Are you funding your domaining using a credit card? This is an all too common practice among domainers and there are quite a few high-profile guides that even suggest that you do so.
Make no mistake, there is nothing inherently wrong with using a credit card to buy domains – unless you happen to ‘forget’ to factor in the interest rates you’re going to be paying on your credit card debt into your profit margins!
If that happens, you could be in for a few nasty surprises!
Profit = Sale Price – Cost – Interest
Have you ever bought a domain for $100, sold it for $120 and been happy with the $20 profit that you just made? Most domainers figure that this is a profit of 20%, which isn’t really all that shabby.
The problem is: If you’ve been holding onto that domain for a year and paid about 20% interest on the $100 debt – that’s all your profit gone right there!
Whenever you’re funding domaining using a credit card, you need to be acutely aware of how much interest you’re paying on your debt. Admittedly, if you’re able to flip the domain within a month (before you have to pay interest) – great!
Otherwise, you’ll find that month by month the interest that you’re paying just keeps getting higher and higher and it’ll be increasingly difficult to sell off the domain while still making a profit at the same time.
Imagine if you held on to a domain for a couple of years before selling it off. At that point even if you managed to sell it at 40% or 50% more than what you bought it for, the increase would probably barely cover what you’ve paid on interest!
To put it simply: At times you may find that you’re better off selling a domain quickly even if you feel the offer price is lower than what it should be. It is better to sell a domain you bought for $100 for $110 within the first month and make a 10% profit, then wait a few years and have to sell it for $150 just to break even!
Each and every time you fund domaining from a credit card you absolutely must factor in the interest rates. It may be a pain to keep calculating how much interest is building up on individual domains, but it is the only way you can figure out what your break-even point and profit margins really are.
The alternative is to instead always make sure that you’re only domaining with cash that you have in hand, and avoid making purchases on credit and having to deal with interest rates entirely.