Introduction

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.

Stewart Engelman, DNI Services - Domain Names - www.dniservices.com

Source: Stewart Engelman is a web programmer and domain reseller. Stewart operates his web programming business (Champlain Micro Systems) and domain sales and rental business (DNI Services) from South Burlington, VT, USA.

When I started my first marketing job I was asked to prepare a flyer and have it delivered to all the homes and businesses in the area. The company would then track the response rate and see if this number matched the norm for this type of marketing campaign. However, they measured the success by the number of sales from the campaign rather than the number of responses. In fact, they had no idea how many people responded but they did know how many people bought. When they dropped the campaign, the reasons were all wrong. They did not have a problem with response, they had a problem with converting responses to actual sales. The measurement tool they used did not fit the situation. They measured based on what the sales department did with the responses and not how effective their marketing tactics actually were working. Sound familiar?

I have had many marketing experiences since that time but it seems that most companies I worked for are all doing the same thing and I mean the exact same thing! The results tend to fall into the same patterns just like using a cookie cutter to create each campaign. If the results are good, there is no real reason to change it but what if you could improve the odds and improve on the results at the same time? This is only possible if you do not commit the 7 deadly sins of marketing.

SIN #1 - Relying on what works for others . By thinking what works for your competition will also work for you may have some truth in it but you are setting a trap for your company. By relying on someone else's successful campaigns you are not doing a thorough enough job. It may work in the short term but in the long term you will not be able to make quick changes because of the lack of knowledge. The knowledge you will be lacking is what was actually tested to make the campaign successful, you may not know the demographics in enough detail even though your product may be very similar.

SIN #2 - Assuming your product will be in demand and needed by your audience. Never make assumption about what your audience will want. They are not exactly like you and they have difference needs and interests. Yes, you can create a new market but that takes time and a lot of effort. You need to gather proof that there is a need for your product. This can be accomplished through surveys, doing test samples, interviews, and such. Don't waste your money on developing a marketing campaign if you are not sure if there is really a market for your product.

SIN #3 - Not defining the target audience in enough detail. Audiences should be narrowly defined to maximize the spending for marketing. Audience details would ideally include (but not limited to) demographics (age, gender, income, number of children, etc.), psychographics (lifestyles, spending habits, sports interests, hobbies, etc.), and geographics (location details such as neighborhood, city, county, state, etc.). If you can pinpoint your audience, you will likely see an increase in the results for your campaign.

SIN #4 - Creating a market for your product after the product has been developed. You may think of this as not the function of the marketing department, nothing could be further from the truth. Marketing needs to be the first line of defense before a product is developed. Marketing needs to do the research to make sure there is a market for the product long before it comes off the drawing board and into production. Spend dollars on feeling out the marketplace as to needs and wants and then develop only those products that people will buy.

SIN #5 - Spending the entire marketing budget on one or two tactics. If you spend all of your marketing dollars on developing a brochure to mail out, you will only get the response rate from a direct mail campaign. You should always test several tactics to find which ones work and then choose the ones where the response rate is the greatest. Often companies simply develop one type of marketing collateral and so with it without thinking about other tactics that may outperform the current one. You should be constantly testing tactics and if the budget permits, using more than one tactic at a time.

SIN #6 - Not paying attention to seasons or holidays. Too often organizations do not appropriate plan their campaigns for seasons or holidays. I have seen very expensive campaigns fail because it was executed over a long weekend. People were busy spending elsewhere and did not pay attention to the campaign (which was dated for that weekend). The marketing department (which may just be you) should have a calendar marked with special occasions, holidays, and anything that will have an effect on response rates. You absolutely must know in advance so you are not wasting your marketing dollars.

SIN #7 - Thinking you know everything about marketing. Be careful not to fall into the trap that you everything you need to know about how certain marketing campaigns are put together. Yes, you may know a great deal, but times, methods, response rates, and people change over time. You need to spend time keeping abreast of the latest developments in marketing and product development. There are plenty of free publications through organizations such as tradepub.com to help you be on top of your game.

Now where did sales fit into this discussion? It actually fits into the planning process. If sales is not on board with what is happening in marketing, they will sell the same old way and not buy into how you are setting up your campaigns (and for that matter - why you are doing it). Get them involved at the start and then once the campaign is underway, they will be able to increase the conversion rate from response to customer.

Source: Visit my Email Marketing website.