How Do YOU Value a Domain? Here’s How I Do It

May 06 2011

Valuing a stock is simple. Valuing a car. Piece of cake. They have metrics, formulas, and thousands of identical items selling every day to help establish the value. Every single domain in the world is different. No two domains are exactly the same so establishing an exact value is impossible. Therefore we have to come up with our own personal formulas for determining value……and it’s all opinion.

There is a reason Michael Berkens doesn’t price his domains until a bid is received. Even then, I can guarantee the price is reflective of the mood he’s at the time just as much as it’s comparable value to other similar names. Pricing a domain is a very difficult task and in reality comes down mostly to how bad the buyer wants it and what THEY determine the worth to be. To get the ball rolling on determining value I use a combination of all the following.

1. Comparable sales: As stated above, there are no exact matches to your domain but most likely there are going to be similar names that have sold in the past. Namebio, DnJournal, and various blogs are all good sources for sales results.It’s a great starting point as long as you are realistic in your comparisons.  Gambling.com sold for millions but that doesn’t mean the riverboatgambling.net is worth that much.  There are formulas for determining value of exact match dot net and dot org.  Most domain investors value dot nets at 10% of a dot com.  I have heard the same thing for dot org.

2. Times Revenue: A friend just gave me a domain valuation that used the formula 5 times annual revenue to determine the value of a domain.  I’ve never seen a universally accepted formula and in today’s market of reduced parking revenue, most people are valuing the domain higher than the income.  You’ll often see “assume no revenue” in sales pitches because the revenue being generated is so poor it’s not worth mentioning.   If the domain is generating revenue from ads or product sales are you really valuing the domain any more?  No. You are evaluating a company with a great domain.  At this point the company’s value has trumped the value of the domain.  The domain is now an asset of the company that can be a fall back.  This same valuation sheet mentioned above arrived at final value by assuming monthly revenues.  The assumed revenues were based on the amount of search from Google on the exact term in the domain.  Although the search numbers were real, the assumption of revenue was a guess based on past experience, an educated guess, but a guess.  Therefore the final value was a guess X a multiple that they made up.  Both of which I feel are based on three year old models.   I personally use the three times annual revenue model plus domain value for my pricing.  I think 5 is WAY too high in this economy and fast moving technological world.  Of course, then we’re back to value of the domain.

3. The value of the product that would be sold on that domain: The higher the CPC for the main product or keyword in the domain, the more value a domain has.  Humor based names have very little value because nobody wants to pay much for humor.  Insurance domains on the other hand have a super high value because that industry pay large amounts for leads.  The ability to generate value has value in itself.

4. Potential Buyers: How deep are the pockets of the industry that would be interested in the domain?  If it’s a domain that would be great for high school cheerleaders it’s not likely to be worth as much as a domain that is perfect for dui leads. Again, you have to be realistic about which industry would come calling.

5. Previous Offers: Only you will know the previous offers you’ve received (unless they are made public like a few domainers do)  This makes them worth “atleast” that particular value.

6. Estibot/Valuate.com A great quick tool to help guide.  Some take them as exact but I use them as guidance.  Certainly can be used in your favor for low bids but again it starts you in the right direction and gives plenty of data about the keyword in the domain names.

6. Pull a number out of a hat: This seems to be the most popular method of valuating.  A buyers are trying to get as much as they can for a domain.  In reality there isn’t much rationale for the prices put on domains.  You could go through DnJournal, look at the monthly sales totals, and still scratch your head wondering why half the names sold for the high numbers that they did.  Most likely the seller followed 1 through 5 and then pulled a six.

So those are my methods I use for valuating a domain.  Again, I could make up all kinds of reasons how I got to the number I did, but in reality I am just making an educated guess based on the 6 things above.

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Outsmarting the Dumb, Outworking the Smart

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9 comments

  1. Michal

    ad 2) If you look at general picture, current market valuation is 26-month times revenue. It’s an average, though – one of the aspects.
    5-7 years times EBITDA is used for BUSINESS valuation.
    Domain is just piece of asset and cannot be valued so high.

    However, I would not underestimate the meaning of this point. For me, it is the far most important valuation approach. (True, I dont buy plain domains, only developed projects)

    Generally X times revenue valuation can be used, when you invest in TRAFFIC DOMAINS. There are many domains, that have 0 traffic, yet still can be sold for good money – then this approach is of course useless 🙂

  2. andy kelly

    Shane

    Nice post. Clear and very well thought out.
    This really is the oddest business. like you pointed out there are guides to find true value for shares/stocks, cars, houses etc etc.
    If I go into a grocers to buy lb of apples and ask him how much it costs he isn’t going to say “make me an offer”
    This is the most curious thing about the Business we are in, it’s fascinating.
    Bottom $ is the price for any domain is the most anyone is prepared to offer at any moment in time. Of course that doesn’t means it’s sold, as the owner may wish to hold out of course.

    PS I love the “pull a number out of a hat” bit, I guess that’s a very common valuation model with most of us lol

  3. Elevator

    This is a valuable article for every Domainer; a must read for new and old Domainers. Domaining is full of speculations. The market is like; the matter of the ” beauty in the eyes of the beholders” . Some prefers buying old domains, with or without any traffic and some go for traffic ones. Then what do we do to have a standard parameter. Cheers.

  4. RH

    #7 Desperation or the the difference between the have’s and the have nots. Some who really need the money will sell cheaper than someone lilke Mike or Frank. They don’t need the money and can hold. If a regular guy owned ireport.com he was never holding out for $750,000, $10,000 would have made him happy.

    Good list Shane and a good read. It is more an art than a science for sure.

  5. M. Menius

    Domain names can be separated into many categories & quality levels, and domains at opposite ends of the spectrum are NOT subject to the same valuation criteria. Selling for some mutliple of revenue is a very weak valuation strategy. Many domains have not been close to optimized. Someone may park a domain making $6.00 a day. Someone else can earn hundreds times more than that with a different business model.

    The most important determining factor in valuation is the rarity & relevancy of the keyword to its most closely connected industry. Shane alludes to that somewhat with the domain example for cheerleaders vs. DUI Lawyers. The market, its size, and economic viability are but one important variable.

    With truly rare generic keywords, they have few if any substitutes or alternatives. There is no “formula” for arriving at a definitive value. The closest one can come is a general “range of value”, and after that it’s completely a private dance between buyer and seller. There may have been no one else on earth interested in iReport.com for 750k. But it didn’t matter. CNN wanted it. There are are only so many $50 million estates, and a limited number of potential buyers.

    With high level assets, you’re not aiming to sell to everyone, only a subgroup with a highly particular taste or specific need. This kind of valuation is very complex, and distinctly different from traditional valuation approaches for run-of-the-mill domain names.

  6. RH

    Max ireport.com was certainly not the domain equivalent of a $50 million estate. The owner of the domain made all the difference not the domain IMO.

  7. M. Menius

    iReport.com was very valuable to CNN, even though we may not immediately grasp the value. As stated, it’s a negotiation between two parties, and their expectations & approaches are not confined to other people’s opinions, or others’ speculations as to value/price.

    I agree there are probably more clear examples. The principle is that valuation is highly unique to the situation, the buyer’s need, and other variables … especially with higher quality domains.

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