In this article
Domain investing is buying domain names in order to resell, lease or monetise them later, and a portfolio makes money only when the names that sell each year bring in more, after commission, than the renewal fees of all the names that did not sell. Two numbers decide the result: the sell-through rate, which is the share of the portfolio sold in a year, and the average sale price. Everything else, from where you buy to how you list, matters because it moves one of those two numbers or the renewal bill they are set against.
This article takes the portfolio view: what a book of several hundred names costs to build and to carry, what it has to sell to pay for itself, and where the legal limits are. The short-term resale of a single name and the appraisal of one name are separate subjects. The model below uses illustrative figures, labelled as such. Nothing here is investment, legal or tax advice.
The first two figures come from the illustrative model in this article ($12 renewal, $2,500 average sale price, 15% commission). The third is the range in the United States Lanham Act, 15 U.S.C. 1117(d).
What is domain investing?
Domain investing is the practice of holding domain names as inventory: you acquire names you expect an end user to want, pay to keep them registered, and earn from the few that sell, lease or generate advertising income. The buyer you are waiting for is usually a business that wants the name for its own brand, product or campaign, and that buyer arrives on its own timetable.
A domain name is not a share or a bond: it pays no dividend, it has no quoted price, and no market maker stands ready to take it off your hands. A name is also not owned outright. It is a registration that lasts as long as the renewal fee is paid, so every name in a portfolio is a small recurring liability until the day it sells.
Because any single name may wait years for its buyer, or never find one, investors work in numbers. A portfolio of several hundred names turns an unpredictable event (this name sells this year) into something closer to a rate (so many names out of every hundred sell each year), and that rate is low.
How does a domain portfolio make money?
A domain portfolio makes money from three sources: outright sales to end users or other investors, leasing a name to a business for a recurring fee, and advertising income from parked names. Sales carry most of the result; leasing and parking are covered in outline further down.
The yearly result of a portfolio is a short formula. Take the number of names sold in the year, multiply by the average sale price, and subtract the selling commission: that is net sales. Then subtract the renewal fees paid on every name still held, and the cost of any names bought during the year. What remains is the year's cash result.
The two sides of that formula behave differently. Revenue rests on a handful of events: in a portfolio of a few hundred names, a year's sales may be fewer than ten transactions. The renewal bill is almost certain, falls due on fixed dates and scales with the number of names, not with their quality. A weak name costs the same to renew as a strong one and sells far less often, so the cheapest way to improve a portfolio is often to hold fewer names.
Where do domain investors get their names?
Domain investors acquire names from three sources: hand registration of names nobody currently holds, expired names that their previous holder let lapse, and the aftermarket, where a name is bought from its current holder. The three differ in price, in the competition you face, and in how much checking each name needs before you pay.
Hand registration means registering a name that is free, at the ordinary first-year price of the extension. It is the cheapest entry and the one with the weakest selection: the names still unregistered in the long-established extensions are, with rare exceptions, the ones nobody wanted.
Expired names are names whose holder did not renew. ICANN's Expired Registration Recovery Policy sets the minimum the previous holder is owed before a name is lost: at least two reminder notices before expiry, about one month and about one week ahead, at least one more within five days after expiry, and, once the name is deleted, a 30-day redemption grace period during which the holder can still restore it (the policy applies to generic extensions other than sponsored ones). In practice many expiring names are offered at auction by the registrar or by a specialised service before they are released, and the price is set by the bidders.
The aftermarket is the purchase of a name from its current holder, on a marketplace, through a broker or by direct approach. This is where the names with an obvious commercial use are found, and where the prices are highest.
| Source | Typical cost level | Main strength | Main weakness |
|---|---|---|---|
| Hand registration | One registration fee | Lowest cost per name, no competition at purchase | Weakest selection in mature extensions |
| Expired names | A registration fee up to auction prices | Names with age and sometimes past use | Bidding competition; the name's history must be checked |
| Aftermarket purchase | Negotiated, often many times a registration fee | Best selection, known demand | Highest capital per name, thinner margin |
An expired or aftermarket name comes with a past, and the previous use follows the name to its new holder; the screening routine further down covers the checks.
What does it cost to hold a portfolio of names?
Holding a portfolio costs one renewal fee per name per year, for every name, whether or not it attracts a single enquiry. The renewal is the carrying cost of the inventory, and over a few years it commonly exceeds what the cheaper names cost to acquire.
Take a name hand-registered at an illustrative $12 with a $12 yearly renewal. After five years of renewals it has cost $60 in renewals alone, five times its purchase price; after ten years, $120. For names bought cheaply, the purchase price is the small number and the holding cost is the large one.
Three details of the renewal bill deserve attention:
- Extension pricing. Each extension has its own registry price, and the registrar adds its margin. Some newer extensions sell certain names at a premium price that also applies to every renewal, which can turn a name into a permanent loss however good it looks.
- Lapse costs. ICANN's Expired Registration Recovery Policy requires registrars to disclose their renewal fee, their post-expiration renewal fee if it differs, and their redemption or restore fee. Restoring a name during the redemption period usually costs more than renewing it on time.
- Renewal dates. Names bought through the year renew through the year, so keep a calendar of due dates and decide to keep or drop a few weeks ahead.
Other costs are smaller: listing or landing-page services, accounting, and the time spent answering enquiries. Selling commission is taken from the sale, and the model below deducts it there.
Why do sell-through rate and average sale price decide the result?
Sell-through rate and average sale price decide the result of a domain portfolio because their product is the entire revenue per name held, while the renewal fee is the entire cost per name held. Multiply the two and compare the answer with the renewal: if the revenue per name is below the cost per name, the portfolio loses money every year it exists, however good a few of its names are.
Sell-through rate is the number of names sold in a year divided by the number of names held at the start of that year. Average sale price is the total sale proceeds of the year divided by the number of sales. A sell-through rate should count only completed, paid sales. An average sale price should be read next to the median, because one large sale can lift the average of a year in which most names sold for much less.
The break-even follows directly. With a $12 renewal, an average sale price of $2,500 and a 15% commission, each sale leaves $2,125. Dividing $12 by $2,125 gives 0.56%: below that yearly sell-through, sales do not even cover the renewals, before a cent of the purchase cost is recovered. Read the other way, one average sale pays the yearly renewal of 177 names. A portfolio selling one name a year for every 177 held is standing still.
The two numbers also trade against each other. Pricing names high raises the average sale price and lowers the sell-through rate, because fewer buyers reach the asking price; pricing low does the reverse. What matters is the product of the two.
The figures investors quote to each other for these two numbers are self-reported and vary with the quality of the names, so they are not repeated here. The model below uses three assumed rates to show how sensitive the result is, not to tell you which one you will get.
What does a portfolio earn or lose over five years?
In the illustrative model below, the same 400-name portfolio loses $19,790 over five years at a 0.5% sell-through rate, gains $1,700 at 1%, and gains $44,680 at 2%. The purchase cost, the renewal fee and the sale price are identical in the three cases; only the number of names sold each year changes.
The portfolio is bought in one go from the three sources. Every figure is an assumption chosen for the arithmetic, not a market statistic.
| Source | Names | Cost per name | Total cost |
|---|---|---|---|
| Hand registration | 240 | $12 | $2,880 |
| Expired names | 120 | $60 | $7,200 |
| Aftermarket purchase | 40 | $300 | $12,000 |
| Portfolio | 400 | $55.20 average | $22,080 |
The 40 aftermarket names are 10% of the portfolio and about 54% of the money spent; the 240 hand-registered names are 60% of the portfolio and about 13% of the money. They will nonetheless cost exactly the same to renew.
The other assumptions are these. Each name renews at $12 a year, the first year being covered by the purchase, so renewals start in year two and are paid on every name still held at the start of the year. Every sale is made at the average price of $2,500 less a 15% commission of $375, leaving $2,125. Sales are held constant at 2, 4 or 8 names a year, which is 0.5%, 1% and 2% of the opening 400 names. No names are added or dropped, and the names left at the end are counted at zero.
| Over five years | 0.5% sell-through | 1% sell-through | 2% sell-through |
|---|---|---|---|
| Names sold | 10 | 20 | 40 |
| Net sales after commission | $21,250 | $42,500 | $85,000 |
| Renewals paid | $18,960 | $18,720 | $18,240 |
| Purchase cost | $22,080 | $22,080 | $22,080 |
| Result | -$19,790 | +$1,700 | +$44,680 |
| Names still held | 390 | 380 | 360 |
At 0.5%, the two sales of each year bring in $4,250 while the renewal bill runs between $4,704 and $4,776. The portfolio is $17,830 down at the end of year one and $19,790 down at the end of year five: holding longer makes it worse.
At 1%, the four yearly sales bring in $8,500 against renewals of about $4,700. The portfolio recovers roughly $3,800 a year and does not cross zero until the fifth year. A gain of $1,700 on a total outlay of $40,800, purchases plus renewals, is about 4% over five years.
At 2%, net sales of $17,000 a year pay back the purchase during year two, and the five-year gain of $44,680 is about 111% of the $40,320 laid out. Doubling the sell-through rate from 1% to 2% did not double the result; it multiplied it by about 26, because the costs were already paid at 1% and nearly all of the additional revenue is profit.
Counting the remaining names at zero is deliberately cautious: any value they have is only realised by the same slow sales the model already describes.
How much does the average sale price change the outcome?
The average sale price moves the result as strongly as the sell-through rate does: in the same illustrative model at four sales a year, an average of $1,500 produces a five-year loss of $15,300, an average of $2,500 a gain of $1,700, and an average of $4,000 a gain of $27,200.
Purchase cost of $22,080 and renewals of $18,720 in all three cases; unsold names counted at zero. Bar lengths show the size of the result, loss or gain.
Discounting to close a sale therefore has a cost that is easy to miss: accepted across the portfolio, $1,500 where the book needed $2,500 turns a portfolio that pays for itself into one that does not.
Pruning works on the other side of the formula. Suppose that in the 1% case the investor drops 150 of the hand-registered names at the start of year three, having seen two years without an enquiry on any of them, and that the same four sales a year continue because the dropped names were not the ones that sell. Three years of renewals on 150 names is $5,400 saved, and the five-year result rises from $1,700 to $7,100. The assumption that the dropped names would never have sold is the whole question, and your own records for each name (enquiries received, visits, offers refused) are the evidence for it. A drop rule written on the day you buy, such as renewing past the second year only a name that has drawn a genuine enquiry or measurable visits, protects you from renewing a name merely because you have already paid for it.
Can parking and leasing cover the renewals?
Parking and leasing can reduce the carrying cost of a portfolio, and on most portfolios they do not cover it. Parking income depends on visitors a name receives without any promotion, which most names do not have; leasing depends on finding a business that wants the name now and prefers a recurring fee to a purchase.
Parking means pointing an unused name at a page of advertisements supplied by a parking service, which shares the advertising revenue with the holder. The income comes from people who type the name directly or follow an old link, so it is concentrated in a minority of names. As an illustration, a 400-name portfolio earning an average of $2 a name would collect $800 a year against a renewal bill of about $4,800.
Leasing means letting a business use the name for a monthly or yearly fee while you remain the registrant, often with an option to buy. One lease has a visible effect on carrying cost: at an illustrative $100 a month, a single leased name brings in $1,200 a year, the renewal of 100 names at $12. In return, a lease needs a written agreement covering the term, missed payments, control of the name's technical settings and any purchase option.
What is the legal risk in domain investing?
The main legal risk in domain investing is cybersquatting: registering or holding a name that is identical or confusingly similar to someone else's trademark, in bad faith. A trademark owner can pursue it through the Uniform Domain Name Dispute Resolution Policy, known as the UDRP, which can take the name away, or in the United States under the Anticybersquatting Consumer Protection Act, known as the ACPA, which can also result in damages. The risk begins where a name's value comes from another party's mark.
The UDRP is an ICANN policy that every registrant in the generic extensions accepts through the registration agreement. Under its paragraph 4(a), a complainant must prove three things: that the name is identical or confusingly similar to a trademark or service mark in which the complainant has rights, that the registrant has no rights or legitimate interests in the name, and that the name was registered and is being used in bad faith. All three are required.
Two of the examples of bad faith listed in the policy concern investors directly. One is registering a name primarily to sell, rent or transfer it to the trademark owner or a competitor of that owner for more than the documented out-of-pocket costs. Another is using the name to attract visitors for commercial gain by creating a likelihood of confusion with the mark, which is where trademark-related parking advertisements become a problem.
The remedies under the UDRP are limited to cancellation of the name or its transfer to the complainant; a panel cannot award money. Under the UDRP Rules the registrant has twenty days from the start of the proceeding to respond. The World Intellectual Property Organization, one of the approved providers, lists a fee of $1,500 for a single-member panel on a complaint covering one to five names, and $4,000 for a three-member panel. The complainant pays, except that a registrant who chooses a three-member panel where the complainant asked for one panelist pays half of the three-member fee, $2,000 on that schedule. Either side may go to court, and a registrar implements a transfer decision after ten business days unless the registrant shows it has filed suit.
The policy also protects registrants against abusive complaints. The UDRP Rules define reverse domain name hijacking as using the policy in bad faith to attempt to deprive a registered holder of a name, and a panel that finds a complaint was brought in bad faith must say so in its decision.
In the United States, the ACPA, codified at 15 U.S.C. 1125(d), gives a trademark owner a civil action against a person who registers, traffics in or uses a name that is identical or confusingly similar to a distinctive mark, or dilutive of a famous one, with a bad faith intent to profit from that mark. The statute lists nine factors a court may weigh. They include offering to sell the name to the mark owner without having used it for a genuine offering, supplying false contact information, and holding multiple names that are confusingly similar to the marks of others. Bad faith is not found where the registrant believed, on reasonable grounds, that the use was fair or otherwise lawful. A court may order the name forfeited, cancelled or transferred, and under 15 U.S.C. 1117(d) the plaintiff may elect statutory damages of not less than $1,000 and not more than $100,000 per name.
The control is a screening routine applied before every purchase and every renewal.
- Ask where the value comes fromWrite in one line why a buyer would want the name. If the answer is the reputation of an existing brand, product or person, stop there.
- Search the trademark registersSearch the exact term and close spellings in the trademark registers of the markets where likely buyers operate, and note what goods or services any matching mark covers.
- Look at the name's historyFor an expired or aftermarket name, review what the name was used for, whether it resolved to a business that still exists, and whether it has been the subject of a published dispute decision.
- Check how the name is displayedMake sure any parking page shows advertisements related to the generic meaning of the words, never to a brand, and that your contact details on the registration are accurate.
- Keep a recordKeep the date, the price, your one-line reasoning and the search results, and ask a trademark lawyer before buying a name you are unsure of.
Who does domain investing suit?
Domain investing suits a person who can commit money for several years with no certainty of getting it back, who is willing to keep records name by name, and who knows an industry or a language well enough to recognise a name its businesses will want. It does not suit anyone who needs the money on a set date or expects a steady income from it.
Four questions sort the two groups:
- Can you fund the renewals for five years from other income? In the model, renewals come to roughly $18,000 to $19,000 over five years on top of the $22,080 purchase. An investor who has to sell names to pay renewals sells the good ones first, at a discount.
- Can you live with illiquidity? A name sells when its buyer appears. Selling quickly means selling to another investor at a wholesale price.
- Do you have an edge in selection? The sell-through rate depends on choosing names that businesses in a given field will need. Knowledge of one sector or one language is a more reliable edge than volume.
- Will you keep the books? Purchase date and price, renewal date, enquiries, offers and the sale price of each name are what let you compute your own sell-through rate and average sale price.
Whether the proceeds of a sale are treated as business income or as a capital gain, and whether renewals are deductible as they are paid, depends on the country and on how regularly you trade; ask a tax adviser in your own jurisdiction.
A cautious start follows from those answers: a portfolio of forty names in a field you know, held for three years, teaches the same lessons as one of four hundred at a tenth of the cost. Once a year, compute your own sell-through rate and average sale price on completed sales, and set their product against your renewal fee. When a name does sell, the payment and the handover of the name follow the process of the channel the sale was made on, whether a marketplace, a broker or an escrow service.
