You've decided on a domain name for your new business, and the domain is
already registered and for sale. How much should you be willing to pay? This is becoming a common question, as
so many quality domain names have already been taken. While there is no scientific method to determine a precise
value for any domain name, there are some considerations that go into determining a reasonable ballpark value for
that domain name you want. Please read on, and learn about some of the techniques professional domain appraisal
companies utilize to ply their trade.
Valuation Factors
There are quite a few technical factors that go into determining what a domain name is worth, and there are differences
of opinion as to the relative importance of the various factors. Here we will examine a number of commonly considered
parameters in domain valuation. This collection is not necessarily meant to be all-inclusive, but is instead intended
to give you a flavor of many of the fine points to consider.
One of the most important considerations in valuing a domain name is the "TLD," or Top Level Domain.
This is the extension that appears at the end of the domain name, such as .com, .net, .org, etc. All other things
being equal, a .com name will generally sell for about four times the otherwise equivalent domain in one of the
other common global extensions, such as .net, .org, and .info. The .mobi extension, utilized for content to be
delivered to mobile devices, is rapidly gaining popularity and value, especially for domain names suitable for
such devices.
Some country specific domains, such as .co.uk and .de (Germany) are very prestigious, and can also command high
prices in certain cases. The .tv extension, later to hopefully be used in connection with internet enabled TV,
results only occasionally in high value sales at current (until hardware, distribution, and media companies resolve
their mutual "cut of the pie" concerns, there is likely to be little content to drive this market).
An extremely important consideration in the value of a domain name is the number of words it contains. Single "real
word" domains (no misspellings or abbreviations), especially in easily monetizable internet industries, can
be enormously valuable, particularly in the .com extension. Two word domains, again without misspellings or abbreviations,
can also be quite valuable, as long as the domain name can easily be monetized, and the TLD is of high quality.
Values really plunge when you get to three words or more.
Domains containing misspellings, abbreviations, hyphens, characters not on a standard keyboard, and other oddities
often have very little value. Also, domains containing phrases that are trademarked may be worth nothing, as the
trademark owner may be able to summarily confiscate the domain.
The extent to which a domain can be monetized has a major impact on its value. Domains in the sex, financial, and
health industries often top the list in terms of high value sales. Domains related to industries that cannot easily
generate revenue on the web will usually have little value.
Generic domains tend to be more valuable than non-generic ones. A generic domain is one that contains only real
words (ones you can find in a dictionary), and has no contribution from proper names (first or last). Generic .com
domain names in highly monetizable industries can be immensely valuable, and are for the most part very hard to
obtain (without spending a lot of money!).
The number of letters in a domain name also affects its value. Three letter .com names can be quite valuable, even
if they mean nothing. Four letter .com names usually need to be pronounceable to have value, but they need not
necessarily be real words in the dictionary (cool sounding four letter .com names can be very brandable, even if
they are made up). When you get to five letters or more, value is driven by quality of the word or words (generic
vs. non-generic, monetizable vs. non- monetizable, etc.). Once you start getting over 8-9 letters, value tends
to decrease a lot, unless the name is highly monetizable.
The extent to which a domain can be branded may be very important in determining value. Domain names that are easy
to say and remember, easy to type in, highly reflective of predictable monetizable content, and/or generate a lot
of "type-in" traffic (people typing your domain name directly into the address box in their browser rather
than finding your domain via a search engine) are highly sought after, and may transact for significant sums.
The size and profitability of the market to which the domain name applies is also important. This directly impacts
how easily the domain name can be monetized. Needless to say, products and services that do not lend themselves
to e-commerce (directly, or indirectly through selling ad space) will most often have little value.
We could go on almost forever listing factors that impact the value of a domain, but the above gives you a sense
of what to consider.
Where's The Beef?
You'll notice the discussion thus far has presented no magic formulas for computing the right price to pay for
your new domain name. I would love to give you a cool formula with lots of neat math symbols, but sadly things
aren't that simple or elegant. In order to understand what you are going to have to pay, you need to learn a few
things about the domain aftermarket.
First, there is way more supply than demand. This at first may sound encouraging, but unfortunately it isn't. Most
domain resellers are very inexperienced, and tend to price their domains way too high, and as a result drive buyers
away. Haggling often results in little movement in the price.
Second, the really great names, one or two real word .com domains in high traffic, high margin internet sectors
are essentially all bought up. They do sometimes become available for sale, but always at extravagant prices.
Third, you have to be very careful when buying non-generic domain names (domains containing words that are not
in the dictionary, or domains containing words that are in the dictionary but combine to form an unusual phrase
that the courts will not consider "public domain"). These domains may be protected by a trademark. In
such cases, the trademark owner can sue for ownership in court, and quite possibly be able to confiscate your domain
without remuneration.
The Bottom Line
At this point you're probably wondering how much to pay for that domain on the aftermarket. As stated above, I
can't give you a precise formula. I can, however, give you some advice based on the above principles, via reference
to contemporary sales history. The basic idea is that I can provide you with anticipated price ranges (rather broad
ones) that seem to be well in sync with recent domain auction closings.
At the very top of the spectrum, you have one word, and very high quality two word, generic domains in easily monetizable
internet sectors. These may sell for $100,000 USD or more, and will usually have .com extensions, although occasionally
some will be in other high value TLD's (such as .net, ,org, .info, .mobi, .co.uk, and .de). The very best of these
domains may approach $10,000,000.
Global (non-country specific) TLD's other than .com's rarely sell for more than $100,000. The best of these, again
one word and very high quality two word generic domains in easily monetizable internet sectors, usually sell for
between $10,000 and $100,000, but sometimes may go as high as about $250,000. The best country specific extensions,
mainly .co.uk and .de, lend themselves to the same kind of pricing as the non-.com global TLD's ($10,000 - $100,000).
Some excellent domains in the .eu (Europe), .se (Sweden), .tv (Tuvalu), and .ch (Switzerland) extensions are starting
to command these prices too.
Every week, there are several dozen sales of .com domains in the $10,000 to $100,000 range. These tend to be one
to two word generics, but not as easily monetizable as the ones that sell for over $100,000.
There is an active aftermarket in two to three word .com names that are long (10 letters or more) and sell for
$2,000 to $10,000. These tend to be generic, although some non-generics may be found here as well. These domains
will in general be harder to monetize than the more premium names, either due to industry (not a high profit internet
sector) or scope (serve only a subset of a larger sector).
There is also a market in global TLD's other than .com's in the $2,500 to $10,000 range. .net's and .mobi's tend
to dominate this space, although you will also find .org's and .info's here. These are generally one to two word
generics that are less monetizable than their otherwise equivalent brethren that sell for more.
Certain country specific domains tend to sell in the $1,000 to $10,000 range.
These tend to be one word or short two word generics in the most attractive country extensions (especially .co.uk,
.de, .eu, and .tv). Needless to say, these are not as monetizable as their more premium brethren.
If the domain you want does not fall into one of the above categories, you should think long and hard before spending
more than $2,000 or so. Admittedly, there will be times when purchasing a particular non-generic name may be unavoidable
(e.g., you already have an offline business name which is not trademarked, and need the corresponding domain for
your online presence). The key point here is that absent proof of pre-existing heavy traffic, and/or profits from
an already deployed web site at the domain, these names are just not that valuable.
In Closing
My hope is that this article has helped you to become a more educated domain buyer. The main takeaway should be
that unless you have a truly urgent need to obtain a specific domain, you should use common sense principles and
not overpay. Remember, in spite of the fact that so many good names are taken, most domains just sit and wait at
aftermarkets like Sedo and Afternic because of the vast supply overhang. If the owner of the domain you want will
not sell for a reasonable price, try to be creative and find alternatives, like using a different TLD, pluralizing,
reordering the phrase words, etc.
The internet domain market will never lend itself to discounted cash flow pricing like financial securities, and
the value of a domain is really nothing more than what the market will bear. Ultimately, values are determined
by sale prices of similar domains. This article has hopefully armed you with that knowledge so you can negotiate
with confidence.
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