I was discussing my business development and growth strategy with a friend in this business, and I thought I would share a bit of my business strategy from 30,000 feet. This is just a general overview (hence the 30,000 feet saying), but maybe it can help you set some goals for your business.
My primary revenue/income source is flipping domain names. I buy anywhere from 3-15 names on the aftermarket each month, and most of the time the goal is to re-sell them fairly quickly. The margins vary depending on the name/price, but it’s still a lucrative business, especially considering everything that’s going on with the economy (my business was up about 10% in the first half of 2011 vs. first half 2010).
Inevitably, I also have some domain names that are bought to flip but end up sitting in my portfolio for some period of time. Because I treat my domain investments as inventory (for tax purposes), the government treats them as if they were cash. For instance, if I sell a domain name for $10,000 profit and buy another name for $8,000, I am still on the hook for roughly $4,000 in taxes on the $10,000 profit, despite having spent all but $2,000 of it. This is one reason why I sometimes opt to churn and burn names even at very low margins. I am bullish on domain names, but I prefer to keep a strong cash position.
On the other side of my business is development. The purpose of developing some of my domain names is to increase my income from sources other than domain flipping. I’ve tried many things, and a few have stuck and are making decent money. My geodomain investments are just starting to pay off. Revenue is increasing every month and the costs are stable or decreasing. My pet directories are doing well, with DogWalker.com leading the pack (pun intended).
Ideally, revenue from developed sites (including this blog) will eventually become 50% or more of my income.
I want to briefly explain why my goal is to convert my business from nearly 100% reliant on domain sales to a goal of 50% or below. From my point of view, revenue from developed websites (including all forms of advertising/monetization) is far more consistent than domain flipping. There’s also considerable pressure on me when buying high dollar domain names for flips. With a large and steady advertising revenue stream, I can afford to hold out for better deals on domain names and can take more development risks.
There you have it. I have been slowly transitioning my business into an online publishing company instead of being solely a domain investment company. Investing in domain names is still lucrative for me, but it’s less consistent and the goal is to keep my company operating even when I am not working.