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Common Newbie Pitfalls In The Domain Industry

Since every domain name transaction is unique, it’s very difficult to give advice that will be beneficial to a specific deal. Here are some general pointers that should help novice investors tiptoe around some of the pitfalls of domain investing.

#1 Waiting for Bigger Fish in the Sea

The scenario: a potential buyer emails you what appears to be an almost insultingly low offer for a domain name in your portfolio (e.g. $100.) It may be very tempting to simply delete the offer or to fire back a terse email saying “The minimum offer on this name is $x thousand”. After all, a buyer with deeper pockets is bound to come along eventually…right?

Before rejecting any offer, no matter how insignificant it may seem, think about the answers to the following questions:

A) How long have you owned the domain?

B) During that time, how many offers have you received on it?

C) How much was the highest offer?

D) How frequently do you get offers on that domain?

E) Does the domain pay for itself with dividends (see the section on domain monetization)?

You may see the transaction in a different light once you’ve had a chance to consider the big picture. For instance, a domain that you have owned for 3 years and which has received no unsolicited offers before now is hardly a hot sales proposition. Perhaps it’s worth taking the $100 (or trying to squeeze the transaction up to $150 or so) and writing off that particular investment with a narrow profit margin.

#2 Comparing Today’s Offers to Yesterday’s

Domain name offers are discrete events. In other words, an offer made by one party has no influence on the likelihood of receiving offers from other parties.
A common trap that many domain investors fall into is the assumption that a given offer will automatically repeat itself. For instance, a domain may have received an offer of $2,000 18 months ago, but today a potential buyer is offering just $500. The problem is that the market 18 months ago was completely different from the market now and the market in 18 months will be different still. Holding on for an ever-higher offer when the grass is getting less green in the domain name field with every passing day is not particularly advisable.

#3 Thinking a Domain Sells Itself

It’s a typical novice mistake: “I’ll register a few domains, and buyers will be lining up to buy them from me.”

For starters, the buyers won’t likely be lining up. The domain market just isn’t that simple. However, an equally fundamental point is this: how are they going to know the domain name is for sale? Novices often do nothing with their domains, leaving them unresolved (not pointing to anything) or pointing to the homepage of the Registrar they used to buy it.

It takes just a few minutes to put together a simple one-page site saying that a particular domain name is for sale. That way, people typing in the domain to see what is there will know it’s available on the secondary market. Of course, you can also incorporate affiliate links and PPC search engine links on that page to monetize the traffic (see the section on domain monetization).

#4 Hiding from Possible Buyers

When you register a domain name with the intent to resell it later, it’s important to make it as easy as possible for potential buyers to get in touch with you. That’s why the information you enter in the domain’s whois record is so important. If you enter an incorrect telephone number or an email address that you never check, you will never hear from the majority of buyers. Unless you own the next “business.com”, potential buyers are not going to go to extreme efforts to contact a hard-to-find domain name owner.

#5 Getting Excited Over Breaking Even

If you feel a sense of satisfaction, or even relief, when you manage to sell just enough domains in a given year to pay for the renewals on the rest of your portfolio, you may need to rethink your strategy.

If you’re buying and selling domain names as an investment, it’s important to always focus on making a profit from your portfolio, after all, that is the goal of any investment. If you’re only breaking even, you’ve gone through a lot of trouble and effort and, at the end of the day, made no money, which is not exactly an exciting business proposition when looked at in an objective way.

#6 Seeing Double the Money

Be very careful about overpaying for domains. If you see a domain on the market for $500 that you feel confident you can resell for $1000, you should probably just walk away from that domain.

Domains are so incredibly hard to sell that there has to be a clear profit margin of many multiples of your original investment. This is especially relevant in the case of secondary purchases; if you’re registering new domains, you’ve only lost the small registration fee on a bad domain. However, a domain purchased on the secondary market for $200 is a much larger loss if it doesn’t pay off. This is why it’s necessary to hunt for the real hidden gems: the $500 name that should fetch $5,000 or more (or the $200 name that should fetch $1,000 or more, etc.)

The higher the potential profit margin that comes built into the deal, the more you can allow yourself to experiment, diversify, and make mistakes. If the best you can do is double your money on a domain name sale, you would have to sell half of your entire portfolio just to break even.

#7 Not Diversifying

There is no “rule” dictating how investors should set out to make money from domain names. Some people content themselves with scooping up large numbers of new domain registrations and counting on their skills in selecting marketable names to seek out a small average profit per name (e.g. registering many names for $10 or less that will sell for $50). Other investors hold out for larger prizes with the potential of greater payoffs. Both methods can pay off, but diversifying your portfolio to take advantage of many different approaches increases your likelihood of making a profit.

#8 Betting Money on Credit

It’s incredibly important that you don’t get trapped in a cycle of “betting” that the next domain name registration will wipe out your losses. Many people have become trapped in a cycle of registrations, gradually sinking further into debt as they continue to search for the one domain sale that will help them break even.
In short, only invest money that you can afford to lose. For every success story, there are dozens of people who have lost money, often significant amounts, betting on domain names.

Now let’s look at different ways of using your investment to make money in the domain monetization section of this guide.