Domain Name Value Explained
Today’s video is on the fundamentals of domain value and pricing.
This is one of the toughest aspects in the industry, because one letter and the value of the domain name can be worth thousands more in value. Not to mention that if it was easy you’d be making money, I’d be making money, lots of money, right?
So, what is the be way to determine the value?
I categorize my domain name valuation process into three pillars.
- Raw Equity
- Brand Equity
- Perceived Equity
Ok, let’s get into the details.
Domain Name Pricing: What is the raw equity of a keyword
The first thing I look at when someone presents me a domain name is the raw equity inherent in that keyword.
What I mean by this is how many people are searching for that keyword on a monthly basis. What is the number of broad searches and exact match searches?
The broad search is when they include the keyword but add descriptive words in front or behind.
So, for example “Quilt Classes” or “High Quality Quilt” would be broad match searches.
The exact match search is just like what it sounds like. This is the direct keyword only in search. In this example it would be Quilt.com.
The domain name value is typically higher in keywords that have higher exact match search volume. This is because it shows that it is a common word or way of speaking.
You can see this value by looking at how much a company will pay to advertise on that keyword. This is the “cost per click”
In the case of Quilt.com the keyword receives 49,500 exact match searches a month. Businesses are willing to pay $1.41 for someone just to click on their link.
This shows that there is raw equity and value in the domain name Quilt.com.
Domain Name Valuation: Brand Equity
From there, the next pillar is brand equity.
Now brand equity is the life that other brands have already built into this keyword.
Brand equity is created because companies have breathed life into the keyword or phrase that your domain name represents.
The raw equity may be nothing, maybe a couple thousand dollars, but because a brand came and has built their empire on this keyword, well guess what? They’ve breathed life into that and that life is what you call brand equity.
It is the trust, the loyalty, the goodwill, the millions of dollars they have spent advertising their brand and keyword. Now, the beauty is when you get high raw equity and you get good brand equity. This creates a valuable domain name.
There’s several domains were brokering that have 10, 15 companies or even more companies that are all advertising and saying, “Hey, we are this brand.”
Here are some questions to help you determine brand equity and your domain name value.
- How many brands are out there?
- How much money have they raised?
- What’s the equity that they have into it?
That’s going to be an important part and I think the most difficult aspect of only using an automated tool like Estibot.com. Sometimes were they get the value wrong is they can’t put a finger on brand equity. It is very elusive and it’s something you just have to research to find out.
Here is an example of how many businesses call themselves Carrot.
The domain name Carrot.com was recently acquired by a company called Carrot that was previously using the domain name OnCarrot.com.
I also did a podcast and blog post on this topic here
The beauty of this domain name acquisition is that they now hold the leadership position for their brand. One company Carrot.co had raised $30M and yet seems to have passed on owning Carrot.com.
This is what I mean when I refer to brand equity.
Domain Value: Perceived Equity and Market Trends
Then there’s this third pillar called perceived equity. Perceived equity is the value a company will place on the future growth for their brand.
Now perceived equity is almost impossible, impossible to put a number on.
But there are people out there who will price their domain names at some ridiculous value because they’re going after only the people that have perceived equity.
Think about it like this, you have a serial entrepreneur, someone who’s built three or four businesses and guess what? They know that they sold their last business for a billion dollars and so they’re saying, “Listen, I sold my last three businesses for a billion dollars.” So to spend a million dollars on this domain name is not a problem.
Although the raw equity may be worth $100,000, $150,000 I am willing to spend a million dollars because I realize that my investment is going to be worth $50 to $60 million dollars by the time I’m done. By the way, I’ve got a billion dollars so it’s not a problem.”
A great example is the story of Ring.com. They spent a million dollars to buy the domain name Ring.com. When he sold his company, he has valued that at over 50 million dollars when he sold it for a billion dollars to Amazon.
Now, if you’re anywhere in retail you know that Amazon could have picked the phone up, called up China and said, “Hey, knock me off every single product in a week and we’re going to go head-to-head with Ring.com,” with their own brand.
They could have done that overnight, no problem. They could have put a billion dollars into marketing that, but here’s the thing that Ring.com had. They had momentum and equity and they had a solid foundation, a solid user base.
They were close to the category king, as far as the share that they had in the marketplace.
So perceived value, it was worth 50 million dollars.
This is his first rodeo going through this, but what do you think next time as he builds his next company? What do you think he’s going to do?
He’s going to be like, “Hey, last time our purchase was worth 50 million dollars for me easily, not including the other intangibles.” He’s going to most likely put money down to get the best position and domain name he possibly can acquire.
Now also think about this in real estate.
Perceived value is what moves the market. For example, you have a plot of land, let’s say 20 acres. A real estate developer comes along to you and says, “Hey, I’ll give a premium on the market because I can put 40 houses on this land. I’ve done this multiple times and in multiple cities.
It’s could be a good property.” Okay, so they’re going to give you above and beyond what it’s worth. Maybe you don’t even have it on the market yet, right, so there’s not even a price out there for this property.
Now, the difficulty for domain owners is that they may get a million dollar offer and and think this is what my domain name is worth. But the problem is that the perfect buyer with the highest perceived equity may only come around once.
I spoke to person who had a one-word domain that had received an offer for $3M at one point years ago. He turned it down not even to see a high six figure offer again.
I think the domain value was worth maybe mid to low six figures.
Market trends also impact this bucket I call perceived equity. For example, when Bitcoin was $100 domain names with Bitcoin where barely selling.
When Bitcoin reached $15,000, domain names with Bitcoin, Coin and Crypto where extremely valuable.
Don’t get over optimistic on perceived equity. The reality is most quality domain names sell in the $1,000 to $3,000 range. This is what these startups perceive as the domain value.
You can watch my video on this here – https://youtu.be/MZdWhmwDY4I
For more stories on how market trends impact domain prices listen to my daily podcast here – https://chriszuiker.com/podcast/
The foundation to selling your premium domain name is to understand the domain name value and pricing it correctly.
We look at domain name values in three different major buckets that all come together towards a price and value range for a domain name.
Here are the three pillars to domain value:
The first pillar is to determine the raw equity of a domain name. How is the keyword used in the everyday way we speak and interact? Also, determine how much companies are willing to spend advertising on that keyword (Cost per click).
The second pillar is the brand equity that has been built around that keyword. Is there a brand that is spending millions of dollars advertising around that keyword. This momentum and equity is the life that a brand breaths into the keyword and can elevate the domain name value.
The third pillar is the perceived equity and market trends. For most of the quality domain names there is a perfect buyer that will make the best offer on your domain name. This is almost impossible to predict but can produce some of the top domain name sales. If you get this wrong you may walk away from the perfect offer on your domain name.
Please reach out, if you have any questions on domain valuation and think you have premium domain name.
You can find more information about our brokerage services here https://chriszuiker.com/domain-broker/