How to Make a Profit On Domain Names

It is said that the land rush today is a virtual one, taking place online through the purchase of domain names. There are certainly fortunes to be made in domain names, as previous sales of single names have commanded six and seven figure price tags while whole portfolios have sold for tens of millions of dollars. But that is the exception to the rule, and most portfolios are valued at much, much less. Some portfolios, or single domains won't sell at all, so where is the value in that? In this article, we will look at some of the different methods professional domainers use to build a quality portfolio of valuable domain names and how they make a profit.
The first thing to consider is why you want to make money with domain names and what you hope to obtain from them. Are you hoping to purchase low and resell the domains for a profit? Or is it an investment with a long term strategy of website development and growth? There are many different paths to take when participating in the domain after market, and understanding where you want to go is the first step towards getting there. Some paths are riskier than others, so evaluating your options ahead of time will help you become better prepared for the challenges to come. Not everyone can make money with domain names, but the persistent and motivated often do. Once you have a clear vision of what you want, it becomes much easier to make choices that will move you in that direction.
The most obvious way to make money with domain names is to buy low and sell high. This is one of the most common methods used on the stock market and can be very profitable in many domain situations as well. All domain names start out at the registration fee, which can be as low as six or seven dollars per year for .com, .net, and .org domains. If you happen to register a domain that others perceive has value, the difference in the registration fee and this perceived (and/or actual) value can be a nice profit for the domain owner. Domainers who make money using this method often follow trends in the domain marketplace, registering keywords of new Top Level Domains (TLDs), registering and reselling desirable domain patterns (three letter domains, three character domains, etc), or just following what's hot or picking up established domains as they expire (which is a method in and of itself). The general idea here remains to buy a domain at a bargain and find a buyer who also sees value in the domain and is willing to pay a premium for it.
The upside to reselling domain names is that you can generate a decent amount of profits in a relatively short amount of time. The downside is that it may not always go as planned, and you will not always find a buyer for your domains right away. It can be tough to find buyers for specific names and if domains aren't reasonable priced, a buyer may never appear. Another downside is that you only make money off your own physical effort. You have to take the time to find domains to purchase, follow through with the purchase, and then find a buyer and complete the sale. This process can take quite a bit of time and involves a degree of risk. You may also find yourself holding onto domain names a lot longer than initially thought and end up playing the waiting game. With most domains, there are much better ways to produce profits, but don't discount this method for its potential ability to generate income in a short amount of time with the right domains.
Paid parking is another method for making a profit on domain names. This works for some names, mostly generic domains, typos, or names that receive steady traffic. There are many different parking programs available, but the basic idea is to sign up with a paid parking service and then send your domain traffic to their servers. Their servers will then display ads and search boxes on template generated websites, and you earn a portion of the revenue if anyone clicks on a link or purchases an advertiser's product. This system works when the domain earns more revenue per year than the cost of the yearly renewal fees. For instance, if you pay $12 per year for registration fees, the domain would need to earn slightly more than $1 per month to be a worthwhile option. Any less and it costs more to maintain the domain than the amount of money the domain produces. The plus side to this method is that once the domain parking is setup, you don't have to do anything to earn income as long as your domain receives traffic.
Many domainers will park new domains they purchase in order to gauge traffic and see if the domains will be profitable on a paid parking service. If a domain shows the potential to make revenue, they will most likely keep it for the passive income. Otherwise, they will look at other options for making a profit on the domain.
You may also consider developing a website around a domain name. The site could sell products, subscriptions, offer content and display advertisements, or offer varying combinations of techniques to generate revenue. The idea is to build up a profitable website and in essence, create a resellable asset that produces income. Having an established website (profitable or not) can greatly increase the value of a domain as well as make it appeal to more buyers. With this method, you can build up websites specifically to resell, or hold onto them for a continual income stream.
As competition in the domain marketplace becomes increasingly fierce, more domainers are becoming webmasters in an effort to maximize their profits and revenue while dramatically increasing the value of their portfolios.
Hopefully by now you have an idea of some of the main methods used to make money with domains. There are countless other methods for turning a profit, and numerous variations of the methods described in this article, but having a base of knowledge provides an excellent starting point. The key is to know what you want beforehand, learn as much as you can about specific methods that will help get you where you want to go, and then keep at it until you succeed. Many people fail because they give up, or don't do the research beforehand and end up losing money in bad deals. Making money with domain names isn't a get rich quick scheme, but with enough effort, motivation, and patience, anyone can succeed.