How much is a domain worth? What is a fair price for the domain I want to buy? What factors affect domain name value? These are some of the questions you could be asking when buying or selling a domain name. Finding a straightforward answer, however, may be challenging. This article gives insight into domain name valuation and outlines a simple formula to estimate a fair domain price for most buying and selling scenarios.
How Much Is A Domain Worth? A Simple Guide to Domain Valuation
Nowadays, many people are wondering how to buy a domain name for business or personal use. There are plenty of domain value estimators (the GoDaddy domain value estimator is quickly rising in popularity, but there are many others), but those using them regularly know they are imperfect. And that creates serious obstacles for correct domain name valuation, especially for novice buyers.
Why domain value calculators are inaccurate
Domain price estimates from online tools rotate around the keyword value of the words that make up the domain name, with adjustments based on extensions (.com domains are valued a lot higher than .info ones, for instance). This is why the two most expensive domain names sold to date both have insurance in them:
- CarInsurance.com — $49.7 million
- Insurance.com — $35.6 million
- VacationRentals.com — $35 million
- PrivateJet.com — $30.18 million
- Voice.com — $30 million
- Internet.com — $18 million
- 360.com — $17 million
- Insure.com — $16 million
Insurance-related search queries are very expensive to rank for on Paid Search (its key difference from Organic Search is that on Paid Search the bid amount is the main factor affecting your rankings), the higher the domain’s worth is. However, determining a domain name value, we cannot rely on Paid Search keyword value alone due to three limitations:
- While insurance.com and its likes have a tremendous inherent value, the number of such domains is very limited;
- The value drops precipitously as the primary keyword is diluted by other characters: thus, insurance-1-2-3-4-5.com still carries the expensive term but has none of its original value;
- There are several key factors contributing to domain name value that the current estimators ignore
Fluctuations of domain name values
With the first two limitations being intuitive, you are probably impatient to jump into the other factors affecting how much domain names are worth, but before we do, it’s crucial that we understand the following:
Domain name values are not cut in stone: they tend to fluctuate as the underlining factors shift
Domain valuation tools can’t stay on top of those shifts. On the one hand, this creates a challenge for accurate domain valuation; on the other hand, it provides a great opportunity for making profitable deals your competition will miss.
Take insurance-1-2-3-4-5.com. What if somebody offered to sell this domain to you (just the domain, nothing else) for $7,500. Would you make that deal?
Most likely, not. In fact, you’d probably laugh at such a preposterous offer.
But suppose that insurance-1-2-3-4-5.com
- was registered in 1999,
- had a successful website selling insurance for 17 years before the domain name was purchased at an expiring auction,
- has several thousand naturally acquired, high-quality backlinks from authority websites
In this light, $7,500 becomes a huge discount, so if you took the seller’s offer on the spot without bargaining you would be laughing at those who could have done the same but didn’t.
This example is hypothetical (insurance-1-2-3-4-5.com is still available for registration at the time of writing), but it shows that conducting domain valuation on the keyword basis alone is limiting and inaccurate.
How To Estimate Domain Value With a Simple Formula
Consequently, evaluating how much a particular domain name is worth, we should simultaneously consider all of the following variables:
- keyword value
- backlink value
- personal value (premium)
The resulting domain price, therefore, can be represented as their sum:
domain price = keyword value + backlink value + personal premium
Now let’s break down each of the variables.
Keyword value is what we talked about above when pointing out the limitation of domain value estimators. The good news is that this value can be calculated automatically: Godaddy domain value estimator, EstiBot, and Free Valuator are only some of the tools that can do it while taking into account how much similar domains sold for in the past. For a better estimate, run the domain through several such calculators: the true keyword value will be somewhere near the simple average.
Backlink value is often perceived as the hardest to estimate, but it has nothing inherently different from estimating content value, which is part of determining how much a website is worth.
The two metrics that help us here are DA (Domain Authority) and PA (Page Authority) by Moz. Checking them is free, and they have recently become even better at predicting the correlation between DA/PA and organic rankings. Ahrefs is another tool providing similar metrics (Domain Rating and URL Rating), and it also got better, but it is quite expensive due to the wide variety of other functions it can perform.
You may be wondering: how can DA and PA tell you how much a domain is worth? It’s simple: DA and PA reflect the strength of a domain’s backlinks. Therefore, if you want to buy a domain with DA30 but aren’t sure how much its links are worth to you, ask your SEO agency for a quote of how much time and money they’ll need to get a brand new domain to the same DA30. The investment the agency will ask for is, in effect, equal to the backlink value of the domain name you want to buy.
- be prepared to hear something along the lines of “we can’t make such predictions or guarantee results” and insist: few clients know that an SEO agency actually must know an answer to this question, and if it doesn’t, it’s time to look for a better one
If you don’t work with agencies but handle SEO yourself, take one of your domains with DA and PA comparable to those of the domain you want to buy and ask yourself: how much money and time did you invest to get to these DA and PA? Keep in mind, though, that time has as much implication on the backlink value as money. For example, let’s assume that you took care of the backlink building on your own and spent $5,000 and 2 years to get your domain to DA30.
- If you used an SEO agency, you probably got to DA30 faster, but it also must have cost you between $10,000 and $25,000.
You could be tempted to add $5,000 to the formula, but remember: in this case, $5,000 will bring you the desired result instantaneously, so the purchase actually saves you 2 years! If you have a working business, those 2 years can bring you a lot of revenue that you would not have if you invested in developing a brand-new domain, so $5,000 is a huge bargain on the keyword value here.
Personal premium is domain name value that no other person in the world may have while to you it can define all the difference between letting the domain go or spending your entire budget on it.
Consider AndThenWeWereYoungAgain.com. Most likely, this domain has no personal value to you; so, unless it has a great website or a strong backlink portfolio, you will likely not pay more than the standard registration fee for it. But what if you found out that somebody paid $50,000 for this domain?
Sounds like a joke, or a great ripoff, doesn’t it?
But what if you also learned that this domain was purchased by a Hollywood director who had secured $50,000,000 for the production of “And Then We Were Young Again“, a movie that’s projected to drive $100,000,000 in the box office? Do you think he made the right call paying 0.1% of his budget to market the future classic on a .com domain that mirrors the name of the movie? Chances are, the original owner of AndThenWeWereYoungAgain.com could get even more than $50,000 because, as far as the personal premium goes, that domain has no alternatives for the director.
You may think that the movie director example is too extreme because most of the time the domains we want, no matter how alluring the names, can be successfully replaced with others. It is true but the personal premium is all about how much money can be extracted from the domain by you, so evaluate it carefully: making a mistake here could haunt you for a very long time as a shadow of a brilliant opportunity you shortsightedly let go of. And the scenario does not have to be so extreme: the following examples will show how the value of the same domain changes for different people based on their personal circumstances.
Estimating domain name value: examples
To consolidate what we learned about domain valuation, let’s consider three fictional characters who think of buying RealEstateSantaBarbara.com: Jeremy, Lucy, and Frank.
The keyword value of this domain is the same for everybody. To find it, run a handful of domain value estimators and take their simple average. You can choose any combination you like, but here is a start:
- GoDaddy domain value estimator: $2,610
- Estibot: $820
- Free Valuator: $247
A simple average of these estimates is ~$1,200: this is how much RealEstateSantaBarbara.com is worth abstractly. It has no history or backlinks, so that part of the formula doesn’t add anything. But the personal value can vary hugely, so let’s dive deeper into our characters’ backgrounds.
How domain value changes based on buyers’ backgrounds
Jeremy is a recent college grad who hates his day job and dreams to become a millionaire. He watched hours of YouTube videos on how to make a fortune online and wants to get started.
Lucy is an SEO pro working as a mid-level manager at a boutique digital marketing agency. In her free time, she buys underdeveloped online properties and makes them income-producing assets.
Frank is a high-profile real estate agent and broker focusing on luxury properties in Santa Barbara, CA. He has realized the value of the Internet long ago and uses it to his advantage.
Jeremy dated a girl from Santa Barbara in college and knows that it’s home to some extremely wealthy people. However, he has neither the skills nor the capital required to properly develop this domain and would have to rely on the cheapest freelancers to get any work done.
Lucy recently made $6,000 by selling a real estate domain which she had developed into a lead-generating machine earning $300/m EBITA with 1 hour of maintenance per month. The same concept built on RealEstateSantaBarbara.com is expected to drive $500/m EBITA after 20 hours of upfront work most of which can be outsourced at $25/h.
Frank’s average sale commission is $50,000. He is fine spending up to $25,000 on a website driving him at least one incremental sale per year and he knows someone like Lucy who’ll develop the domain into what it needs to be to drive him hot leads for $5,000.
How much different buyers can pay for the same domain
RealEstateSantaBarbara.com’s average domain value estimate of $1,200 is meaningless to Jeremy as he wouldn’t know how to develop it. He will not want to pay more than $100 for this domain, thinking that he should be getting it for just the first-year registration fee of $12.
While likely trying to get the domain cheaper, Lucy will have no problem paying for RealEstateSantaBarbara.com its average domain appraisal of $1,200 knowing she’ll make that money back within a couple of months and probably make 10 times more if she sells the eventual website to someone like Frank.
Finally, Frank doesn’t mess around. And he really likes the idea of adding RealEstateSantaBarbara.com to his gilt business cards. So, if he can snatch this domain for $5,000 he’ll do it without hesitation, thinking it was a steal.
How much is my domain worth? Domain name valuation for sellers
When somebody is asking “how much is my domain worth?” they secretly hope to hear a number that will exceed their wildest expectations, much like a person without antiquarian experience hopes that a dusty vase in her closet belonged to Alexander Hamilton. But, as a seller, you have to be realistic about the average value your domain has for everybody who may buy it.
The truth is: most of the Internet clientele are small-fry buyers like Jeremy who annoy the living daylights out of you by submitting offers that are 10% of your price while acting as if they were doing you a favor. There is nothing wrong with them per se, but they waste your time, so if you can avoid them altogether, you should.
Lucy is that sweet spot you should target to maximize your returns. Such clients have successful businesses and good ideas of what to do with domains. Most of the time they will know something about digital marketing that you don’t, which is why they can extract additional value from the domain. And, since they are in the game to stay, one sale may lead to recurrent business: Lucies don’t come across true professionals too often (most domain sellers also belong to the Jeremy-type), so if you prove yourself as a valuable partner they may even ask you to research and secure domains for them.
Finally, Frank is your dream client. It’s a natural entrepreneur similar to the mentioned movie director who can turn a naked domain into a multi-million dollar enterprise. But such Franks are extremely rare, and if you keep waiting for one you may miss a lot of Lucies. So, instead of trying to squeeze every last dollar from every domain you own, aim for a reasonable balance between (1) what you want to get for your domains and (2) what the average Lucy would pay for them. This way you won’t sit on a ton of overpriced inventory forever and occasionally will make a killing with the help of a Frank.
Final thoughts on domain name value estimation
Whether you are a professional domain appraiser or a hands-on business owner, we hope that this guide will make domain name valuation easier for you. How much is a domain worth? is a question that does take a bit of knowledge and thinking, but it is possible to answer it with a high degree of precision and determine a price that is fair for both the buyer and the seller. Good luck, and let us know if you are looking for investment opportunities with 20-40% annual return rates: our team can help you find a profitable online business that suits your interests and turn it into a reliable source of passive income for years to come.