s about all we have left to go on.  On the flip side, if you don’t want to pay the “going price rates” you don’t want the prices public.  Unfortunately, you can’t have your cake and eat it too.

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Outsmarting the Dumb, Outworking the Smart

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  1. jeff

    Really nice piece here, have been chewing on these ideas for a little while now, nice to see them written up so thoughtfully.

  2. MQJ

    Nice post shane. I think both Elliot and David were right at there place. And for me, i flip nice amount of domains and websites but the sale price usually lies between 300 to 1000 which i think doesn’t need to be reported to DNJ……. 🙂

  3. Joe

    Yes, I agree with you Shane: both Elliot and David are right. After all, it’s always been that way: some businesses make a profit by keeping costs low, while others keep selling prices high. It’s just a matter of finding out which business model works best for you.

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