The #1 Thing to Consider When Evaluating a Domain Name

How much is a domain worth? Even for experienced domain flippers, that is often a tough question to answer.

Let’s play a little game…

I’m going to list four domain names that have recently sold on Sedo. Try to put them in order by their sale price, from lowest to highest. For extra credit, try to guess how much each one was worth.

Note that none of them show any backlinks in Google, and they are all PR 0. I’ve provided the approximate domain age for each, since they vary.

Ready? Okay, here they are…

    Age: 5 years
    Age: 10 years
    Age: 10 years
    Age: 9 years

Before I give you the answers, let me talk a little about how domains are often valued.

People buy domains for two reasons:  to flip and to develop.

Flippers (and automated appraisal sites) tend to value a domain based primarily on factors such as TLD, character length, number of words, age, search volume, backlinks, PageRank, and so on. While these are all very important points to consider, they represent only one side of the coin.

Developers see the other side of the coin. They tend to value a domain based mostly on what I like to call its monetization potential. They envision a Website based on the domain and have some concept of the kinds of revenues that site will generate. They may be planning on keeping the site themselves as an income-producing asset or flipping it themselves.

Let’s take another look at those four domains from a developer’s perspective…

    Here’s a fairly long three-word domain that is very narrow in its scope. Delray Beach (in Florida) is a small community of only about 60,000 people, with a median household income that is close to the national average. Since it’s targeting the lucrative legal help niche, it has decent monetization potential as a lead-generating directory of local attorneys or as a site for a single law firm.
    This two-word domain is quite obvious as to its likely use as a Website where people can buy carpet. Since carpets are typically a high-ticket item ($1,000+), the monetization potential is quite good. But how many people buy carpets online?
    Domain names don’t get much shorter than this. It’s a dictionary word, but the TLD is a second-best .NET instead of the greatly preferred .COM. It’s difficult to envision the type of content that this Website might contain, so its monetization potential is low.
    The use is obvious: an online bicycle shop. Many kid’s bikes sell in the $100-300 range or more and there are lots of bikes sold every year, but this is the type of item that is usually purchased offline. Monetization potential is fairly good, but not great.

An experienced flipper looks at the total picture and evaluates a domain based on its technical aspects as well as its monetization potential. The fact is that if the monetization potential is there, little else matters to a developer. Things like PageRank and backlinks are nice perks that can further increase the value of the domain, but they are not the primary considerations for the typical buyer.

Are you ready for the answers to my little test? Here they are:

  • sold for $1,000.
  • sold for $2,500.
  • sold for $2,550.
  • sold for $7,150.

How did you do? And how close were your own estimates?

If your numbers were way off, don’t feel bad. The automated appraisal tool Estibot didn’t do very well either with estimated values of $5,200, $0, $1,700, and $610 for the above list of domains, respectively. But that’s a topic for another day.

In the end, a domain name is only worth whatever someone is willing to pay for it. By thinking like a developer and considering a domain’s monetization potential you’ll be able to more accurately estimate what it might be worth to the right buyer.

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One Response to “The #1 Thing to Consider When Evaluating a Domain Name”

  1. Gene says:

    I think this just goes to show that people who buy domain names through Sedo are often clueless:)

    Seriously, this is a great post, and I think the valuable lesson is what you say in the last paragraph about a domain name being worth what someone is willing to pay for it.

    Another lesson is that the easier the monetization, the less variance there is likely to be around the domain’s value. But with a name like, the value is less in its monetization potential and more in it’s branding possibilities. After all, who could have predicted that Apple would have been willing to pay $1m for

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