How to Buy Domain Names Like a Pro: 10 Tips from the Founder of PhoneTag.com

A rose is a rose is rose… but not with domain names. (Photo: nickwheeleroz)

I am James Siminoff. I’m an entrepreneur.

I have founded more than a half dozen companies, exited from one and currently spend my time on PhoneTag and Grid.com. I have spent over $250,000 on approximately 200 domain names because I believe that a great domain is extremely important to the success of a start-up (I learned the hard way – PhoneTag used to be called SimulScribe).

It’s especially important if you are starting a virtual business as it’s both your company name and how people will find you. My overall rules for domains are: they must be easy to spell, easy to say, and .com (no .net, .us, etc.) domains.

What I find tricky about purchasing domains is that you cannot use comparable sales (like real estate) or actual intrinsic value estimates (as you can with a car, jewelry, TV, etc.) for your negotiations. Vibrator.com sold for $1 million, I spent over $100,000 on Grid.com, yet sometimes you can find names that will be valuable for $10.

I have used my success and failure in buying domains to create a step-by-step process that should help secure the domain you want…

1. Brainstorm names

Type a list. Keep in mind that the better the name the more likely it is to be taken or expensive (see step 6, valuation). [From Tim: a useful tool for looking at word combinations is Dot-o-mator.com.]

2. Initial sort

Go to Godaddy.com, upload your list using the “bulk upload” feature. If there are any domains that are not taken you will see them now. If you like any of the ones that are available, you just got lucky.

3. Hit the auctions

Domaintools has a good search that aggregates most of the auctions. Sedo is also a good place to search keywords. You can sometimes find a great name for a few hundred dollars here.

4. Shrink your list

Go to each domain, i.e. for “XYZ”, go to xyz.com. Break your list into four categories:

a. Real Business – Any names that are being used for a business should go to the bottom of your list. It is nearly impossible to get these. When we bought Trustme.com there was a business there, but it made things a lot harder and pricier.

b. Squatter/Investor Pages – Used to monetize the location. They are typically easy to figure out as they are just links to other sites for lead generation. These sites are almost always for sale, so this is a good page to see. PhoneTag.com had one of these when I found it.

The original page for Phonetag.com

c. Construction Pages – This usually means either of two things. Someone is about to put up a business at this site or an amateur registered the page and forgot about it or is holding it. I have had decent success in names that have these pages up.

d. Dead Pages – Nothing comes up, does not mean it is available. It’s hard to draw any conclusions from these names, other than that the owner is not making money off of it. Nobel.com was a dead page. I found the owner, a large insurance company, convinced them that they should give us the name (we had Nobelcom.com) and, surprisingly, they did. In contacting the company, I figured a CEO or high-level person will hold me over the barrel for money and a low level person will not have the authority, so I went to a VP level in the IT area. My company was NobelCom.com, and I pleaded on a human level that they would be helping a young entrepreneurial company. It worked. For the VP to do the paperwork to sell the domain was harder than just giving it to us. Part luck, part skill. That domain is probably worth north of $50,000.

5. Contact the owners

First you need to confirm that you can not only locate but also communicate with the owner. For Grid.com it took me over a month to find the owners.

a. See if the contact details are listed on the site. Many sites have a contact US or “this domain may be for sale” link. I have found that my success rate is higher when these messages exist on the site. Also use the internet archive to look at old pages and contact details.

b. If you cannot find it on the site then use the “who is” directory (I like domaintools.com for this).

i. About 30-40% of the time the real domain owner’s info comes up.

ii. The rest of the time it is either dead info or private. For the private stuff if you send an email to the private address it should in theory get to the owner. In practice I have found this rarely works.

iii. If standard “who is” does not work, try using the historical “who is” (domaintools.com offers this)

6. Contact the owner and ask if the domain is for sale. DON’T MAKE AN OFFER.

a. Contact directly – If you are a student, first-time entrepreneur, or someone whom I would find no Google results for, then contact the people directly. If you have documented success, then don’t contact people directly, as the price will be based on your status. With Grid.com I had such a hard time finding the owner that during my investigation I accidentally emailed the owner with my real details. This mistake probably raised my price by well over $50,000.

b. Hiding your info –

i. Cheap way – register a gmail/yahoo address with something like joe1234@gmail.com. Sign the email Joe (no last name) and don’t give any personal info out. You might look like a scammer so it lowers your chance of contact.

ii. Pricey way –

Option 1: Use a service. There are a few services that allow you to mask who you are to contact the owners, godaddy.com, networksolutions.com, etc, offer this. I have tried these services and have had zero success.

Option 2: Use a small law firm or PR firm which has a website. Make sure that if you looked them up, you would think they are just above the poverty line on the business food chain. This is the best way that I have found. This service should cost between $100 and $300. To find these firms, I usually ask friends for referrals or just go to someone local (every town has a small law firm). It allows the seller to see that they are being contacted by someone real and it does not jack up the price. This is how I got PhoneTag.com, Trustme.com, as well as a few others.

7. Valuation

As I mentioned, the biggest problem with valuation is that there are almost no comparables to go by. Many times you are dealing with an individual owner, so the domain is worth what they will sell it for. I typically do not have a budget in mind because I look at domains as an asset like real estate.

8. This is my rationalization when figuring out what to spend:

a. How many letters is the name

i. 3-4 letter words are expensive. They can sell for anywhere between 5k-500k

ii. 5 letters and above start to get cheaper

b. How many words is the name?

i. 1 word is most valuable, each additional word is less valuable

c. How easy is it to spell?

d. Is there a reason why people would type this word(s) in their browser? (You can get a traffic analysis on the domain from Compete.com if you want to get the actual numbers) For example: College.com is worth a lot because people type it in, and it gets natural search traffic. PhoneTag.com is worth less because there is no traffic.

e. Do the words naturally go together like “Phone tag”, or are they random like “Micro soft”? The less natural they are, the lower the value of the name.

f. If the domain has a “my”, “the” or other like word in front of it then it is going to be worth a lot less.

g. How will this domain affect my business?

i. A better domain is more viral, which reduces customer acquisition cost

ii. What is each customer worth to you?

iii. What is your current customer acquisition cost?

9. Negotiation

Here are the typical negotiation responses after you get in contact with the owner:

a. “I will sell it to you for $800,000” When you get ridiculous offers, I typically go back with what I think they are worth, so for Bulk.com they asked for 800k and I went back at 35k. The owner declined the offer. I could not justify a higher price for that name so I moved on.

b. “I don’t know, what do you think”. This person wants to sell. They are going to negotiate you up for sure. Typically I would go in at 20-30% below my bottom range of my budget. A note of caution here: If you write back that you will buy it for $5,000, just realize that it is a contract that could be enforceable in court. This actually happened to me with a domain called KisKis.com. Always put some language like, “I will buy it for $5,000 pending all terms are agreeable.”

c. “$500” (when you think it is worth $5,000) Ok, great you have a price. Be careful though, if you just say “yes”, you might spook the seller, as they will think they underpriced their domain. This happened to me with Grid.com. In the end, I had to sue the owner to enforce the contract (settled out of court before trial). If the domain in question is just decent and you don’t care if you lose it, then either say “yes” or negotiate down a bit. [Tim: I prefer the latter to avoid seller’s remorse and rescinding of offers.]

d. “$5,000” (when you think it is worth $5,000) Use the info from point C above, but you do not have to be as cautious because you are close to market.

10. Get them to agree

As I said above, if they say yes to your price, that is a contract and is very enforceable. Try and get a yes in writing as quickly as you can. Once you have that, immediately open up an escrow account. I use Escrow.com. The faster you fund the account the better chance you have of the seller not being able to back out.

###

Good luck, and know that the effort and investment is well worth it. Since we switched our brand from SimulScribe to PhoneTag, sales have more than doubled.

The Tim Ferriss Show is one of the most popular podcasts in the world with more than one billion downloads. It has been selected for "Best of Apple Podcasts" three times, it is often the #1 interview podcast across all of Apple Podcasts, and it's been ranked #1 out of 400,000+ podcasts on many occasions. To listen to any of the past episodes for free, check out this page.