6 Domain Investing Pitfalls to Avoid
Domain investing can be an awesome and rewarding experience. Over the last 10 years, I’ve had the privilege of working with domain investors of all sizes and stages. One of the most frequently asked questions that I receive from new domain investors is regarding domain investing pitfalls that I’ve seen in my decade of experience. Today, we’ll cover what investment traps I tend to commonly see.
6 common domain investing pitfalls
While I can’t cover all of the possible pitfalls in this guide, I want to share with you some of the most common issues I see for new domain investors and how you can avoid them. Here are six of those pitfalls:
- Don’t view domain Investing as a way to get rich quick.
- Don’t skimp on the research.
- Don’t run too fast.
- Don’t treat a domain investing business like a hobby.
- Don’t invest in domains for which you can’t explain potential use cases.
- Don’t second guess your sale price just because it sold quickly.
Let’s get started.
1. Don’t view domain investing as a way to get rich quick
It is probably best to get this one out first: Investing in domain names is not a way to get rich quick.
It is common to see blogs or social media posts that talk about how a domain was bought for $200 and then sold for $20,000. With those sorts of numbers, one might think that it is easy to make money on domain investing.
What you aren’t seeing in those posts, however, are the overall strategy and hard work that the owners put into their portfolios that led them to those individual sales.
Most successful domain investors that I know are some of the hardest workers I’ve ever met, so if you are looking to get rich without much effort, then domain investing is probably not for you.
2. Don’t skimp on the research
I’ve met too many new domain investors who have not taken the time to learn from existing knowledge that has been shared on how to invest in domain names before taking the plunge themselves.
While it might be possible to be successful without learning from others, your probability of success is much higher if you take the time to learn from the mistakes and successes of others and then apply what you learn to your own strategy.
Here are a few resources that I recommend to anyone interested in getting into domain investing:
This is a great site that starts you at the basics of what a domain is and walks you through how to acquire, value and sell domain names. Yes, there is a cost associated with it, but in my opinion, if you don’t already have friends in the industry to guide you, then this is a must-have to start your journey.
NameBio is a great resource to see what domains have been selling for, which is not only helpful in pricing your domains but also can be a good reference point to a domain’s potential worth before buying a domain name.
Learn from the experts.
At DomainSherpa, there are hundreds of interviews with successful domain investors who each have different strategies to learn from. I’d recommend starting with the “Top 10” interviews and expand from there. If you are a podcast listener, then their regular podcast is a great way to consume domain investing information while driving, running, etc.
NamesCon (or other domain investor events)
Domain investor events are time and money well spent.There is a ton to learn at the events, but even more important are the people you will meet.
Sometimes explaining what you do to your friends and family can be hard or confusing, but when you are at a domain investor event, you are surrounded by like-minded people who understand what you do. As a result, this is a great place to bounce ideas off of people and make friends with people who can become future confidants as you make your way in domain investing.
Stay up-to-date on the latest domain news
From blogs like TheDomains.com, DnJournal.com, DomainInvesting.com and DomainNameWire.com (which also has an excellent podcast) to forums like NamePros, there is an abundance of knowledge and news being shared about the industry.
Even if every post does not apply to what you are doing or your specific strategy, staying up-to-date on the latest news will ensure you are on top of your game and learning from others.
3. Don’t run too fast
Nothing pains me more than talking to someone who has spent their entire investment budget on bad domain names.
Over the years, I have been on more phone calls than I can count where I had to break the news to someone that they just spent their entire budget on domains that would not sell. There isn’t a single domain investor who hasn’t made mistakes or bought some bad domains in the beginning. Everyone does it at some point, so the key is to move slow enough that you have time to learn from your mistakes and adjust.
Define your domain investing strategy and lay out a plan on how to execute and measure its success.
Test out your strategy, refine it as needed, and only after you see indicators of success should you accelerate.
If your strategy fails, that’s OK. You can regroup, do some more research and come up with something new. Make calculated decisions on what you are going to do; don’t just jump headfirst into a strategy that you have not proven yet.
4. Don’t treat a domain investing business like a hobby
This is an easy domain investing pitfall to fall into.
Growing up, I collected sports cards and memorabilia as a hobby. As time went on, I discovered that I could buy cards off eBay and sell them at my local sports card shop for far more than I originally paid, allowing me to fund more acquisitions of sports cards. Once I learned this, I decided to transition my hobby into a business.
After I’d made the decision to become a business, I was looking to acquire an autographed Peyton Manning helmet and considered liquidating some of my basketball card collection to fund it. I brought my collection to my local shop and became upset at the offer that was being made on my Steve Nash and Shawn Marion rookie cards. I was a hardcore Phoenix Suns fan and, to me, those cards meant much more than the face value that was being offered.
It was then that I realized that I had grown attached to my basketball card collection and was not truly willing to part with any of them at a reasonable price. My reluctance to let go of those cards meant that I was still a hobbyist and not a business.
Over the years, I have run into a lot of domain hobbyists. It’s OK to have a handful of favorite domain names that you would be hard-pressed to part with. But if you are a new domain investor and you are too attached to your domains, it can become difficult to churn a profit.If you are going to turn domain investing into a business, it is important that you treat it that way.
A good philosophy that many domain investors use is to ask yourself: “If I sold this domain for this price today, how many other similar quality domains could I buy (whether on expiry or elsewhere) to replace it?”
5. Don’t invest in domains for which you can’t explain potential use cases
When buying a domain, you should be able to explain how a business or person could use the domain.
If you have a hard time explaining the value the domain is going to provide to a business, the chances that a business or person will pay a premium price for the domain is low.
Taking it a step further, pay attention to the word structure of the domain.
- Are the words in the right order that someone would use?
- Does having the plural of the word make it more or less desirable?
- Is it a domain that a business could actually use?
Take the time to walk through the use case of the domain you are interested in.
An example from my own domain investing is PodSoup.com. I saw the domain on a GoDaddy closeout auction and became excited because I could think of several use cases for the domain. First, I knew that podcasts have been on the rise and I could imagine some sort of soup-for-the-soul podcast being able to brand itself as PodSoup.
Next, I thought with all the at-home meal kits, wouldn’t it be cool if someone came up with a system to make a soup into a little pod that you just need to drop into a bowl of hot water for amazing at-home soup — a literal pod for soup.
Feeling confident in my use cases, I went ahead with my purchase of PodSoup.com. After I received my new domain, I listed PodSoup.com for sale on Afternic and received a sold notification within less than a month. With the domain selling so quickly, I started to wonder if maybe I hadn’t priced the domain high enough. This seed of doubt leads me to my next tip.
6. Don’t second guess your sale price just because it sold quickly
Every domain investor has an experience just like mine.
They buy a domain name, research a fair sales price, and list it for sale. The domain sells quickly and they immediately second guess if they lost money by pricing it that low.
And yes, that might be possible — you might have been able to sell the domain for more than it sold for. However, it’s also possible that if you had priced it higher, you might not have sold the domain at all.
My advice is to do your research, price your domains appropriately, and be happy with what you get.
If you are not able to replace the domain names you sell, then you should consider re-evaluating your pricing.
Ultimately, a big part of being confident in your pricing comes down to understanding the economics of a domain portfolio.
As you form your strategy, using metrics such as Average Sale Price (ASP), Sales Velocity (SV) and Revenue Per Domain (RPD) will help you gauge the success of your portfolio over time and be more confident in your approach to acquisitions and pricing.
It’s important to remove the emotion from your domain sales.
Conclusion and next steps
Domain investing is hard work, but at the end of the day, it can be super rewarding.
While it may not be a way to get rich quick, as you utilize your resources to create and test a solid game plan, you will put yourself on the road to success.
Recognizing yourself as a business and putting sound reasoning into each domain acquisition will allow you to implement your gameplan.
Don’t second guess yourself, measure your business metrics for any adjustments that may be needed, but don’t base decisions on emotions. As you avoid these potential domain investing pitfalls, you can set yourself up for the highest chance of success in domain investing.