Building a Cash Cow and Going on Autopilot with your Domain Name Portfolio

Building a Cash Cow and Going on Autopilot with your Domain Name Portfolio

Building a Cash Cow and Going on Autopilot with your Domain Name Portfolio

By Michael Cyger, Founder of DomainSherpa & Publisher of DNAcademy

Published: August 17, 2020

You know how many domain names you have in your portfolio, but how does sell-through rate and average sales price affect your yearly profit? That’s the question we answer in today’s video as we discuss DNAcademy’s Business Model Calculator.

Student access to calculator: https://www.dnacademy.com/software-included/business-model-calculator

Today we’re going to talk about domain names, portfolio characterization, and business models. Put on your math hat and get ready to think critically about how you’re currently investing and how you might want to modify your business model going forward.

Hey everyone! My name is Michael Cyger, and I’m the publisher and lead instructor of DNAcademy.com.

It’s so easy to discover domain name investing, start hand-registering domain names or start buying domain names in auctions, and — suddenly — you’re at 50 or 100 or 500 names in your domain name portfolio without even realizing it.

And for years I would build a profit and loss spreadsheet model, wonder if it was up-to-date, make changes, and wonder what happened in my calculations when something went drastically wrong.

All the while your fun, little hobby of domain names became a money losing venture and now you’re wondering how to turn it into a profitable business.

Good news, DNAcademy just launched a new calculator that helps you understand all the levers involved in your domain portfolio and business model.

Inside DNAcademy are a host of calculators and tools.

This one is the Business Model Calculator.

In the DNAcademy Business Model Calculator, all of the fields with a green background are inputs that you can change. The outputs are similar to a Profit and Loss, or P&L, statement in that based on the inputs you can look at your revenue, expenses and overall profit or loss.

For example, most of my colleagues know that I own a very small portfolio of premium domain names that I like to use for new business ventures.

Let’s look at my situation using somewhat realistic input data — but not my exact situation so I can maintain some confidentiality.

Let’s assume my sell-through rate is about 5% per year, based on wholesale liquidations and retail sales. And my average sales price is about $15,000.

You can calculate this yourself by dividing your total sales volume from last year by how many domain names you own right now — that’s your sell-through rate. And your average sale is the total sales volume from last year for all domains sold divided by the quantity of sales.

The Business Model Calculator then tells me I can expect to sell 0.2 domains per month (or put another way, 1 every 5 months) and about 2.5 domains per year (maybe some years are 2, some years are 3), for a total annual revenue of $37,500.

Now let’s move into the expenses section.

Given your average cost to renew domains — and, again, you can determine an average across your portfolio — you can see my hypothetical renewal cost per year for the portfolio is $402.

Because I list most of my domains on multiple listing services like Afternic and Sedo using buy-it-now pricing, I calculate about 40% of my sales to originate from the registrar path and for that I pay a 15% to 20% commission, resulting in a commission paid to marketplaces of $3,000.

If you sell primarily on Squadhelp, BrandBucket or Brandpa, for example, you should increase your commission from 20% to 25% or 30%.

If I’m actively purchasing domain names as well as selling, then I can add a quantity of domain names purchased per month and an average purchase price. Again, average your last 6 months of data to determine these numbers. I don’t actively buy, so I’m going to leave this at zero.

Finally, the revenue minus the expenses reveals my annual gross profit of $34,098.

Not bad for an entrepreneur who happens to have a portfolio on the side.

Now, let’s look at an investor who has 1,000 domain names in their portfolio and the domain names are pretty decent so let’s say they get a 3% sell-through rate.

(As an aside, there are BrandBucket and Squadhelp sellers getting into the 5 to 10% sell-through rate so 3% is not overly optimistic.)

And let’s set the average sales price at $2,000, because Darpan Munjal, the CEO of Squadhelp, says that they don’t see price sensitivity between $1,499 and $1,999. https://twitter.com/darpanmunjal/status/1288267010867175424

This produces a revenue stream of $60,000 per year, and if you purchase 4 domains per month at $30 each, your total expenses are only $1,440 per year, leaving you with a profit of $46,838 per year.

Now, let’s do a little sensitivity analysis.

If your domain portfolio includes some terrible domain names you acquired before, say, understanding the market or going through the DNAcademy course (wink), your sell-through rate might decrease from 3% to 1.5%, sending your profit down from $46,984 per year to $18,556 per year. In other words, a 50% reduction in sell-through rate reduces your profits by 60%.

Let’s look at another scenario.

Your portfolio stays at 1.5%, because — let’s face it — we all have terrible domain names in our portfolio. But you increase your prices from an average of $2,000 to $3,000. We can see your revenue goes from $30,000 to $46,200, and your profit increases from $19,257 to $32,724.

Across 5,000 domain names, if your sell-through rate remained at 2.5% and your average domain name sale was $2,000, assuming no purchases your profit would be $188,378. Just increasing your average sale price by $500 to $2,500 would increase your profit to $246,154. That’s an extra $57,776 per year, if the market would allow it — which it definitely seems like it’s trending to.

And you can have fun by pretending to be Mike Mann at Domain Market with their 300,000 domain names or HugeDomains with their 5 million plus domain name portfolio. As you go up in the quantity of domain names, the sell-through rate decreases. Make some estimates on what you think they’re at, marvel at the fact that they’re spending hundreds of thousands to millions or dollars per year on renewals and purchases, and try to estimate how much profit their private businesses are generating per year.

Of course this Business Model Calculator only focuses on the domain name portfolio, not other expenses associated with a business, like wages, rent, utilities and software.

The Business Model Calculator is just one of the pieces of software available to DNAcademy students, and a link can be found in the description if you are a student. If you’re not, please consider signing up. DNAcademy is the chosen training provider of brokers at GoDaddy, Uniregistry and Sedo, and you can read and watch testimonials from other investors at https://www.dnacademy.com/testimonials.

My name is Michael Cyger and I’m here to help you become a more profitable domain name investor, broker or entrepreneur.

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