Everybody knows that if we price our domains too high, they won’t sell and we’ll go bankrupt, right? Well not everybody. As newbies we think we’ve struck gold with hand-regged domains like SandpaperSusan.com and we list them for sale at 5 figures. After a year when it hasn’t sold we feel foolish and change it to a bargain price of $50. After a month, when it still hasn’t sold, we’re at our wits end.
The art and science of domain pricing is a crucial factor in the management of our portfolio. It can make or break our business. Of course, this is the same for most businesses. If we price our services too high, customers will go elsewhere to find them at a more affordable price. Luckily, there are ways to bring customers in, whilst still increasing our profit margins. It’s all about brand equity. This refers to the extra value that a well-known brand receives. If our services are well-marketed and known to be good, people will be willing to pay more. So, in order to increase profits, we might need to look into brand recognition.
Last week, in my blog, Domain Renewals: The Silent Killer, we talked about business overhead (domain renewals). This week we’re going to look at the interaction between pricing and renewals and how they can dramatically affect our profits (or losses) over time.
For the sake of simplicity let’s analyze a static portfolio of a patient domain investor with 100 hand regged names. Let’s assume for this analysis that the registration and renewal fees are $8 each and that there is an annual sell through rate of three domains per year (3%). For simplicity we’ll also assume that all sales are through Efty landing pages and that there are no commissions or fees.
So we can see that pricing has a profound impact on profitability. Even a 25% increase in price can take profits up by 38%. Likewise lowering prices on our domains could be financially debilitating if those price reductions don’t result in a significantly higher annual sell through rate.
This analysis is yet another reason to get rid of our low quality names since in many cases they have the same overhead (renewal costs) as domains of slightly better quality.
This doesn’t mean we should arbitrarily push up prices. Rather it encourages us to try and get the maximum price for each domain without compromising our rate of sales.
That’s not something that’s easy to accomplish. In fact, it’s like threading the eye of a needle. But we have to try, right?
Till next time……. May all your sales be to end users!