When is it Right to Invest in Premium Domains?

May 22, 2012 - by admin · Filed Under Domains 1 Comment 
Be Sociable, Share!

    We’ve probably all been there when we saw a top premium domain ($1,000+) for sale in an auction that we wanted to get our hands on.

    I’ve bought a lot of expensive premium domains in the past, ranging from $2,000 up to $10,000+ (though usually around the $2,500 mark).  Actually I’ve bought a domain like this almost every month.

    The main problem with buying expensive domains isn’t whether I got a good deal or whether I’ll get my money back.  Pretty much all of the domains I’ve bought in the past have been for really good value.

    The problem is how much has it hindered my other projects and business growth?

    Opportunity Cost of Buying Domains

    We could all go out there and spend $50,000 on MobileCasinos.com, $75,000 on OnlineBetting.com or $1 million on Poker.org etc…There’s lots or premium domains out there.

    But, what would happen if we registered generic brandable domain such as CasinoMountain.com instead, and then invested that $50,000 or $1 million in a website with coding, content and social media campaigns?  That’s what I’m starting to think of now.

    A lot of people who buy premium domains and develop them into websites will tell you they aim to make an ROI within 6-12 months.  I’ve done this with a couple of websites I bought in the past, but never with a premium domain on it’s own.

    Intelligent generic domain developers will tell you generic premium domain are investments with added SEO profitability from ranking highly for a keyword.  In other words, you’re never really “losing” money because you always have that premium domain asset in your business – which will probably increase in value over time.  If you need the cash, you can sell the domain at a later point in time.

    Case Study of Premium EMD vs. Content Investment

    I’m still skeptical though of the opportunity cost of developing domains.  I always like to look at Financial-Spread-Betting.com as a prime example for a content heavy site.  Financial-Spread-Betting.com is without question the leading authority on the topic.  Their content is insurmountable and everyone in the Trade2Win.com and other trading forums references their reviews and information.

    I know the owner of this site, but I don’t know his traffic or earnings or anything like that.  I’m guessing the site makes $20k+ per month with thousands of visitors per day.  Let’s assume he has 250 pages of static content and each page is 1,000+ words long.  Based on 0.10c/word, that’s around $25,000 worth of content.

    In other words, he’s created the most authoritative website in the niche, with excellent content and genuine followers.  All of his investments are in the content/interviews/features/lessons, which generate an extremely high ROI.  The domain is exact match, but it probably didn’t cost much more then $xxx.

    Now, compare this to another site like SpreadBetting.com, where the owners probably invested $100k+ in the domain, and then hired some decent spread-betting writers and bought lots of cheap links.

    In the former example, all of the value is in the content, which can ultimately be recycled and moved to a different site if they need.  In the latter example, all of the value is in the domain and not much thought or investment has been injected into the content (they have 10 lessons on spread betting compared to 300+).  Furthermore, if they site is penalized then their biggest asset is gone.  A penalized domain is probably worth 10% of what it was worth beforehand.

    Should you invest in Premium Domains?

    The reason I’ve brought up this topic of domains on my blog is because looking at the past 6-12 months I’ve invested a lot in domains where I could have easily invested in content, brand building, coding and social media instead.

    I’m not against investing in premium domains at all.  I just think it has to be done on a case by case basis and whether you can afford to sink your money into one for your business.  It’s a bit of an addiction buying up premium domains and getting respect from your peers (e.g. “I own Recycling.co.uk and Gambling.com” etc).  But you should really ask yourself if you’ve been getting the best ROI from all of your costs over the last 12 months.

    This isn’t really an SEO debate about EMD vs. brand signals.  It’s a plain a simple cost vs. returns debate about how to run a business.  To conclude, I generally don’t recommend indulging on a domain worth more then 1-month’s income (assuming it is a MUST HAVE domain in your network). At the very most I’d spend a little under 2 months income if I felt I could make an ROI very quickly and it was a really good price where I could flip the domain overnight (in addition to having the cash flow available).

    If the domain is outside of your price line, try to negotiate a monthly payment schedule for the domain (e.g. paying 20% of the full domain value per month for 6 months) or even a 33% deposit on the domain.

    I’d also try to focus on a strategy for investing in domains (e.g. develop sites within a certain market) rather then nilly willy buying domains for the hell of it, and also try not to have too many new projects in your network otherwise you’ll be sinking investments into projects with a very long ROI, essentially bleeding your company to death.  One of the lessons I’ve learned is that if you have too many projects to develop then it’s going to be an awfully long time before you see any sort ROI in a newly purchased domain (e.g. like my acquired MobileInsurance.net and MobileRecycling.net domains.  I did have pretty good reasons for buying these however.  I bought MobileRecycling.net for $200, which I think is probably worth $1,000+ (mobilerecycling.co.uk sold for $5,000 2 years ago) and I bought MobileInsurance.net for 10% of what mobileinsurance.co.uk cost).

    Another very useful lesson that someone taught me is that you should make it your aim to re-invest in your projects that are generating the most income.  Thus, if you’re going to invest in any sort of domain, make sure you see a future for it to develop into a bigger brand 12+ months down the line.  Developing xxxx-xx.org might look tempting and deliver a quick ROI, but in the long run you’ll probably wish you developed xxxbrand.co.uk instead.

    Follow Me on Twitter @AffiliateFYI for Even More Affiliate, Business and SEO Updates!

    Be Sociable, Share!