Is Buying Domain Names Profitable?

This is in response to a question a fellow Moz community member once asked in Q&A, and we thought that it deserved its own article. Buying up expired domains, or purchasing keyword-driven domains is becoming more popular amongst the internet "get rich quick" crowd. The big question is: Can you make a profit by buying and selling domain names? If you get the right one, sure. If you plan on repeating the process over and over, probably not.

Something wise my father once told me "Something is only worth how much someone is willing to pay for it." This small seemingly unimportant statement has guided me in many selling and purchasing decisions in my life. Sometimes, it makes the reality all too apparent. So, is buying a domain with the intention of selling it a good idea? Let's break down the details, and talk to some people that actively pursue this method. Yeah, we know a guy.

1. Labor-wise, it doesn't add up

In the grey hat SEO world, the thought is that you can take a domain that is keyword driven, do a quick optimization to get the site ranking, and sell it off at a profit. It could, and does happen daily. How much time is invested in optimizing a site to get to page one, vs how much the site will sell for? (remember that quote at the beginning of this article?). Let's put it into simple math:

According to Sedo.com, the average cost of a purchased .com domain is around $2100-2300. Depending on how much your time is worth, you may have to take a hit on labor cost to get the domain where it needs to be in order to entice potential buyers. Here is some theoretical math for you number crunchers:

• Optimize keyword-driven site to rank in Google: approx 30 hours @ $50 hour labor cost (using low $50 rate for sake of example) = $1500
• Time cold-calling and email blasting potential buyers in industry niche to purchase said domain: approx 8 hours = $400
• According to the data provided by Sedo.com, likely cost for selling said site: approx $2300 max ($1000-1500 most likely)
• Gained vs Invested = $2300-1900= $400 profit.

I'm not against making money in any way, but $400 doesn't really seem worth the effort and coffee expense invested (I like the good stuff). This is a very basic example used to put the costs in perspective. Most SEO providers charge more than $50 per hour, and you get what you pay for. The above example of a final labor estimate is probably much higher, or if the domain is already ranking high and the owner wants to sell, so is the initial purchase price. Since this is often repeated many times over for multiple domains, it could get time consuming, and expensive.

2. You might get someone's dirty laundry

It's ranking high today! What could be the problem? NO. JUST STOP. Unless you know the entire history of a domain, you may be setting yourself up for failure before you begin. SEOs (and business owners) use a variety of tactics to get a site ranking high in search results. For some of these methods, we'll just call them "questionable". These methods could include everything from buying links, overuse of directory submissions (non-industry related), duplicate listings, poor quality backlinks, and guest blog comments.

With a domain of this type, it could be very easy to get it to rank quickly, before the powers that be see the domain for what it is, and put it on the blacklist. While that study is being done, you could end up with a domain that has a lot of problems coming down the pipeline that you are completely unaware of.

3. It undermines your quality and reputation

If you know how to get websites to page one, why are you not marketing that fact to potential clients and consumers or would-be domain purchasers? Trying to get a keyword driven domain to rank high and sell it off for a profit isn't a good investment, either time wise or for the long-term success of your company. Instead, use sites that you have already ranked high as an example of how awesome you are and sign them up for a monthly fee, rather than trying to sell them a "make money now" domain.

• Demonstrate SEO prowess to potential client using existing sites as proof of results
• Sign up client for basic SEO services at $600-1000 (depending upon site and competition) per month
• Invest 30-40 hours in making the client's site soar in results
• Client is happy. Refers friends and other business owners your way
• You get: More clients, better reputation, month recurring income, and gain a positive reputation for being a quality SEO provider.

4. It's not sustainable income

Remember that guy we said we knew? in the second paragraph? Well, we talked to him to find out if all the bling and glamor behind selling domains was true. This is what he said:

• US: "Is buying domains with the intent of selling them a sustainable model?"
• HIM: "Honestly, it depends. Overall, I'd have to say no, because you never know what you are going to get in return. One week I might make $900 off one domain, but the next week I'm stuck with five nobody wants. However if you are a great salesman, you can make it work."
• US: "What type of domains do you see being the most sought after?"
• HIM: "Mainly small-medium sized local businesses looking for a way to increase their ranking. Most already have a branded domain in place, and have heard that using a keyword domain can help. Or they have seen a competitor ranking using that method. The problem I face is that they don't have a lot of money to spend, so I get lowballed on the asking price. There have been a few that make a ton of profit vs what I purchased it for, but that boils down to luck: what is for sale, when I find it, things like that."
• US: "When do you think it makes the most sense to buy or sell a domain?"
• HIM: "When someone is selling the company, and have a high ranking domain already in place. Those companies stand to make the most money by selling to their competitors, who always seem to be willing to pay. (laughs)"

Selling a domain negates the fact that you can make additional money from this client, unless you start the process over again, with another domain. You could use the domains position as proof of your SEO-prowess, but once it's already ranking and optimized, what other services can you entice them with?

5. Waiting on and finding buyers can be a pain in the arse

We did a search for GoDaddy and Sedo domain experiences, and many of them came back as negative. In one such example, Online Domain stated that "GoDaddy is destroying domain sales." The author speaks about having to wait up to 80 days to get his domain sold, the whole time being questioned on his asking price.

But wait, there's more. So you are looking to sell a premium listing that is not keyword-driven? Be ready to take a hit. On all premium domain sales, GoDaddy takes a 30% commission fee. This process happens before they remit the payment. Yikes. When you are already operating on a slim margin, 30% can be what makes or breaks the bank for that sale.

Conclusion:

While buying up a ton of domains seems like a great way to make some extra money, the real world results show that it is very hard to make that process profitable. As with any industry, you will have those "golden moments" when someone you read about made it into a million dollar a year business, all while sitting in the comfort of his own home. That could be true, but he probably consumed a lot of alcohol and lost a lot of hair doing it.