Business, Investment or Hobby?

Today I’m publishing a guest article on Domainer.com.au, as I’m minding the site for Ned for a couple of days. Don’t worry – he’ll be back on deck soon!

Broadly speaking, I think that domainers can sit under one of three categories:

1. people running a business based on buying and selling domains;
2. people investing in domains as part of their overall financial strategy; and
3. people participating in domaining as a hobby.

Let’s take a closer look at each of these.

Running a business

There are a small number of domainers that make most or all of their income from buying and selling domain names. If this is your main business activity – you’ll already know that you’re the exception, not the norm. This is true for both the Australian market and global markets. Ned is an example of a domainer that’s very successfully running a business in buying and selling (.au) domains.

Compared to seasoned investors like Ned, I’m quite a new entrant to the .au market, but I’ve had some terrific results to date. I was very encouraged by my early wins in .com.au, and up until fairly recently, I was taking deliberate steps to move from investing in domains to running a home business focussed on domains. I even developed my own storefront – a marketplace and parking platform all in one.

However, ultimately I decided that I wanted more diversity in my business pursuits and income streams, with the time to explore a range of interests and fun new projects like HomeBusiness.com.au.

If you’re looking to run a business based on buying and selling domains, you’ll need scale. Buying quality domains is of course paramount, but when you’re looking to earn your primary income from domains – you’ll also need plenty of inventory.

The sales conversion rate for domain enquiries is typically low, even for great negotiators, and across most portfolios only a portion of domains will get enquiries to begin with. So to get consistent sales you need the scale.

Scaling up of course means increased costs. More purchases, more renewals and increased time for administration of your portfolio (as they say ‘time is money’). You’ll either need to grow slowly from cash flow, or if you’re fortunate enough to start with some cash reserves – make some big investments to reach the scale required for consistent income.

It’s also helpful to have inventory that spans a range of industries and price points. Just like a bricks-and-mortar store, it helps to offer a range of product categories, and also products at different price points to suit different customer budgets.

For me, I’m probably more appropriately grouped in the next category.

Investing in domains

When I say ‘investing in domains’ – I mean buying and selling domains at a profit, with some regularity.

Domains can be a terrific investment, with the capacity to generate very healthy returns that far exceed many other asset classes. But, you need to know what you’re doing! That takes time and experience. It goes without saying of course – Domainer.com.au is a great place to develop your knowledge.

There are a lot more Australian domainers in this category than the first. There’s actually many more successful Aussie domain investors than most people would expect. I know I was surprised myself once I got the lay of the land.

I’m somewhere between these first two categories, but on balance more in this one than the first. I might go a couple of weeks or even a month without a sale, but then I’ll make $10,000 in the space of a few days, like this week. I make a great return from domains, but I don’t have the scale of inventory for it to be my only source of income.

Participating as a hobby

The final category is where a large number of domainers could be grouped. Some would say the majority – and for ‘newbies’ that’s certainly true (we’ve all been there), but I think overall the term ‘majority’ is a bit strong in reference to the Australian market.

Unless you’re scaling up your inventory in the short term for longer term gains, you should be consistently making a profit. If however, you’re consistently spending far more than you make, it’s not a business – it’s an expensive hobby!

There’s nothing wrong with hobbies of course, but if you’re aiming to become an investor rather than a speculator – it could be time to re-evaluate your approach. Learning from successful domain investors is a great place to start. Domainer.com.au and DNTrade.com.au are terrific resources for local domainers, with experienced investors sharing their insights on the .au market.

Where do you fit?

So I think I’m somewhere between the first two categories – where do you fit?

Let us know in the comments below.

Caveat

In this article I’ve focussed on the activity of buying and selling domains for profit. I haven’t included discussion on domainers that focus on developing domains purchased on the aftermarket/drops, or on businesses that purchase domains for brand protection. I know this can be a sizeable part of the market activity at times; I’m often a purchaser on both of those fronts myself (as a developer and for brand protection).