How to Negotiate a Domain

startups are obsessed with good domains, they’re the entry point to your brand.

when my company negotiated the purchase of Fomo.com a few weeks ago, we had to ask ourselves critical questions about whether the expense made sense for us.

here are some thoughts on negotiating a premium domain name.

why?

if your business just launched, or you haven’t raised significant capital ($1mm+), i don’t recommend spending more than $10,000 on a domain.

frankly, nobody cares about you or your business on Day 1. spend $15 on an available URL and focus on your customers.

but if sales are growing, you’ve got money in the bank, and your current domain (in our case, “usefomo.com”) is really bugging you, consider upgrading.

how?

Interest for negotiating a domain purchase

a lot of domain negotiation advice is premised on a lie.

maybe these tips sound familiar:

  • “email your preferred domain’s owner from a fake Hotmail address”
  • “have a friend reach out so the seller can’t infer your assets”
  • “make exploding offers to create urgency”

in buying Fomo.com, we didn’t do any of this.

types of domain owners

before diving into specific advice for buying a premium domain, let’s put all our seller personas on the table. domains are owned by 3 types of folks:

  1. squatters
  2. holdouts
  3. has-beens

squatters

this is the worst persona from which to purchase a domain name. many of today’s premium, unused websites are still owned by people who bought them in the 90’s, thinking “one day i’ll be rich!

these menaces have simultaneously zero talent and unlimited leverage, a dangerous position. insurance.com, for example, cost just $15 per year to maintain yet sold for $35.6 million.

the challenge with domain squatters is they’re obsessed about valuations, so no number is “enough,” and it’s nearly impossible to convince them *you* are the offer they’ve been waiting for.

holdouts

slightly less obnoxious than squatters, a holdout is someone (or some entity) who intends to use a domain, but doesn’t have a specific project for it at the moment.

they’re less likely to play games with buyers (like a squatter) but also less interested in offers at all.

if they do open negotiations, sometimes holdouts will ask that you pay extra for their current “pre-work” or let them retain a % of the domain post-transfer, to keep their dream alive.

has-beens

potentially the best seller persona to encounter on your domain buying journey, has-beens are folks who previously used the domain, but have since shut down the product, rebranded, been acquired, etc.

they own the domain because, “why not,” but have no specific future use case (holdouts) and did not buy it with the intention of flipping it (squatters).

brokers

similar to the dishonest domain buying tips, there’s a lot of advice on how to deal with brokers.

i can’t spit much wisdom here because Fomo.com was not through a broker. in the 3 occasions i have dealt with brokers, however, i never paid more than $2,500.

what i will say is brokers are supposed to represent their client’s best interests.

and unlike a seller-owner, who may get satisfaction from not selling a domain, brokers only get paid when transactions happen. this is probably how i wore down 1 broker from $20,000 to $800, for socialproof.org.

for these reasons i contend brokers are actually more helpful, vs less, because their influence over the buyer encourages the same behavior you’re trying to elicit. two is better than 1.

a new approach to domain buying

regardless of the seller persona you’re working with, i believe the following tips yield better results than emailing Whois records from your ex-girlfriend’s Hotmail.

  1. demonstrate you’re the most viable buyer
  2. be open about what you can afford
  3. remind them you’ll be ok if sale doesn’t happen

most viable buyer

there are four ways to do this: IP, IP, IP, and IP.

our company owns a couple dozen pieces of intellectual property, from trademarks to copyrights, for “Fomo” the word as well as logos, phrases, and in multiple nations /each.

we spent 2.5 years accumulating this arsenal by investing in legal teams who helped us file and protest outdated or irrelevant conflicts.

if a seller thinks “someone bigger will come along and pay more than you,” but you have the IP to prove you’re the most serious player, this absolves that fear of the unknown.

be open

if your first offer is a “final offer,” that’s plain bad negotiating. instead, your first offer should achieve 1 thing: a counter.

the worst spot to find yourself in with a seller is a non-response, or flat “no.” so, make a serious offer and follow up in a week or two. but don’t say “we can pay more” in your followup; hold firm until the seller asks for it.

if their counter is far outside your price range, counter the counter with your absolute highest bid. let them know (be truthful) this is all you can afford, and you won’t have more in the future.

i don’t recommend making this an exploding offer, by the way, because if you say “decide in 48 hours,” and they tentatively agree 3 weeks later, you’ve just lost face, and the negotiation has been reset.

in articulating your ability to pay, share if you’re bootstrapped, or have X months’ runway, or investors / team / wife won’t let you. whatever you say, be genuine.

transparency, combined with the IP viability strategy above, is a great dose of reality for many sellers.

you’ll be ok either way

this is only believable if you have a visible, successful company living on a less preferable domain.

in our case,

  • Fomo was grossing $1.5mm /year on usefomo.com,
  • Page 1 rank on Google for “fomo,” and
  • we already own the fomo handle on several app stores, ie Shopify.

communicating to the seller their domain is not mission critical is also known as being able to walk away from the table.

while this advice is not restricted to domain purchases, showing you’re surviving + thriving on another URL is a sobering message, especially for squatters.

if things go wrong

when you’re doing OK on another domain, prospects can find your business, and the seller has considered your absolute best offer, even a non-sale is better than where you started.

this is because there’s a very small chance anyone would be willing to pay more than you. not to mention, the seller is almost certain to re-engage if they receive another bid, as it’s in their best interests to start a bidding war.

locking your “spot in line” is progress.

deal structure

when you do agree on a price with the seller, it’s time to write a contract. congrats!

(i’m happy to share the one i used last month; subscribe to this blog at the bottom and email me for the document.)

there are a few ways you can structure a domain sale:

  • all cash up front
  • cash over time
  • lease to own

all cash vs cash over time are intuitive deal structures, so i won’t get into those.

what is an interesting option, however, is domain leasing.

it can work a couple different ways…

  1. seller forwards all traffic from their domain, to yours
  2. seller allows you to manage DNS but retains ownership

forwarding traffic might be more trouble than it’s worth, unless the seller is a has-been and Google still considers their website an authority for your keywords.

managing DNS, option #2, is where it gets interesting.

suppose i own yourname.com and i want $5,000 for it. you only have $1,000 cash, but you’re willing to spend $5,000 if you can pay it off in 24 months.

as a seller, it’s too risky for me to change domain ownership and wait 2 years for an amount 5x your current cash reserve. what i can do, instead, is point yourname.com’s nameservers to a DNS manager of your choosing, letting you fully control the routing, SSL certificates, etc.

if you miss a payment or 3 i can swap the nameservers and revoke my domain. likewise, when you finish paying i can provide a registrar login and we’re done.

i’d like to see more startups buy premium domains with this strategy: dreamers get to build their brands, and sellers OK w/ long term payouts are protected.

putting it all together

it’s a funny concept to consider that domains last forever.

if i wrote a will or paid some lawyers, i could probably prevent anyone from having Fomo.com (save gov’t interference) for 1,000s of years.

it’s this epic thought, difficult to fully wrap my head around, that ultimately compelled our team to spend a lot of money on a 4 letter domain.

URLs are a basis of legacy, just like accomplishments or your family lineage. it makes sense that all the good ones are taken, but that doesn’t mean they’re not transferrable.

i’d love to hear in the comments or on twitter how other folks think about buying domains, or if there are additional tips i should recommend in this post.

7 Comments

  1. Chuck July 9, 2018 at 5:08 pm

    Hi Ryan,

    Congratulations on buying Fomo.com for your company!

    You offer some really great advice to startup founders. In particular, if you’re starting out and have no money in the bank, then go for a $15 domain name and prove your business and value to customers. Great advice.

    In addition, the option of leasing a great domain name and locking in a price until you have proved your business model makes perfect sense. Our only option is not “all or nothing” — we have options if we’re creative.

    Finally, I think you should rethink your label of “squatter.” The term has a legal definition, either in physical real estate or as a “cyber squatter” and I think you are confusing people. If Fomo.com was registered before your company came into existence, for example, then it wasn’t registered in bad faith against your company. In addition, if they’re not displaying anything on the website (before you purchased it) that conflicts with your intellectual property, then they have a right to maintain it. Who knows…your company may be out of business in a year, but the domain name has lasting value. Just another perspective.

    Thanks again for your account on negotiating a great domain.

    May I ask how much you paid for Fomo.com?

    Thanks,
    Chuck

    Reply
    1. Ryan Kulp July 9, 2018 at 8:56 pm

      Chuck, thanks for reading.

      the folks who owned Fomo.com before us were not squatters, they were “has-beens” (using my post’s terminology). Fomo was previously the name of a chemical solution, sort of a foam, used by contractors. they’ve since rebranded to another name.

      re IP, i’m no lawyer but we’ve demonstrated as a company that owning a domain is not related to IP. we didn’t ever need to own “fomo.com” to own the rights to “Fomo” in a marketing use case.

      can’t share how much we paid, but i don’t blame you asking.

      Ryan

      Reply
      1. yoni revah October 12, 2018 at 2:32 pm

        Did you buy it or are you leasing it from then?

        Reply
  2. G August 3, 2018 at 1:17 am

    Owning a domain is indeed related to IP, though admittedly, it’s quite nuanced and you’re right in that owning the domain doesn’t necessarily provide automatic vested rights in a generic term. For example, holding at trademark for the [generic term].com has a long history of case law relating to these types of issues. If anyone reading this is interested, check out two specific venues where these things have been litigated since the early 90’s: WIPO (World Intellectual Property Organization) and UDRP (Uniform Domain-Name Dispute-Resolution Policy).

    You share some great tips for startups and businesses who are seeking to upgrade to their preferred .com, but your rant in the beginning about the types of people who own domain names (aka -investors- who hold some very desirable assets in their portfolios) was kinda tacky. The internet is the last remaining bastion of the free market, of true capitalism, and your attack on the folks who got in early and had the foresight to snap up premium generic .coms and hold through the dotcom bubble should be congratulated. It’s virtual real estate, no matter how you slice it. The Scot whose land is under attack because Trump wants to build a golf course, and his land is in the way, is heralded as a folk hero for holding out, but domain names are different for some reason. Some moral relativism there, but it’s a reasonable argument in my view.

    Though you may not like that these folks hold onto great domains and don’t develop, but can afford to wait to sell it for millions to the highest bidder and only have upkeep of $15/year…tough sh*t? Sour grapes? It’s their right. They got to the trough first and are hogging it to this day, I say good for them. It’s a business, they’re in it for the money — it doesn’t matter how “easy” you perceive their decades-long investment strategy to be, or how slimy…who are you, myself, or anyone else in the market to pass judgment and tell them what they should do after securing the rights to any given asset fair and square?

    Shall we start taking them away and redistributing to the startups who “deserve” to have them? You don’t seem like a socialist redistributor of wealth from your writings, and seem too appreciate the modern fruits borne out by the free market of the modern international digital economy that is made possible by internet (and as of right now, primarily via domain names as the vehicles that deliver this economy), so I’m just not sure why you felt that your slagging off the early adopters would adds any real value to what turned out to be an otherwise -very- insightful post — one that gets better with the word count. Just my $0.02 though.

    P.S. I do have my bias, which played a role in my lengthy comment — and I’ll disclose that now. I don’t own any 7-, 6- or even 5-figure domain names. I do own and sell domain names, though. It’s not my full-time gig. It’s a passive source of income that I rarely have time to do anymore. I got to the trough late, so I buy domains for anywhere between $1-$50/ea and flip them for $250 – $1000 on the side, outside of my day job. It’s easy money, albeit highly illiquid at these levels, so I take the low-hanging fruit and have zero qualms about doing so.

    As Ice-T once said, “Don’t hate the player, hate the game,” my man! Cheers.

    Reply
  3. Nicole November 13, 2018 at 6:05 pm

    I’m a hold out. I just purchased a domain name in April for a project I wanted to do but haven’t gotten around to yet. I haven’t even owned it a full 8 months and someone contacted me wanting to buy it. They are waiting for a response through the broker domain agents and their initial offer is $199…I don’t want to sell but if I decide to sell I want to get a decent price for it because I could really use the money. They are waiting for my counter…Do I counter with a really high number to see how high they are willing to go? I would like to know what kind of company is trying to buy my domain. Is there a way to find this information out prior to countering? Thanks

    Reply
    1. Ryan Kulp November 13, 2018 at 9:45 pm

      hey Nicole, i’m no expert at this, but i have purchased over ~50 domains and a few of those required back/forth negotiation. it’s 99% likely the seller’s first offer is not their final offer, so decide what that means to you. is it likely a buyer will pay 2x their initial offer? maybe not. but when we bought Fomo.com we paid ~3-4x more than our original offer, so you never know. if i were you i would counter 3-4x and settle on 2-3x, if you need the money and aren’t going to use the domain. but if you are seriously planning a specific project, i’m not sure any amount in that range ($199, $499, $999) would really be worth it. if it’s a business idea, for example, you might make that back within your first week.

      Reply

Leave A Comment

Your email address will not be published. Required fields are marked *