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Valuing Domain Names

There is very little information about how to set the value of a domain name. Below are some guidelines and ideas. For latest information from the Internet on this visit our "latest articles" page

Of course it is a case of supply and demand. It is worth "what someone will pay for it". But largely that will depend on the following: If you are selling a domain name, try to make a compelling case to prospective buyers by emphasising these factors to "prove" the value. The turnover of domain names is probably quite small because too many people try to sell on the basis of  "I own it and reckon it is worth heaps" instead of trying to justify the value somehow. Every deal requires a happy seller and buyer at whatever price!

One sample case study based on these factors is below.

What are you actually selling

  • A brand
  • Any goodwill associated with the name
  • Visibility associated with the name - online and elsewhere
  • Access to web traffic already generated by the name
  • Certainty that the new owner takes control of the domain name

Branding

Strong brand domain names are worth more. Newzealand.com sold a few years ago for $1,000,000.

But don't expect a small obscure name to sell for that much. Generic names like nzcarcompany.co.nz will mean that it could apply to lots of businesses. It is probably worth most to the company named The New Zealand Car Company, However generic names may also mean a bigger pool of buyers interested.

Remember that trade marks domain names can actually be grabbed by the company with the brand or trademark. There is liitle point trying to sell cocacola.com to Coke - they can just request that you pass it over as it is there brand and it is trademarked. Likewise domain names like americascup.com are probably subject to the same trademarking and branding issues.

Scarcity

There is only one of each domain name at the top level - once you own it it is yours until you let it lapse or sell it on. If you have a highly desireable name you can call the shots about what you do with it.

Domain suffix

While there are many suffixes available it is likely that the most desireable ones are .co.nz and .com. Some companies also buy the other domain suffixes to protect their brand by preventing someone else using them. But .net .geek .music. org.nz etc are unlikely to be sold for as much as the top level ones. There are actually some loose rules about what sort of organisation should use each of the different suffixes (like .maori, .school .org etc). But there are also many many suffixes becoming available. If someone wants to set up a new one, then they can apply to do it.

Rankings

If the domain name has been live online, then Google and other serach engines will have found the page or site. However it will only actually be ranking in search results if there was a live site, well optimised, with good relevant content there for some time. A new owner will want top rankings in search engines as quickly as possible but this takes time and effort. If it is already acheiving good rankings, this is worth money.

Traffic

Again, if a website has been in use, the number or users currently visiting it wil be a major factor in valuing the domain name. A site currently promoted and attracting 100,000 visitors a month will be worth agreat deal more thana name which has just been "parked"

Any Associated Business

A domain name which has had a live site probably also has an associated business with it. If this is for sale too, then the value of goodwill etc based on turnover and profit of the business will be taken in to account. In this case the domain name is probably being sold as an "assett" of the business. A domain name may also be generating ioncome from affiliates schemes and advertisiing (like Google Adwords) on the site. This affects the value.

Case Study based on Click through Value

This is based on trying to find a "real" value for site which is currently up and running. It assumes that the site has Google Adwords on it and that visitor numbers are being tracked.

Factor 1 - How many visitors is the site getting? Assume 5000 per month average.

Factor 2 - How much are Google Adwords advertisiers paying everytime someone clicks on a Google ad on the site?

Google pays out (to site owners) approximately 78% of the Adwords revenue that they earn from advertisers. So if your site is generating $US0.30 per click, advertisers are paying Google about $US0.375. Advertisiers will also have a significant cost in time or management fees for their Adwords campaigns. Tourism sites could be generating anything from $US0.10 to $US10.00 per click depending on the search term Google is using for the ad.

So advertisers are paying $NZ0.48 per click (at an exchange rate of NZ0.76). If they were to get all 5000 of the visitors to click out to their site, they would be paying Google $2500 per month for the clickthroughs. Multiply this by the number of months of clickthrough traffic you wish the purchaser to pay for.

Factor 3 - How many months of clickthrough traffic to charge for?

Your accountant may be able to advise how many months of profit would be used for a goodwill figure, which is essentially what this is. We think this is usually in the region of 12 to 36 months. In the US, for some domain names, up to 8 yeras has been paid for!

If you used 12 months of traffic to calculate a figure, this would make your domain name worth $30,000 (plus gst if any).

Other factors.

Add to this any other factors like a premium for scarcity value, branding, whether it is a very highly desireable name etc and start negotiating! Associated business, a website that you are selling and other things may be values separately to this. Deals may be subject to GST or not depending on whether the IRD considers they are being sold as a "going concern" or not etc. You should take careful advice from your professional advisers or the IRD on these matters.

While the "click through value" is one thing to consider, a desireable name may be worth much more even if it does not have any current click through value. Every domain name, whether in use or not, is likely to have a minimal value of at least a few hundred dollars to around $1000 or much more - the current owner will want some return on their foresight in obtaining it in the first place and keeping it registered. A name which ends up generating sales revenue will also have considerable value.

At the end of the day, if it is a name that you want, grab it because you might never get the chance again!

These are just a few ideas about how we think a domain may perhaps be valued - if you have any other ideas, feedback or experience, we would love to hear from you and maybe post your ideas here. Also prices paid for domain names you may have sold or bought would be appreciated (in strict confidence if required) .

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