You know the idiom, “buy low and sell high.” While correct in principle, it’s not actionable if you don’t know how to define the terms “low” and “high.” Here’s what you need to know.
You can’t just tell a new investor to buy low and sell high.
While correct in principle, it’s not actionable if you don’t know how to define the terms “low” and “high.”
So here’s what you need to know.
Low means wholesale.
High means retail.
Let me give you an example.
If I try to sell my 2014 Toyota Highlander, KelleyBlueBook.com will quote me a trade-in value to a car dealer of about $24,000
Yet if I search listings of cars for sale, I can find the same 2014 Toyota Highlander selling for about $33,000.
Here’s the difference:
If I sell my used Highlander to a dealer for a trade-in on a new car, they’re going to be buying it at a WHOLESALE value — in this case around $24,000.
Wholesale is what a retailer pays in order to then sell it for a higher price to an end user.
When I sell to the person who needs the car, they’re going to be buying it at RETAIL value — in this case $33,000.
Retail is the price paid by an end user.
I can take my Highlander to any dealership and get that $24,000 wholesale price.
But when I sell for the $33,000 retail price, I have to wait for the right buyer who wants the color and options my vehicle has.
Here’s another example.
If you ever watch those house-flipping shows on HGTV, you’ll inevitably hear of a listing that just came on the market where the owner needs to sell as quickly as possible for personal reasons.
Real estate investors want to buy at wholesale prices so there’s more profit potential when they go to sell. They can buy at wholesale prices because they have the cash to quickly close the transaction.
A house might be sold for a $200,000 WHOLESALE price to the first investor who shows up with cash. If the real estate agent’s network is large enough they can likely have it sold within hours.
In contrast, selling that same house to the right buyer for a $270,000 RETAIL price might take a few weeks or months.
Bringing this explanation back to domain names…
If I buy a domain name for a $450 WHOLESALE price on NameJet or GoDaddy Auctions, I may later sell it for a $4,000 RETAIL price to a person who needs it for their business.
Wholesale is the price that one or many investors may quickly pay for the asset, if given the opportunity. Multiple car dealers, multiple home investors, multiple domain name investors…they’ll all pay around the same wholesale value.
Retail is the price that the person who needs the product will pay for their personal or business use. You’ll have to wait longer to find the right buyer who will pay that retail price.
Buying a domain name at its true wholesale value should always be low-risk to an investor, because they should be able to liquidate the asset on a marketplace or to another investor at any time for within 10 to 20%.
If they can’t, they likely didn’t buy at its true wholesale value or they don’t have access to a large enough network.
If you’re not sure how to determine wholesale and retail pricing or you don’t have a large enough network to verify wholesale prices, DNAcademy is where you want to start.
Thanks for watching. See you on the inside!
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