Just like any other piece of property, domains have value and can be bought and sold. But what impacts a domain’s worth?
In the real estate world, value is derived from “location, location, location,” square footage, condition, and comparable sales. In the world of jewelry, it is cut clarity, color, type of metal, weight, and previous sales. In art, pieces are valued based on previous sales, provenance, the artist, the time period, the type of artwork, and the quality.
Domain valuations are based on previous sales, extension, the applicable business industry, the length of the domain name itself, memorability, and how universal the domain is.
In this article, we’ll use a case study to discuss common domain valuation factors and how to appraise domain names. We’ll also cover the benefits of adding domain names to your investment portfolio and leave you with some actionable takeaways on domain appraisals.
Video Overview
In this video, our team explores online domain name valuation tools and how we can use them to reaffirm our gut feelings on a domain and separate the wheat from the chaff.
What Are the Most Expensive Domain Names? Case Study
Let’s talk about some of the most expensive domain names ever sold publicly. In 2010, Sex.com sold by Jeffrey Gabriel (yours truly). Sex.com long stood as the Guinness World Record for the most expensive domain.
That record has since been broken multiple times, with 360.com selling for $17 million in 2015 and Voice.com selling for $30 million in 2019 to name a few. Unlike real estate, the majority of transactions are never reported publicly. There is a very good chance there are higher domain sales than Voice.com that have occurred, and even others since then.
$13+ million might seem outrageous for a domain name. But consider that:
- A full-color New York Times ad is around $125,000
- The average cost for one 30-second commercial broadcast on prime-time TV is between $400,000-500,000 (without accounting for production costs)
- A month for a Times Square Billboard is between $3-4 million
- A 30-second Super Bowl ad costs around $6.5 million
Once you understand how much exposure a premium domain can provide (potentially millions of visitors per day), you’ll see why businesses place so much value on premium .com domain names. Essentially, domain value boils down to how many potentially eyes (customers) the name can capture and how many of those eyeballs will remember the domain and come back. The more eyes, and the easier it is to come back, the higher the value.
5 Domain Valuation Factors To Consider
Going back to the real-estate metaphor – there are many factors that appraisers use to value residential or commercial property. It’s the same with domain appraisers. For example, instead of square footage, a domain appraiser will look at the extension. Instead of location, we look at the industry in which the domain might be used. The list goes on.
Let’s take a look at each of these factors through the lens of Voice.com.
1. Brandability
When thinking about “brandable” or “brandability” in the domain space, we usually talk about brandable versus descriptive names. Brandable names are unique names that identify a company or brand.
Think Amazon.com, Google.com, Facebook.com, etc. Descriptive names, on the other hand, are made up of dictionary words that describe exactly the products or services offered by the company. Think Computer.com, Cameras.com, Party.com, etc.
As of late, brandable names are typically more sought after as they are more unique and memorable than descriptive names, allowing businesses to stand out from their competition in the ever-more-competitive digital space.
Now consider Voice.com in terms of its brandability. Even though it’s a dictionary word, it’s a brandable name because it doesn’t describe any specific product or service. In its case, the keyword “voice” hints at many possible services/products. For example, the “voice.com” brand could be used for cellular network services, VoIP, public relations, videotelephony, voice chat, etc. In fact, the term voice is arguably the category-defining term for all of those industries!
2. Trendy Topic
Of course, a domain name related to a trending industry or topic is going to have more value than a dead or dying industry. It’s quite simple – if there’s more demand in a particular industry, there’s more opportunity for money to be made on a name that fits into that industry.
This metric is another value-adding notch in the belt for Voice.com. Right now, with more and more people working from home and businesses spreading globally, voice communication (whether through VoIP, videotelephony, voice chat, or old-fashioned cellphones) is hugely important. The VoIP industry is expected to grow by 15% by 2027 and the video conferencing industry is expected to grow by 11.3% by 2029.
3. Domain Extensions
Generally, the more commonly an extension is used, the more valuable it is. This is why .com is still king or the gold standard – it’s the extension we all think of when we think of a website. However, there are some caveats to this point. For example, in some countries, the country code top level domains like .de (Germany) or .ca (Canada) are more commonly used than .com.
When appraising domains, it’s good practice to use the .com as a baseline appraisal and deduct value depending on the extension. For example, for an appraisal of cheese.net, you’d appraise cheese.com to come up with a baseline value. Then, you might deduct 80-90% of the value for being a .net instead of a .com. All rules have exceptions. So does this one.
Because voice.com has the gold standard extension (.com), it has the highest possible value for its keyword.
4. Name Length
For length, it’s not so much about how many characters it is, but more about how memorable it is and whether it passes the “radio test.” So, ask yourself how it will sound on the radio if you read it out loud. Will the listeners remember the name and then be able to spell it after the fact? If so, it passes the radio test and will be more valuable than a name that fails the radio test.
Some keywords clearly fail the radio test. Think of a name like zucchinifarmersrus.shop. First off, zucchini is a commonly misspelled word. The domain is quite long at 18 characters. And the extension isn’t as easy to remember as something like .com or .net.
Other times, it’s not so obvious that a name might fail the radio test. For example, think of tshirts.com. It seems simple enough. But there are other variations of t shirt, including tee shirt and t-shirt. Potential customers will be confused about which spelling to use, making it harder to find your website. Additionally, someone looking to purchase TShirt.com might consider purchasing each spelling variant to protect their brand (an additional expense to be factored-in for purchasing the name).
Voice.com passes the radio test with flying colors. It’s short, memorable, and easy to spell.
5. Domain History
When looking at a domain’s history, you want to look at:
- The age of the domain
- Past usage
- Previous sales
- Search history for the keyword
For example, if the domain name was registered in the 90s, has sold for considerable money in the past, and has been used as a successful website, it will be much more desirable/valuable than a domain that was just registered in the past few years.
Additionally, an older domain with an active website will likely have more backlinks and a higher domain rating (DR) than a newer domain. This means the domain might have better search engine optimization (SEO) and rank higher on search engines right out the gate.
A WHOIS search of Voice.com shows that the domain was initially registered on August 30, 2001, making the domain more than 20 years old.
How Universal is The Domain?
Some domains roll off the tongue quite easily. For someone that does not natively speak the language them being able to pronounce it, spell it, and remember it can make the domain name even more valuable.
Let’s use Shoes.com. Shoes is shoes in English. In Spanish it is Zapatos. In German it is Schuhe. If you purchased the domain name Yoga.com. Yoga is Yoga in English, Spanish, Turkish, and all of the other most commonly spoken languages in the world.
How To Appraise a Domain Name
As touched on previously, domain appraisals aren’t an exact science due to a variety of reasons. But if you’re looking to buy or sell domains, there are things you can do to make sure you’re getting the best price possible.
Similar Domain Name Sales – Comparables
The first thing you should do when appraising a domain name is to research comparable sales that have been made in the past few years.
So, in the domain space, what counts as a “comparable” sale? Essentially, it’s a domain that meets similar appraisal factors laid out above. The most important factors are the extension, length, and brandability.
For example, for the domain Place.com, Estibot (Industry leading automated domain appraisal tool) estimates the value at $564,000 with the following comparable sales:
- Place.com – $550,000
- Blade.com – $503,000
- Leads.com – $435,000
- Drink.com – $500,000
- Shout.com – $450,000
All of the above comparable sales are short, single-word, .com names.
An important point on comparable sales – like used car sales, make sure you distinguish between wholesale (investor) comparable sales and retail comparable sales. Wholesale comparable sales typically involve domains that have expired and were placed in expiration auctions. Retail sales, on the other hand, involve names purchased from domain brokerages, on marketplaces, or directly from individuals or companies. Those sales tend to be higher.
Do Your Due Diligence
Next, critically look at the domain name in question through all of the factors laid out above. This won’t get you to an exact number – but, coupled with comparable sales, it will get you to a ballpark figure.
Leverage Domain Appraisal Tools
Once you have a ballpark figure in your mind, the best thing to do is to check your figure against a trusted domain appraisal tool.
This domain appraisal tool from Saw.com analyzes 216 data points to determine an estimated value for any domain name. It also provides a short breakdown of the reasoning for the valuation. See below for Saw.com’s estimated appraisal of Computer.com (notice how some of the factors discussed above are noted in the breakdown).
Are Domains Worth Buying as Investments?
In short, yes. In my personal experience, I have seen large domain portfolios produce over $2,000,000 per month in sales. And domains in general have gone up in value over the years. For example, a one-word .com used to be worth around $10-15,000. Now, they are worth anywhere between $60,000 to $100,000 on average.
But just like any other investment, you need to know what you’re doing. While I have seen successful investors, I’ve also seen new investors spend tens or even hundreds of thousands of dollars on bad investments.
Given that, the longer answer is that some domains are worth buying as investments. Specifically, domains that check off more of the valuation boxes as outlined above are better investments.
Is Flipping Domains Profitable?
Flipping domains can be profitable. But a word of caution… it’s seldom an easy get-rich-quick scheme. To be a successful domain flipper, you’ve got to do your research to be completely up-to-date with industry trends.
To successfully flip domains for profit, the domains you buy should have real commercial value and proof of demand. You can’t simply buy misspellings of existing trademarks. This is an illegal practice known as domain squatting.
In my experience, flipping domains can be profitable. However, domain investing is more profitable in the end when investors focus on long-term investments. That is, purchasing attractive, marketable names below-market and holding onto them until it’s the right time to sell.
FAQs
Do domain names increase in value?
Yes, but they can also decrease in value. Similar to the stock market, domain name value can go up or down based on a lot of factors.
Public trends have a huge impact on domain value in the short term. For example, consider facemasks.com. Before COVID, the demand for that name was likely very steady and fairly low. During COVID, the demand exploded and then slowly decreased over time.
Brand name trends can also affect a domain name’s value. Right now, for example, any name with “verse” in the name is seeing an increase in value. The -fy ending is also trending recently with Shopify, Spotify, etc. Years ago, the trend was -ster with Freindster, Napster, etc. Now, not so much.
How long does it take to sell a domain?
It depends on how the domain is being sold. There are three main ways to sell a domain – all of which provide a different timeline.
The quickest way to sell a domain is to sell it at auction. As long as the name is desirable, it will likely sell quickly at auction. However, with auctions, you typically won’t get the best possible price.
The next way is to directly approach potential buyers. To do this, you can look for companies that use the keyword in their brand. Or look for companies that are purchasing that keyword for advertisements. Usually, this method takes between 90 and 180 days and you will typically get the full-value price for this type of sale.
The last method is to wait until an interested party approaches you to buy the domain. With this method, it could be years before a buyer comes along.
Actionable Takeaways
We hope that next time you have a domain to appraise, you follow our valuation factors that will help to ensure you’re getting the best price for the domain. Free appraisal tools can help you make sure you’re in the right ballpark, whether you plan on making an offer or putting your domain up for sale.
If you’re serious about buying a domain name for your business, it’s vital to seek the help of a professional domain broker with a lengthy track record in the industry. It’s never as simple as “A domain is worth as much as you’re willing to pay for it.” Instead, put your trust into an experienced domain broker who can accurately appraise a domain-based off their knowledge and expertise. This will ensure that you always get the best possible price.
