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Appraise Domain Names & Valuation Model

How to Valuate Internet Domain Names & The Domains Valuation Secret

Domaining as a Business Industry has witnessed great growth rates during the past two decades. This growth was been reflected on both sales activity and the average price of domains sold. As internet has literately entered every aspect of our life, domain names have become valuable assets like bonds, shares, real estate etc. Some domains have even been sold for millions of US dollars making their owners rich. As the potential for domain flipping is great nowadays, the crucial question for every domainer before buying or selling a domain name is “What is the real value of this Domain?” This is the main issue analyzed in this article.

Appraising Domain NamesHow to Define the Basic Framework for Appraise Domain Names

In order to define real value in a market we must first identify the factors forming the aggregate demand and supply. Demand for premium and highly premium domain names comes mainly from businesses that want to go online or from domain investors that buy domain names cheap to sell them in businesses at a higher price. Many factors define if a domain name is the right for naming a business, here are some really important factors:

1) Ability to focus on a Business Niche

2) Brandability (Short Length, Easy Spelling and High Memorable)

3) Premium Domain extension (.com for international brands and a geographical domain name for local brands)

4) High Organic SEO Value (in other words, the ability to attract free visitors coming from Search Engines)

But there is also another crucial factor for defining the value of a domain, and that factor is scarcity. Scarcity limits the power of supply and that means that if demand suddenly increases, the domain name price can lift up in the sky.

5) Scarcity of supply

How to Instantly Valuate a Domain Name using Past Sales and Other Indicators

Here is my manual method that can prove reliable when valuating instantly domains.

Note: If you are a beginner, you may pass directly to step (2)

 (1) First you break the domain in 2 pieces, one piece defines the market and the other piece defines the brand.

For example TradingCheap.com, Trading defines the market (trading online) and cheap defines the brand (cost leader).

(2) Using past sales and especially recent sales you may create a basic valuation for a domain name. For example if there is a very similar domain name that has been sold recently for $1,000 (without a site) you have instantly a basic valuation model for your domain.

To make it even more sophisticated we may appraise separately each domain piece from (1) and create a more precise two-piece valuation model.

As mentioned, this method is based on past sales data. You can find past domain sales using several web sites, I use NameBio.com.

(3) The third step is to identify the domain’s extension availability and then define scarcity. First of all you must check all available extensions. If a domain is registered in 7 different TLDs then the .com gains value and it should be valuated in a premium than if there weren’t any registered domains in other TLDs. If it is a .net you must calculate about 1/5 to 1/7 of the value of the .com domain.

.com = 100% of the value from (2)

.net= 15-20% value of the value from (2)

.org= 10-15% value (when community sites then .org value = 100%)

After we have gained knowledge on TLD scarcity we must identify the potential for possible abbreviations or the existence of reversed name. In the previous example of TradingCheap.com we can also use the domain CheapTrading.com. That means that our domain valuation has just lost 50%.

(4) Measuring Exact Searches and Identify CPC

This step can be used as a method itself. As a general rule we multiply the value of CPC to the number of exact annual searches to get a basic valuation. Here is The Rosener Equation:

Domain Name Valuation = A x B (i)

where:
A = Exact-Match Yearly Search Volume
B = Average CPC

In order to make the appraisal more accurate we may multiply (i) to the Click-through ratio of the domain name

 

The Little Secret for Successful Domaining

There is a little secret for all Domain Investors, here is the secret..

“Never register or buy a domain name that is appraised below $450.

This little secret derives by using simple financial mathematics:

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