Strategy of a domain sale

Over the past couple of weeks, I’ve had an interesting conversation with Spencer Yao of smallbusiness-domain.com, a provider of domain name, web hosting, and e-commerce reviews, rankings, comparisons, & coupons.  Spencer was telling me about a recent domain sale his company was involved in.  He walked me through the life cycle from the initial purchase to the sale.  Spencer’s scenario provides some good food for thought when buying domain names with the intent to sell and I asked him to summarize his experience to share with you.

Back in mid 2009, we were approached by a seller looking to quickly dispose of some premium domain names in the beauty and apparel vertical. The acquisition was opportunistic and serendipitous and we did not have much time to decide because the seller wanted to move fast.  Although we had no direct experience in this beauty/apparel category (our group had substantial technical and monetization experience), we purchased one of the better domains because we thought it was truly “premium”, had decent type-in traffic, mapped to a common search term with clear commercial intent, and at an adequate discount to mitigate the risk.  Unfortunately, we cannot disclose the name, but that does not change the content of this article.

Below is a summary of our strategies to maximize value and eventual exit for the domain.

  Description Upside Risks Results
Strategy 1 Build an ecommerce site similar to Diapers.com or Hammocks.com Highest potential reward and risk. Requires most technical & financial resources. We had no direct industry experience in this vertical. Industry was too low margin and fragmented to support such a business.
Strategy 2 Turnkey site based on shopping engine listings. Hope premium domain name helps in SEO results. Much less work and maintenance than Scenario 1. Use API to auto generate sub categories and pages. Development costs to properly access & publish API. Little to no original content. Hard to monetize. Parked domain generated more revenue even though site had hundreds of pages.
Strategy 3 Park, hold, and sell the domain. Little to no work involved Not adding any value to the domain. Hope we paid a low enough price to hold and wait for a buyer Last resort. Chose this scenario after exploring #1 and building #2.

We determined Strategy 1 was not feasible after 4-6 weeks of post purchase research – this sub-category within Beauty/Apparel was too low margin to support an ecommerce business like Diapers.com or Hammocks.com   It took us 4-6 months to build out and vet Strategy 2 – we determined that parking the domain generated more revenue with lower costs than the turnkey site.

Unfortunately, we were left with Strategy 3, which meant parking the domain and hoping for a buyer.  To try and garner as many buyers as possible we looked at the following services:

  • Domain Listing Services like Sedo and BuyDomains. We found these services provided little to no value even though they charged a substantial commission for listing a domain in their database.
  • Domain Brokers.  We retained several brokers who actively marketed the domain and emailed buyers on our behalf.  Through several cycles, we received a handful of offers for about 50% to 80% of our target price which did not include the 10%-15% commission the broker earned if the sale was completed.  The offers were from domain speculators who wanted to sit on the domain and flip it.  This meant it would be hard for us to achieve “full value” through a broker.
  • “For Sale” sign on the parked page.  This is how we eventually sold the domain at our target price to a buyer who wanted to develop it into a website.  The upside was that we received full price without having to pay a commission, but the downside was we held the domain for over 3 years before selling it.

In summary, we purchased the domain (for mid to low 5 figures) and sold it for 30%-35% more than we paid, not including the work we put into Strategies 1 & 2.  Comparing this to an investment benchmark such as the S&P 500 (which gained 39% over the same 3 year period), meant we were better off taking those funds and investing them in the market.  However, since we were forced into Strategy 3, we were happy to make a slight “profit”. We could have waited for a buyer willing to pay more, but that could have taken years to achieve.

Lessons Learned

If you are going to invest substantial dollars into a domain name, we learned the following valuable lessons: 1) Have a concrete development plan to turn the domain into a viable website. Direct industry experience is essential. 2) For maximum price, be prepared to sell the domain yourself and wait years for the right buyer. If you need liquidity in less than 6 months, use a domain broker and be willing to take 35 cents to 70 cents on the dollar.3) The market for premium domains seems to have peaked around 2007-2008 and has yet to recover to those levels. You have to consider this when looking at pre 2008 domain sales for comparison.

Take the risk out of domaining and boost your sales!

I have to admit, when I started domaining, I disregarded the advice of the pros and the veterans.  They all suggested saving my money and instead of buying a pile of worthless hand regs and low dollar domains, to instead save an buy a good  premium domain.  In hindsight, that would have been the way to go.  I wasted a great deal of time and money.  Initially, I thought it was too risky to put that much money into a domain.  However, it wasn’t a total loss.  While using the low end domains, I learned about contacting end users, what other domainers were interested in, and how to gauge the value of a domain name.

Another thing I learned was that people were hesitant to pay a premium for domains.  Not just me.  Sure, we all want to get a great deal and, at a minimum, not to get screwed in the process.

Think about how much more willing you would be to buy if you knew there was no risk.  Think about how much easier it would be to sell if you could assure your buyer that there was zero risk in the transaction for them.  How do you achieve that?   Well, you as the seller take on the risk.

Here’s what I mean.  I recently found myself in a situation where I was contacting end users on a particular domain.  There was a single company that responded and was interested.  With all the effort I put in and only had a single bite, I wanted to maximize the opportunity and make the sale.  After several conversations it became clear that the main contact was afraid to pull the trigger.  I got the sense that he was feeling he was taking a risk with the name… that it might not do for his business what he hoped it would and the investment would be lost.

Once I realized that, I decided to take a bold step.  I decided to offer him a risk free transaction.  I put in writing that if he was not satisfied with the name 90 days from the date of the transaction, I would purchase the name back at the same price.  BAM!  Risk removed.

Yes, there are some drawbacks to this approach.  Primarily, you might end up with the domain again and be starting from scratch.  But here’s my logic:

  • First, I don’t generally buy domains (anymore) that I don’t personally have an interest in myself.  So if it ends up back in my portfolio, I am comfortable with that.
  • Second, when I contact end users, I am setting the value on the domain that I am willing to sell at.  That said, this process helps ensure a fair prices, since I may end up re-purchasing the name.
  • Third, and most importantly, I am confident that they will find value in the name.

I’m not planning on using this approach in all situations.  For example:

  • I would not do this with a domain I did not find value in… which I shouldn’t be selling in the first place.
  • I would not knowingly offer this to a fellow domain investor who would likely look to resell at a profit and return to me if he was unsuccessful.

This approach has worked for me and I will continue to implement it where it makes sense.  There’s no reason it can’t work for you as well.

Domain Sales Email – From a Domainer to a Domainer

I like to share some of the domain sales emails I receive.  The thought is that there just might be something you can gain from some of these as examples of what to do, or what not to do, in your own emails.  This particular email looks to have been sent knowing that I am a domain owner as well.  I don’t typically try to target domain owners in sales emails.  I think there are better venues for that.  I tend to reserve emails more for end user sales.  Maybe I would if I had a business relationship with another domainer and thought that they may truly have an interest in a domain, but not out of the blue.

The major piece I feel this email lacks is that it doesn’t indicate at all why I might be interested in this domain.  Are there high monthly searches, do I have a similar domain, is this my niche, etc.  The email should not point out the main reason for contact as “I am selling this domain,” but instead, why it will benefit the person you are contacting.

Good afternoon,

I am contacting your company because I am selling the following domain name:

www.radioelectronics.net

Please let me know if you would be interested in this domain.

Thanks, and best regards,

Sergei Shevchenko

Domain Owner

xxxx@gmail.com
www.radioelectronics.net

Mike Mann – Domains, Advice, Opportunity

Mike Mann and Grassroots.org

Several days back, I interviewed Ari Rabban of Phone.com.  During that interview, I came to realize that Phone.com was one of Mike Mann’s companies.  Mike has quite a history in the domain industry.  Most recently, he’s held the first reported aftermarket .CO sale of Flying.CO for $3,500, and has since sold Auctions.CO for $15,000 as Fusible.com recently reported.  Mike is said to have one of the best .CO portfolios in the industry.  Mann dominated the domain headlines when sex.com hit the market along with the controversy that entangles that domain.  Some of Mike’s other properties include, DomainMarket.com, SEO.com, and Skateboards.com among countless others.

Sullivan:  You serves as Chairman of Grassroots.org (a 501c3), a global network providing free services to other nonprofits and promoting social action.  I’ve seen the logo on many sites.  What’s the goal of the organization and how can others help the cause?

Mann: Grassroots.org provides free technology and consulting services to 501c3 charities, about 4000 so far, the object is to adopt 10,000 charities and provide each $10,000 year of free services until we are providing $100M per year of value to the nonprofit community through Grassroots.org. We engage in many other innovative charitable ventures as well. Grassroots.org is mostly funded by our charitable umbrella fund Make Change! Trust.

Sullivan:  You have several charitable organizations listed at MikeMann.com in addition to Grassroots.org.  The others are MakeChangeTrust.org, Relief.org, Interns.org.  What is your involvement in these organizations and what drew you to the non profit sector?

Mann: They are all ours, Relief is barely built yet and needs help. Interns.org is a recruiting site for other charities including our own.

Sullivan:  DomainMarket.com has over 139,000 domains.  Are all the domains owned by you or is this an open listing for domainers?

Mann: All ours

SEO.com

Sullivan:  What’s the secret to developing a phenomenal portfolio.  You seem to have proven with .CO that it can happen today and is not just for those with foresight in the 90’s.

Mann: Its really a grind of studying lists of domains, aggregating and studying data, buying and selling and buying and selling, beating down competitors over an extended period.

Sullivan:  You’re not only an entrepreneur and a philanthropist, you’re also an author  Make Millions and Make Change!: Secrets to Business and Personal Success (aff). One reviewer on Amazon entitled the review “A mix of common sense + ingenious tactics.”  I’m now looking forward to reading the book.  What can readers expect to learn from the book?

Mann: This is actually a real and relatively simple formula to ensure you can make millions and in fact change the world. I am sure. But you have to read it and pay attention or its merely theoretical.

Sullivan:  Tell me how and when you got involved in domains.

Mann: I had some left over names from my ISP days like menus.com government.net etc, once I sold menus.com for 25K I realized that I needed a lot of domains since it had only cost me $70 per year. So aside from noncompete periods I have bought as many as possible ever since as long as they seem to be below my estimated FMV.

Sullivan:  What was your goal when you founded BuyDomains.com in 1998?  Did you accomplish that goal and what made you decide to sell the majority of your interest in the company?

Mann: Our goals was to sell $500 per day worth of domains, 1 name, that cost us $70 per year, we rather blew that way out of the water as I intend to do in all business venues if possible. We sold some stock because finally someone realized what an enormous bargain it was, the many other suckers bid way too low. DomainMarket.com is like BuyDomains.com was at the time but very light overhead. We own fantastic assets right now that are growing precipitously, see MikeMann.com and click around.

Sullivan:  Tell me about AUX.com.  A small sample of domains listed here include Crime.org, Favorites.com, and AutoServices.com.  Is your goal to find partners for charitable as well as for profit ventures?  What is the process if someone is interested in working on one of these domains?

Mann:  Our goals is “to find partners for charitable as well as for profit ventures” If someone wants to help us with anything they can contact me on facebook or email me. Contact info on my site.

Sullivan:  As a role model for new domainers, what advice do you have for someone looking to make their way in the industry today?

Mann: Frankly, Frank and some fairly frank fellows are ferocious to compete with. I would focus on just building one name following best practices from MakeMillions.com and InternetApplications.com

Sullivan:  What else do you have for us as far as information or insight?

Mann: I think there is tremendous opportunity ahead in building and managing internet technologies and brands, everyone should engage in best practices for the network and the clients for the long term. Thanks for promoting our charity work. Cheers.

3 Things NOT To Say In a Domain Sales Letter

It’s great to find sample sales letters that other domain owners use when selling to end users.  Some are excellent and can be used in almost every situation.  Others, are poorly written and ineffective.  I’ve noticed some trends in the letters I have received and it amazes me that the authors of these emails don’t see this as obvious.  I thought I’d pass these along in case anyone else is using these strategies or would like to debate their effectiveness.

3 Things Not to Say in a Domain Sales Letter

1.  I was going to develop this domain, but I currently don’t have time.

Really?  The domain is that good that you’re asking $xxx to $x,xxx and you don’t have time to develop it?  I understand that you don’t want to say, “hey I bought this and I’m looking to flip it,” but saying you don’t have time to develop it sounds more like “it’s not a good name and I’m trying to sell it.”  Try something like “This no longer fits into our business model for development”  to sound a little more professional about the transaction.

2.  This domain is better than the one you are currently using.

Ok, I’d like to sell you this domain, but first let me slap you in the face.  The fact may be that you do have a better domain you are offering, but stating that bluntly isn’t going to impress your potential buyer.  Instead, use data and bullet points that clearly outline the metrics you are trying to get across.  Let the buyer read this and easily come to the same conclusion that you would like to scream out loud.

3.  Here’s a link to (insert your favorite online appraisal tool) that shows this domain is worth $8,000.

While we all know the uses and limitations of automated appraisal tools, to an end user that is not apart of the domain industry, it will come across looking like a scam.  Most people have never heard of these, and if they have, they likely know that they have their limitations.  Anyone could quickly build a page that says their domain is worth any amount of money.  If an end user isn’t familiar with the tools you’re linking to, that’s exactly what they’ll think you did.  They’ll interpret it as a scam.

It’s the little things you can do to tweak your emails to make them more effective.  Words have the ability to influence or deter, so use them wisely and achieve the greatest impact.  If you have any good sales emails you use or have received and would like to share them, send them to me and maybe I’ll post them.  If you have one you’d like critiqued, send it as well.