How to Determine a Domain Value


Warning: Use of undefined constant the_modified_time - assumed 'the_modified_time' (this will throw an Error in a future version of PHP) in /homepages/45/d244356241/htdocs/lukevandeman/wp-content/themes/960bc/single.php on line 18
October 22nd, 2009    

Recently in working with a client who wanted to acquire a .com domain, I spent some time doing research into the rules and (lack of) regulation into the expired domain name reseller and auction marketplace. Mike Davidson offers a great article about how to snatch a domain name and highlights the big players.

The three services are Snapnames.com, Enom.com, and Pool.com. They all operate in a similar manner, pounding the VeriSign webservers during the “drop” period to secure the requested domains to then resell them in their own auctions. Each company operates their auction differently, with Pool.com working more like entertainment shopping at Swoopo.com than a typical ebay auction, sucking you dollars faster than a hoover. This whole process, mostly void of much domain oversight and regulation quickly led me to question, what is the value of a domain.

1. Clearly its worth something to someone

With at least these three sites, and their many domain brokers that live between them and your email inbox, there is clearly a demand, and thus a marketplace for these expired domains. With mountains of data I’m sure you could determine the value of a 5-letter domain name ending with .com, or a .net of a valued .com property. I’ve heard from someone who works with a Spanish domain holding company that  their 2 million plus domains is the full source of their business revenue

2. Not all domains are valued equally

Anyone in SEO will tell you that an  inbound link from a .edu or .org is more valuable which will drive up those domain name values. Also, short 5-letter domains or domains that are easy to spell, remember and tell someone will also drive the price up.

3. Domain names are like property and tickets

Some addresses like Park Ave. or Michigan Ave, or certain neighborhoods hold a much higher property value; some tickets are next to impossible to buy on their release date and you’re left shopping at craiglist or stubhub to pickup your coveted seats, domain names are like both. They have a finite supply. They don’t rollover frequently. They are many buyers for the same item. They can hold value, increase in value and have reseller value on the open market.

With these variables, and the desire to pickup a domain name, how do you determine the value of a domain in order to justify your purchase?

Here is how I would approach this process.

  1. Do I currently own the .net alternative or any web 2.0 misspellings of the desired domain?
  2. Do I currently generate revenue from my existing website?
  3. Do I have an online marketing budget?
  4. Is this for a business?
  5. Does the desired domain have any left over SEO value?
  6. Will I own this domain for the next 5 years? next  10 years?

With every “Yes” to the above questions, the domain has greater and greater value to me. Given that I might have to shell out a chunk of cash right now for the domain, I will look back in several years and see that my investment into this “property” will pay for itself.

1. I own the .net or similar domain name spellings
You may be losing traffic to your site as visitors are unsuccessfully attempting to find you at the more common .com name. This lost traffic might be determined by mining your keywords searched that include your domain with the .com. You can use the value per visitor equation, or your site’s conversion rate to help determine what that boost in traffic would be worth, and don’t forget to determine time as one of your variables. This feature alone might tell you that paying $500 for your domain is totally worth it.

2. I generate income on my existing site
If you’re making money now, how can you afford to lose business to someone that might snatch your .com domain? They might sell it to a competitor or charge your more in an offline domain deal that will cost you more in the long run. How would more visitors and traffic hurt your site? This domain should be bought within reason, but if you’re already making revenue from the site, you should see this as a necessary infrastructure cost.

3. I have a marketing budget
Move your budget around to purchase the domain. Getting a good domain is worth several hundreds spent on SEO and PPC. It might also drive traffic from word of mouth and other offline marketing efforts where memory plays into the value of a name.

4. It’s a business site
Expense it. This is a cost of doing business, but it’s also the future of business. Homepages like Amazon.com and United.com are the face of these businesses. Their homepage is indispensable. Owning these domains is surely calculated by the appraisals into the value of the business. Matching your company name to your domain name is an essential tool to secure your brand and your company’s perceived perception.

5. The domain has inherited SEO value
I have a colleague who has purchased domains with inherited SEO value for just that reason. He is able to take a site that has traffic and rank and turn it into a small cash cow thru adsense, traffic funneling, and even 301 redirecting to push up another domain. If the domain has SEO value, you will be buying valuable optimization built-in. It’s like getting a free upgrade to the leather interior, the box seats, the in-dash DVD player with navigation.

6. I plan on owning this domain for awhile
A dollar today in five years will be worth a lot more, spent or saved. Inflation, demand and lost traffic will all play a factor into determining value. If you hold the domain for 5 years at $10 a year, that’s $50 plus whatever you spend on it now. If you know you will hold on to the domain name, buying it sooner than later will always make more sense (and cents). However, if you spend that dollar on your domain name, not only do you now own something, you have a chance to build more value into this property and even resell it yourself later on, with or without the business attached to it.

Overall, I would generally land on the “buy” side of this investment opportunity given a few “yeses”. Considering the number of players and brokers in this industry, my guess is that I’m not alone in determining that domains have value, that their value can grow and that with demand and lack of supply, this business isn’t going anywhere.

Tags: ,

One Response to “How to Determine a Domain Value”

  1. Ryan Brandle says:

    Great advice Luke. Thank you for sharing this information! It is very helpful.

Leave a reply