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Domain Name Financing: Options for Acquiring or Lending Against a Domain Name
November 18, 2020Domain Name Valuations: Automated & Manual Methods for Valuing Virtual Assets
In the simplest terms, a domain name is your internet address. It’s the place where people can find you. But it’s more than just a string of characters that people type into a browser bar to access your company’s website. It’s a reflection of your brand.
Your domain name says a lot about your business. Are you traditional and old school, or contemporary and edgy? What industry are you in? What value do you offer? What country are you based in? A domain name can answer any or all of these questions.
Domain names are also limited. Only one person or entity can own the rights to a domain name at one time. And as is the case with any product or service, this finite supply coupled with increasing demand impacts valuations and creates a marketplace for buying and selling domains.
Some domains have no demand-side interest in the marketplace and cannot be sold, while other domains can sell for five-, six-, and even seven- and eight-figure sums with interest from hundreds or thousands of potential buyers.
In this article, we’re going to explain why domain name valuations matter, factors that impact domain name values, and a few methods you can use to valuate your own domain name. But first, let’s dig into some of the more interesting tidbits about domain names and what makes them special.
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The Lowdown on Domain Names
A website URL includes two main parts. In the illustration MyWebsite.com, the “MyWebsite” portion is the domain name and the “.com” portion is the domain extension. When we discuss domain names, we’re really talking about the proprietary coupling of the domain name and extension. With that being said, here are some interesting facts and data points that you may not know:
- The very first registered .com domain name was Symbolics.com on March 15, 1985. (Today, the website operates as an “interactive collection about the internet and the World Wide Web” – an internet museum, if you will.)
- In 2013, there were a total of 147.1 million registered domain names. There are currently more than 359.8 million registered domain names and counting.
- While every domain extension has its own regulations and rules, most domain names can only be 63 characters in length. (Though shorter domains in the 10-15 character length are usually considered ideal.)
- The average domain name is 11 characters long and starts with the letter S.
- Out of all 50,000 possible combinations, there are no three-character domain names remaining. (This has been the case since 1997.)
- While the vast majority of domain names have one of the five most common extensions (.com, .net, .org, .edu, or .gov), there are technically 1,517 different domain extensions (also known as top level domains or TLDs).
- The most expensive domain name valuation ever reported was Cars.com ($872 million). It was included as part of a $2.5 billion valuation for the entire Cars.com business.
- In terms of publicly reported domain name transactions, the winner goes to Business.com, which sold in 2007 for $345 million. The next most expensive domains include LasVegas.com ($90 million), CarInsurance.com ($49.7 million), Insurance.com ($35.6 million), and VacationRentals.com ($35 million).
Why Domain Name Valuations Matter?
It’s possible that you’ve owned a domain name for years and never thought about its valuation once. For many business owners, entrepreneurs, and investors, this isn’t an element that gets much thought. But perhaps it should be. Domain name valuations matter for a number of reasons.
First off, knowing your domain name’s valuation can make a big difference in the valuation of your business, should you decide to sell. In some cases – like the Cars.com example – a domain name can account for as much as one-third of the entire price of a business. Other times it’s just a small fraction. But either way, knowing the valuation gives you some leverage in negotiations.
Secondly, domain name valuations matter from a buyer’s perspective. If you ever find yourself in a situation where you’re looking to buy a website, acquire another domain, or expand your business in some capacity, being able to appraise and accurately value a domain will help you make a more informed offer and acquisition.
Factors That Impact Domain Name Valuations
Domain name valuations can be impacted or swayed by dozens of factors. And in true internet fashion, a domain can go from being obscure to in high-demand in a matter of hours. But anomalies aside, here are some of the general principles, factors, and characteristics that are considered important in domain name valuations.
- TLD. The top level domain that you couple with your domain name has a major impact on value. In almost all cases, the .com domain extension is going to command the highest valuation. (It’s the “default” TLD that people type into the browser and it has the most recognition in the marketplace.) Other popular options include .net, .org, .edu, and .gov. When compared side by side, a website that has a .com domain name could be as much as 2x-3x more valuable than these other TLDs. And when compared to more obscure ones, like .fashion, .finance, or .blog, .com domains can have exponentially higher valuations.
- Traffic. For domains that are already taken – e.g. a buyer is looking to purchase an existing website – traffic is something to consider. Website traffic is monetizable in a variety of forms – including advertising, branding, and direct sales – and is worth its weight in gold. A website that’s getting 100,000 monthly visitors is going to automatically have a premium valuation when compared to a website that gets 400 monthly visitors.
- Links. Sites with existing, quality (can’t overemphasize quality) backlinks will tend to fetch a higher valuation than those that do not, especially if backlinks and existing content equate to higher rankings and traffic. The anchor text of the domain’s backlinks and/or business sector of the domain can also play a factor in your valuation.
- Keywords. As you know, keywords play an integral role in SEO. And if you study some of the top domain names on the web, you’ll find that many of them include attractive keywords in their domains. While having a keyword in a domain doesn’t guarantee that you’ll rank for that keyword, it certainly helps the cause. Thus it also has the ability to impact a domain’s valuation.
- Spelling. A domain name’s spelling is obviously important. You want your domain to be spelled correctly; otherwise, you risk looking unprofessional. (It can also siphon traffic away from your website and toward another site, which could be a competitor.) However, there are instances where misspellings or alternative spellings can help brands differentiate and/or purchase domain names where correct spellings are taken. Fiverr.com is a great example. They added an extra “r” to the end of the domain name and it’s allowed them to create a memorable name.
- Branding. Speaking of creating memorable names, there’s certainly a brandability component to domain names. The simpler and more unique a domain name is, the more likely it is to be remembered. This is part of the reason why social networking sites like Twitter.com, Facebook.com, or even TikTok.com use attention-grabbing names.
- Length. Brevity is a key driving factor in value. Website.com is going to be worth more than MyWebsite.com, which is going to be worth more than MyVeryFirstWebsite.com (and so on). The more keystrokes it takes to type in a domain name, the more friction that exists between visitors checking out your website and visiting another one. (Shorter domain names are more memorable, more marketable, and easier to share with others.)
- Age. Generally speaking, a website that’s been around for ten years is going to be more valuable than one that’s been in existence for two years. That’s because domains that have been around longer usually have much more extensive SEO. This helps them rank higher, which generates more visibility and traffic.
- Competition. Finally, competition can come into play. This becomes an issue when you’re buying or selling a variation of a domain name. If there’s another domain that has a more favorable TLD, it can suppress the value of your site. Let’s say, for example, that you’re trying to purchase Business.net. While that’s still a valuable domain name, it’s automatically going to take a hit because most people are familiar with Business.com. Thus the number of people who are going to directly search Business.net over Business.com is small. (This doesn’t mean you shouldn’t buy domain names in highly competitive spaces, but it is something to consider.)
- Revenue. Best still are monetized websites that have existing revenue and cash flow, but that’s a valuation discussion for another time.
Much like real estate or other investments, value is determined by how much someone is willing to pay. So while you might think you have a million-dollar domain name, it depends on what the marketplace tells you. If there are only two prospective buyers and they’re both unwilling to pay more than $50,000, that’s your price. You can take it or leave it.
The reverse is true as well. You might not think your domain is worth anything, only to get a slew of high-dollar offers in a two-week span. It all depends on what the marketplace thinks.
All of that to say this: It’s helpful to have a basic understanding of what drives domain name valuations so that you can be an informed buyer or seller. And the more tools you have to zero in on specific numbers, the better off you’ll be.
4 Different Ways to Valuate Your Domain Name
Now that we know why domain name valuations matter and which factors impact these values, it’s time to turn our attention to some of the different methods, equations, and techniques you can use to valuate your domain name (or one that you’re interested in purchasing).
1. Do a Comparative Analysis
The most helpful yet least scientific approach is to perform a comparative analysis. In other words, you research the data from recent sales to see what the marketplace is paying for certain domains.
The challenge with this approach is that the data can be limited and the correlating factors don’t always carry over. A domain name that’s similar to yours might sell for $25,000, but you don’t always know why it sold for this much. Your domain could be one character or TLD off and it might only be worth $200.
Comparative analyses can be useful in understanding the marketplace, but they aren’t perfect. They give you a rough idea of general values, but can’t be used to zero in on a specific dollar amount.
2. Try an Algorithmic Appraisal Tool
Another option is to use a domain appraisal service. These services generally rely on a combination of algorithms and human analysis to determine a ballpark estimate of what your domain is worth.
EstiBot is the most commonly used appraisal service. (And because of this, it’s become a very real factor in domain transactions.) It’s the most authoritative voice on website valuations and can be used for additional leverage when buying or selling.
One of the neat elements of the EstiBot tool is how it will show you comparable domain sales and other advanced analytics. This allows you to see and understand why a domain name is being valued at a particular price point.
Other good domain name valuation tools include DomainIndex and Sedo. When using a service to determine a price for your website, it’s a good idea to get as many valuations from as many different places as possible. Take the average of the three, and this should give you an informed number to work with.
3. Put Your Domain on the Auction Block
The third primary option is to put your domain name up for sale. Based on the factors mentioned above, set a starting price and minimum price. You might not sell your domain the first time around, but you’ll learn a lot about the potential valuation based on the feedback.
Did people bid? What do the listing analytics tell you? Did people favorite the listing? Did people complain that it was overpriced?
If you’re not interested in selling at the moment but want to get a better idea of the market value for your website, you can always set a ridiculously high minimum and see what happens. Actual bids amount to concrete data, which enable you to properly estimate tangible worth (as opposed to theoretical values).
Flippa.com is definitely one of the top auction sites for domain names, though there are a handful of others as well. We’d recommend starting with Flippa to see if you get any traction on their platform.
4. Hire a Third Party Appraisal Service
Another option is to hire a third party appraisal service. These are companies that specialize in appraising website domains. And while they may factor algorithmic appraisal tools into their calculations, they also use a combination of common sense factors to determine fair market rates. Here are a few good services:
- SEO.co. Yep, that’s right…we offer third party appraisal services here at SEO.co. With an executive team that includes experienced valuation experts that have acquired and sold domains in the 7-figure range, we have the expertise to be that third-party appraisal team for your high-profile domain. If you’d like us to give your domain a look over and come up with an appraised value, we’d be happy to. Just reach out!
- NameCorp. This company does a pretty intensive analysis and will actually give you three different values. This includes wholesale value (the value of the domain name to domain name investors), end user value (the value of the domain name to small businesses and developers), and brand value (the value of a domain name to a brand).
- Sedo. We mentioned Sedo above in the section on algorithmic tools, but they also rely on domain name experts to deliver a final value that’s virtually guaranteed to be accurate and relevant based on the current state of the market.
Scale Your Website With SEO.co
In today’s SEO world, there is no such thing as buying Park Place and reaping massive returns without developing it out with great content and great links. You might have a $1M raw domain name, but without great content you’re domain’s valuation will be a fraction of its potential.
At SEO.co, it’s our mission to help businesses scale organic traffic by producing the highest quality content and links. If you’re interested in growing your business with the help of strategic SEO and content marketing, we’re here to help. Please contact us today to get your free site assessment!
Over the years he's written for publications like Entrepreneur, Marketing Land, Search Engine Journal, MarketingProfs and other highly respected online publications. Connect with Tim on Linkedin & Twitter.
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