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How do you value domains?

Going back to 2007 again for some perspective, there was much talk about this topic. What has really happened, or changed since?

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by Ben Kross
September 14, 2009


Ben Kross

This article originally appeared on: http://www.casualdomainer.com/2009/09/how-do-you-value-domains/

Ben Kross has written 1 articles for DomainInformer.
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For one, thanks to the efforts of many domain pioneers there was really a lot of force generated in favour of, and an almost universal acceptance generated for a ‘multiples of revenues’ approach. If a domain makes $500 per year, you could easily sell to someone for a multi-year rate of return, say 5yrs ($2,500). If someone wanted the name enough it might warrant purchasing it based on longer years worth of revenue, just to have the name. Of course, the more years you bid to, the less your financial return might become if your end-use for the name is to continue to monetize it in a similar way.

That model works well for domain owners who have acquired great traffic and therefore revenue generating domain names. For as long as there have been domain owners monetizing domains, it’s been recognised but I think the last 2 years have seen more and more people working strictly to this model.

It has its weaknesses in that people are buying these because of the revenue (not in itself bad, not suggesting that) but looking at 2007 and 2009 – I would seriously begin to ask if some more emphasis needs to return to the notion of domains with value outside of the traffic revenue.

There are of course all sorts of names with speculative qualities on which people bet all the time (brandable names, short acronyms etc) – but when the general market economy dips and down goes revenues, so might income from traffic names. So, that 5 year multiple you paid looks like 7, or 8 or worse now.. it’s going to take some years longer before your revenue pays off your domain.

It’s great in theory as it is part of market economics, and therefore however is also subject to these inevitable cycles. Which is fine for many who are prepared and know what’s going on in the economy etc. Not everyone can be so informed, although I obviously recommend it.

Having an easy to understand revenue model is great news for smart new-comers to domain ownership. If you wanted to tackle this end of things, you could theoretically buy and sell and generate income all the while and eventually in some years have a good income stream and strong value built into your portfolio off a modest investment, compared to getting a similar return in almost any other area.

There are so many places now to buy and sell domains that the above model takes a lot of betting out of the equation. As Bido.com founder Sahar Sarid would say, their mission is to create a liquid market for domains. I think that’s great. It’s a fine idea and a noble task. So far, it’s looking like getting more popular.

I also want to bring some attention back to some of the domains I love. Those domains that don’t necessarily have enough traffic to generate revenue on their own. There are a huge number of what I like to call ‘minor generics’ in that category. Although you can’t calculate a multiple of non-existent revenue, some of those names have obvious end-user value. It feels crazy to keep them sometimes, yet when you see similar names sell for thousands, it’s not worth quibbling over reg fee. Study values of domains – never just believe that MyGardenLightSolarBattery.biz is worth registering – find out if you’re happy to flip those kinds of names for a $2 profit all day, or if it might be better to save to buy a more obviously valuable domain instead.

When I talk about value here, I’m not talking in the millions or even thousands for many of the names I like to keep. But let’s have a look at a new tool which I think smacks of genius. Francois Carrillo from Domaining.com tipped me off to it – it’s Group Valuation, a website offering by WhyPark.com – you owe it to yourself to go there for a test run of this. It’s free and simple to use and understand. Honestly, had one of the most fun domain days in years yesterday scouring through it.

Try it for a minute and I think that you’ll agree, it’s kind of addictive and more than just interesting food for thought. The idea of Group Valuation, is that it’s a social valuation system. No calculations, just people’s candid valuations.

Here’s a quick play on how it works. You log in. You want to submit a domain for valuation, so before you get to, you must value 10 domains already in the system. So, simply, for every 10 domains you value, you get to add another of your domains into the system.

The effect is that over a day or so, you’ll get maybe 10 or more other people (domainers likely) who will say $0 or $5000.. after 10 valuations, you get a pretty good sense of what a mean price might be.. which may be a great price point to think about when selling your domain. Start at under the mean, or other strategies spring to mind.

The beauty is that we’re not dealing with an automated process, it’s real people who are somewhat active in the domain space participating. And you get a million times better outcome than posting in any domain forum’s valuation section. (Apologies to the forums about that, but this is pretty cool).

I can imagine that some might hate the idea, but I really can’t see why. As long as you don’t get too married to the prices some people set. You don’t get to know who valued your domain, and nobody knows your valuation of their names.

This is an area of domaining that has been kind of missing for a lot of the more casual domainers out there who can’t really imagine how to get a roll going with traffic names – the expense involved in that, the business-like acumen required etc.

This tool gives you a fine “off the cuff” or “back of the napkin” idea of what other real people are thinking in almost real-time about your domain.

Here’s one for discussion.. I was happy to see some of these nice minor generics getting some valuations in the thousands – logged back in after ten more valuations had occured, to find the average valuation was down to around $400 or less on some.

What happened is that, someone who likes the name, may see it in terms of some kind of end-user usage and can envisage it as having some value to say, a small business who would possibly like to use the name. The next valuation might be a seasoned domain flipper who deals daily in similar and better names and would not pay even $10 for it. Next – a person who see’s it fit in their portfolio of descriptive names in a particular industry, maybe not as good as the name they just bought for $1200, so they might see it as a $600 name. Next, $40 – next $750 – next $1,500 – next $30 etc etc.. until you get an idea that the name may be easily sold for a quick flip at maybe $40.. or it could be worth waiting around for the same kind of buyer who sees it as a $1,500 domain.

I really love this tool and I hope you get some super instructive benefits from using it. Those majority of $10 votes tend to drag a name to lower values, but I would like to remind casual domainers that you really shouldn’t completely overlook the fact that out of 10 valuations, at least 2 people saw it as being worth more than $1000.

You should definitely take note if most valuations say $0 or $10 – this is the equivalent of everyone in a valuation thread on a domain forum saying “only worth reg fee or less”. Probably cause to drop that one unless you want it for something like your own developed site.

In thinking about my valuations, my preference is to target those smaller numbers of people who see bigger values. That’s a choice that has seen me overprice domains and get some hard stares. I’m still casual and not at all wealthy from this yet, but I just prefer to gravitate towards a strategy that sees slightly larger transactions less often than lots of smaller sales always happening. Again, choice. After all, I am trying to add more valuable domains into my portfolio as a rule and I would be concerned that I just won’t be thinking in the same way, or looking for the kinds of names I want, if I get too involved in too many sales at low prices which must take up a lot of time. I do suffer financially for that compared to some people I know who sell a lot more at lower prices – that’s their choice and some absolutely love the work around it.

So to go back to the 2007 perspective again, I’m happy to hold many of the names I’ve registered and bought for years to come. I wouldn’t want to sell many of my domains for less than I think they are worth. I know there are people who view some of these names as worth more than reg fee and I’m happy to find or be found by the right end-users to do it – and it doesn’t matter if it takes some years or more.

It is my opinion that even if you’re earning an average or less wage, if you think of holding a one or two thousand dollars per year in registrations, it would take 10 yrs for you to have invested $10,000 in your names (assuming you started with some good minor generic long-tail domains and you’re not adding more). In ten years, what do you think one of your names worth $500 to the right person today will be worth to that same person in 10 years?

Let’s say it’s still $500 and in ten years you sell it for $500. You’ve paid possibly around $50 in reg-fees over that time. So it’s not a big decision. Still a decent profit margin.

Of course, the idea is to hold better and better names and by selling lesser ones, you may afford to enter into bigger buys and sales which will make all that academic also.

The caveat!

It is up to you to value your names and be somewhat certain that they will have some real value over reg-fee in 1, 2 or 10yrs or more. Nobody else can really give an absolute valuation which will always turn out 100% true. So, try the Group Valuation tool to see if you’re heading to heart-break or if you’ve maybe got some names (that may not have traffic) which might still have an intrinsic value of their own to someone else – OR of course to yourself. More and more domain owners are developing their names and adding value that way also. Everything is a choice – and you have almost unlimited freedom to choose what’s best for your situation.

Oh, and let me know what you think of the Group Valuation tool!

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