3 approaches to domain name valuation – which one do you use?

domain valuation

Ah domain name valuation. This is likely one of the most contested topics in the domain name world because well, there are a number of different approaches and really no “right” answer when it comes to the true value of a domain name.

Last week a startup founder asked me how to determine the value of a domain name and I told her, well there are a lot of different ways and then started going through different approaches. She said – “you should write a blog post about that, everything you just told me was news to me!” So this is that blog post.

Like I said above, I don’t think there is one clear right answer, and in many cases a combination of approaches might be the best way to go about getting a clear-er picture of a domain’s value. Ready to rock? Let’s dive in.

Approach #1: Algorithmic appraisals

There are a number of companies that offer algorithmic domain name appraisals, i.e. you put in your domain name and it returns an estimated value. Estibot is probably considered the gold standard for algorithmic appraisals, they’ve been doing it for a long time and they are one of the only companies I know that have been focused on appraisals as long as they have.

Of course plenty of other companies offer domain appraisal services, Go Daddy offers a free domain appraisal tool, there’s also a tool called FreeValuator, and the list goes on.

One thing I really like about Estibot is that they provide both a wholesale and retail price estimate for a domain name. This is important since a domain name investor isn’t going to pay what an end user would for a domain since they still want room to resell it themselves.

Approach #2: Using comparable sales data and a set of heuristics

Another way to value a domain name is looking at the way that real estate is appraised and use comparable sales by looking through historical sales data yourself. While domain appraisal algorithms do this, they might pick domains that they consider “similar” that you might not think are similar yourself. Doing this manually and following a set process for really identifying actual similar domain sales is a bit of an art but some people have been able to turn it into more of a science.

Along with comparable sales there are a number of other factors that can be used together to create a heuristic or methodology that you can use to appraise domains yourself. Andrew Rosner, the founder of domain brokerage firm Media Options has a great blog post titled – Domain valuation explained by these 6 factors that does a pretty solid job of

Michael Cyger also does a good job of covering this topic in DNAcademy and he outlines the techniques that he teaches students in this article. While the article gives a good overview and the course itself goes much deeper into this topic.

The advantage to this approach is that you can much more clearly explain pricing to a potential buyer since you can walk them through the logic that you used to get to the valuation.

Approach #3: Focusing on the value your domain will offer to the specific buyer and their business

Another way of looking at the value of a domain name is examining the value it could have to the business that is going to use the domain name. Rick Schwartz has done a great job leveraging this approach, and whether it’s with the $3M + equity deal for Candy.com or countless other domain sales he’s made – he has definitely proven that technique works and can help get top dollar for your domain.

One of my favorite quotes from Rick related to this topic is:

I don’t sell domains, I invest in people and their ideas. They can have the domain name for pocket change or even free, but they better come armed with a great and solid business idea and a well thought out strategy to achieve it. (Source – RicksBlog.com)

Breaking away from comparable sales and looking at the true value that your domain name could offer a business can sometimes be hard to articulate, but just think of all the companies out there that have seen their business literally made by the domain name that they picked.

A domain name can be make or break for a business, period, and if you own a domain name that could be the difference between success and failure for a company – there’s a lot of value there.

And there you have it, three approaches to domain name valuation. Which one do you use? I want to hear from you – comment and let your voice be heard!

Morgan Linton

Morgan Linton