We are often asked why a domain in the after-market is so expensive
compared to registering a new domain name. In the interest of
credibility, I'd like to explain the economics of the domaining
No two domains are identical, thus every domain purchase price is
unique since every domain in is unique in value. Most domainers
however set (or at least maintain internally) an absolute "minimum"
price they will consider. Our absolute minimum is $5,000 for
example. That does not mean we will sell a specific domain for
$5,000, it just means we won't sell any of our domains below $5,000.
So why might an after-market re-seller insist on a $5K minimum when
selling an $8 domain? That may seem like extortion, but the same
erroneous logic could apply to charging $10 for a pharmaceutical pill
that cost $.02 to make, if you only look at the production cost in a
vacuum. If you look at the whole picture of the economic model
however, you discover that there are significant other costs behind
pharmaceuticals - like the R&D efforts of the thousands of compounds
that never make it to market. The key to understanding either
business is the understanding of the economics of the business model
and pricing model.
We are trying to bring some credibility to the industry of
"domaining" which historically does not have a particularly good
reputation. The poor reputation is largely due to the early
unscrupulous practice of squatting on trademarks, which we do not
intentionally do. In attempting to bring credibility to the practice
of domain reselling, it is imperative that we also educate customers
and potential customers as much as possible on the economics of
domain pricing. So let's examine the typical domain re-seller model.
A typical "domainer" will turn over or sell less than 0.5% of their
portfolio each year. In our case have a little over 5,000 domain
name, which makes us a small domain portfolio, but we are focused in
healthcare so we are fairly large within that market. This means we
will typically sell less than 25 domains each year, before paying the
renewal fees on the 5,000+ (which when you factor in time, hosting,
etc.. it is a small business that costs about $125,000 per year to
operate (with a good chunk of that going to renewal fees, the rest is
a bare bones part-time operation, hosting, etc...).
As such for a domain business to earn a reasonable profit, the
"minimum" sale price must be reasonably high, in order to get your
average sale price to a profitable level. While the "stories" of the
million dollar domain names proliferate, those purchases, while they
occur, are few and far between. The bulk of transactions are smaller
deals like one we are discussing. The common thinking among
domainers is that a minimum sale price of $5K, will allow for a
sustainable portfolio (and that seems to be holding true from our
experience as well).
In our example the finances go something like this: 25 sales per
year at average of $8K each = $200K revenue, less $125K expenses =
$75K profit (about a 1/3 profit margin). Like with pharmaceutical
drugs, while a single pill (viewed in a vacuum) seems very expensive
vis-a-vis the cost to produce it, that single pill need to pay for
the thousands of others that never make it to market... in that
respect alone, the domaining business is similar to the
pharmaceutical business in that a handful of "saleable" products,
pays for a much broader inventory/R&D of "potential" products.
I hope a clearer understanding of the economics helps you understand
why we charge the prices we do. If your price is higher, than the
average, keep in mind 50% of our sales must be higher than the
average for the average to be what it is.
Let me know if you'd like to proceed. If so, I hope you find this to
be a reasonable transaction, and find us to be a reasonable domain
broker, and will consider referring us to other credible buyers.