This is the first part of a two part article that looks a variety of techniques that should be used when estimating the value of a domain name.

Part one of this two part article is a basic introduction to the need for effective domain name valuation. Part two looks at the concepts, tools and resources available to assist in domain name valuation.

So lets start off at the begining…………

Some would say that the value of any particular domain name is simply what someone is willing to pay for it. At one level that is true. However, domain name valuation is a key skill and effective mastery of this area will provide you with an advantage in the domain name marketplace.

Why domain name valuation is so important.

The answer seems so obvious! ……..Domain name valuation is so important because you need to know how much a domain is worth when buying and selling domains. The point here is that there are so many situations where a domainer might need to determine the value of a domain. These situations include the following:-

    When a domain name owner is selling or considering selling a domain name
    When making an offer on a domain name that is for sale
    When making a speculative and unsolicited offer for a name that is not for sale
    When assessing the merits of a speculative offer from someone for a domain name that you own
    When determining the value of a domain name which is part of a developed website
    When determining the reserve price for a domain name to sell at auction

In each of these situations the valuation may be slightly different and having an appreciation of the value of a domain is vital if a very expensive mistake is to be avoided. However, it is clear that in many cases an exact valuation is not necessary, and that only a rough estimate is requred, for example when setting a reserve at an auction.

Valuing domains for sale on the secondary market.

Perhaps the most common valuation issues arises when buying domains on the secondary market. It is a challenge to secure good domain names and as the value of domain names have increased, the availability of names to register, at the registration fee, has dwindled. Good domains are now very valuable and sell for a lot of money, and many are just not for sale at all.

Domains can be purchased on a variety of ’secondary market’ sales sites on the web, including Snapnames, Sedo, Afternic and even eBay. Where domain names are sold through auctions, customers are invited to make an initial and subsequent bids and there is often little to indicate, early on in the buying process, what the eventual selling price might be. If a potential buyer lacks an appreciation of the likely value of a domain there is some danger that they will pay too much or drop out of the deal believing the domain is overpriced. Similarly, a seller may hold out for unrealistic prices. So it is vital that all concerned understand the factors that influence domain name sales.

What determines the value of a domain name

Serious domain name traders are constantly reviewing the ways they might spot undervalued domains amongst the mass of domains on the market. For experienced domainers, domain name valuation can become instinctive, to a certain extent. They know what makes a good domain name simply through experience. However, like in any type of business, one person may see value where someone else sees none. That’s what makes things so interesting.

For those without this experience it is far from clear how to even approach valuing domains. In broad terms, consideration should be given to a wide range of factors such as the domain name extension (.com, .net, .co.uk etc), the number of visitors the domain receives, the actual word or words included in the domain, the search engine popularity, comparable sales, development potential and the revenue generating potential. I have put together an article outlining factors to consider when attempting to value domain names which will serve as a starting point for further consideration of a domain’s worth.
The concepts, tools and resources available will be discussed in part two of this article.