Admittedly, I spend considerable time reading hundreds of self-professed domain professionals' assessments of what valuation methods are deemed ‘accurate' when estimating selling costs for said domain. Many agree that expected marketing costs levy into final valuation, while others throw in useless intangibles, such as past sales history of similar TLD's.
Inevitably, would consumers spend similarly for Mercedes vehicles as they would for Chrysler's? Not likely. Yet, at one time, one company was responsible for both. In this piece, we'll decipher what professionals use to valuate domains, and see if their assessments are congruent with reality.
Expected Revenue
One particularly arbitrary method valuation experts use for placing sticker prices onto domains is expected revenue for the business each year, calculated across a 5-year window, with 10% of said figure being an accurate price for that domain. Why does bringing the unknown into the ‘catchy' domain buying process have little sense behind it?
- I could assume my first-year's revenues would be $10 million. Does that mean I should spend $5 million buying my company's digital branding signature? Remember, domains only have the value buyers and sellers agree upon. Nobody expected Facebook to explode, yet I guarantee they didn't spend ridiculously for their domain name. Same with Pinterest.
- Catchy domains are only as ‘catchy' as the marketing efforts that propel them - not what valuation experts deem appropriate. I don't find ‘eBay' synonymous with ‘auctions' (since auctions happen in houses, estates and storage facilities, not bays) yet millions flock there.
- Numerous entrepreneurs have paid only registration costs and pulled in millions. Going into their ventures, did they perceive this explosion, and if so, should they have spent $100k for their domain name?
Taking unknown figures like expected first year revenue, when initially investing your money into business' seed stage operations like domain purchases, is moot.
Similar Sales
Another laugh-worthy figure. In 2008, my 5-character, household word domain name's .NET companion sold for $150. Since mine is .ORG, and not as highly regarded as .NET, I should've paid much less in aftermarket auctions - theoretically. Wrong. I paid double that, completely blowing the ‘similar sales' dynamic away. The .NET/.ORG battle of ‘which comes first in value' still wages on, of course.
Kayak.org sold for less than ccTLD Kayak.nl in 2011, and the Netherlands is nearly exact in size and population to Florida (if we're factoring marketing into the price, this demographic is vital). How did this happen? Not based off similar sales, but off perceived value and marketability within Amsterdam and other locations around the country. The former generates parked revenue, while branded Kayak forwards the latter domain to Swoodoo.com. Therefore, we can ascertain perceived value, corporate buying power and great salesmanship are what push domains through aftermarkets - not similar sales.
Marketing Costs
One segment of domain valuation which professional domain assessors have correct is marketing costs in conjunction with branding. Paying an expensive CPC usually means everyone is vying for first place for particular keyword-loaded domains, with the opposite meaning organic value will propel business position. Take these practices into consideration when asking how much your domain is worth:
- One word nouns / verbs / adjectives tend to have low competition, yet a specific action or item which is identified within, or with, that noun - deemed more specific for consumer searches - is much higher in competition, making domains an exact match when searched for that keyword - and higher in value.
- Single keywords which have millions of searches with low competition means gaining notoriety is much harder, which drives up search costs - and drives down domain value. Case in point: Google ‘power' and see where Power.com, .net or .org are listed-.org is on page two with the others being either parked or have no single-keyword bearing on their domain position.
Valuations Are ‘Loose'
Domainers have money-making in their sights. Businesses have long-term branding and curtailed marketing costs in theirs. What actually makes domains worth so much culminates what society prices them at with strands of perceptions dangling from cyberspace. With search rules swiftly changing, you'll see many valuators change their loose algorithms, and lower assessed prices, since archaic domains will only have what ‘bearing' new businesses place within them. In other words, caveat vendit.
