How to Determine Domain Value
In short, you should value domain names, because they’re valuable. And they’re only growing more valuable. Domain value may seem esoteric, but in this post we make it simple.
The monetary value of domain names is determined in the same way as any other resource. Scarcity breeds value, and the number of desirable domain names is limited. Fortunately for you, if you believe the internet is here to stay, the value of domain names will only increase with time as the global number of individuals with access to the internet grows.
The Value of a Domain
So, how do we determine the value of a specific domain?
There are a number of influencing factors when determining the price of a given domain name. To provide a brief summary, consider the following:
While the list above provides different perspectives on why any given domain has value, a domain’s value is ultimately determined by supply and demand.
Existing Domain Market
The domain market is huge.
Because, according to this report by the Small Business Administration of the United States of America, there were more than 27.9 million small businesses in the USA, as of 2010. As a consequence of living in the 21st century, many of those 27.9 million businesses will choose to represent themselves in the online space with a website in order to promote their goods & services. That’s the United States alone.
According to this report by the World Bank and International Finance Corporation, there exist approximately 125 million businesses globally. The internet, too, is global. Domains are global. That’s a lot of businesses seeking online representation.
The demand for domains only grows with continued global economic development, thus increasing the value of domains that are desirable to operators in different market segments. While supply of quality domains remains fixed, the growth of demand necessarily increases domain value, as the equilibrium of supply and demand trends upwards.
In short: markets determine prices through supply and demand. While this is universally true, it’s important to clarify its significance in a market of intangibles, like the domain sales market.
Thousands of domains are bought and sold daily. While reported public sales can be viewed through a site like NameBio.com, the majority of domain sales happen privately, and go unreported.
In many respects, domains are treated as any other asset class. Terms like arbitrage, buyers, sellers, brokers, pricing, negotiation, etc. are well used in the world of domains. Perhaps the most relevant comparison would be to that of real estate. Many choose to refer to domains as online real estate.
It makes sense, as the analogy can be extended. A domain (or web address) is comparable to a street address. The advent of e-commerce brings with it the comparison of online stores to physical storefronts. The TLD (Top Level Domain, or, what comes after the dot) is much like your selected neighbourhood in which you choose to operate a conventional store.
As in traditional real estate, we can sub-divide the market into its constituent parties: industrial, commercial, and residential. Industrial entities regularly pay more for domains than do commercial entities, while residential properties (domains for personal use) tend to fetch the lowest prices.
This brings us to the second indication of a domain’s value:
Who Desires the Domain
Determines the value
Surprise, surprise, we’re still talking about supply and demand. In this case, it’s the purchasing power of the interested party that determines the domain’s value. To put it simply, fortune 500 company is willing (and able) to pay more for a domain than is a ma and pa shop, than is a teenager with the intention of starting a personal blog.
The size of the company/entity interested in a domain has a significant impact on the domain’s value. Domains with wide market appeals will have more value, as the competition between interested parties drives price levels upwards. Put another way, the more potential buyers there are for a given domain, the more a seller can expect to receive.
Unfortunately, the local cafe around the corner from your house won’t be able to afford the domain coffee.com. They will, however, perhaps be able to afford a domain like citycoffee.com (where city is your locale). As you can see, competition drives out the smaller companies (or individuals), and drives up the domain’s value. It’s important to note that large corporations are willing to pay equally large sums of money on quality domains, because the domains directly offer value in return. In the 21st century, brands can be built off of domains alone. That’s value.
Branding Potential & Returns
UsedCars.com or UsedCars4Sale.biz?
For those looking to scale, a quality domain serves as a foundational platform for growth. A quality domain indicates a level of understanding, and respect for branding and marketing.
Consider your daily encounter with domains. Are you more likely to be sceptical of a short, concise, meaningful name, or a scattered and length URL? While rhetorical, it’s an important question to consider. We’re all consumer, after all.
Consumer trust is granted to those who operate under a valuable domain. It’s as simple as the first impression, and it really matters.
Increasing the level of consumer trust in your products or services will increase your business’ conversion rates. This is why large companies, and smaller businesses looking to scale, value domains that best represent what they do and/or sell. That’s a competitive advantage.
CPC and Traffic
This is perhaps the most concrete way to determine the value of a domain, independent of its use for brand image.
Traffic to websites is generated in two ways: paid, and organic (or free). One such method of paid traffic generation is CPC (or, cost-per-click). CPC refers to the price that companies are willing to pay for each click of one of their ads shown on a website. More competitive keywords fetch higher CPC.
The value of a premium domain in a keyword-rich, competitive niche comes from its ability to generate significant amounts of type-in, and organic search traffic. Any traffic generated in this way is free. Organic. Nada. Potential leads at your doorstep, at no cost to you.
With this in mind, a simple way to determine the minimum domain value is through the simple formula:
(Type in traffic + organic SEO traffic) x CPC = domain value.
This is used as a simple guide, but it affords you the ability to quickly determine a floor price that you should be willing to spend on a domain name upgrade.
Ultimately, the value of a domain is the price that the market is willing to pay for it. Determining domain value beyond that simple principle only serves to offer insight into how one might determine that price. However, all of the predictive instruments in the world don’t always get it right.
Most importantly for you, a domain’s value is determined by the future value it will provide for you and your business. Don’t underestimate what that value proves to be. In the 21st century, in a world economy driven by the internet, you succeed by allowing yourself to be found.
The easiest sale is the one that finds you.
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