Domain Valuation: How do I Value a Domain Name?

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Domain valuation is a combination of both art and science. In many cases, domain names have specific and measurable data or attributes on which to base a valuation. Examples would include amount of traffic a domain gets, is it a popular word and correctly spelled, is it on the .com TLD or another less valuable TLD, etc. This is the science part.
However, beauty is in the eye of the beholder and in many cases a domain is worth what someone is willing to pay for it. The classic example is name domains. I might not pay $10 for [yourname].com but I bet you would pay a lot of money to get your exact match .com name domain that you could use as an email account, as a homepage for your personal website, or for other purpose.
So how much is it really worth? How do you write an algorithm to take that into account? There are countless examples like this. Any scientific algorithm will break down at the margin, with margins being examples like name domains, premium generic domains, trademark domains, number domains, etc. This is where the art comes in.
The value of a domain name is the sum of its generic value and the value of its traffic. Traffic is the easier one. Traffic comes from type-ins (direct input into a browser URL), links/bookmarks, and search. Assuming you can estimate how much each unique visitor is worth (based on how you monetize the traffic) you can then come up with a simple formula which calculates the amount of revenue or value you get from the domain's inherent web traffic each year (to learn more about web analytics, read Wikipedia's article here. The current market might place a 3-5 year multiple on that 'revenue', similar to how companies are often valued at 1-2x Sales, or 5-7x cashflow.
Generic value is a more complex animal. Here are some things you look at when you are trying to estimate the value of a generic domain: uniqueness, length, word count, singular or plural, any dashes or numbers, TLD, industry vertical or keyword value, correctly spelled, substitute words, possible uses, etc. etc. This is where experience and industry knowledge often trumps data.
In addition, you can use this list as a reference of what appraisers might take into account:
- Top-level domain—the most valuable domains are .com domains.
- Meaning—domain names referring to popular subjects are worth more than those referring to niche subjects, e.g. moviesvs. entomology.
- Suitability for commercialization—if the domain name is relevant to specific specific service or product keywords, it will be more attractive for commercial development purposes.
- Memorability—relative from person to person, but this also ties in with length.
- Number of words—domains that comprise fewer words generally have a larger market.
- Number of searches—performed for the domain name or its component words in recent history can indicate its value for search engine optimization.
- Length—shorter names are more convenient for users, being faster to type and less prone to typing errors.
- Pronounceability—a domain whose proper spelling is clear when spoken is generally more valuable than one which is ambiguous.
- Added numbers—usually lower estimation (e.g., Example24.com would be rated as less valuable than Example.com).
- Typographical errors or misspellings—Domain names resembling other domains except for a typographical error can be valued by those seeking to use them for advertising or competitive activities, but can also run afoul of local trademark laws. (e.g. flickr is an example of a purposeful typo).
- Age—a long-established domain tends to be more valuable.
- Singular and plural domains—may differ in their pricing (e.g. books.com would be valued more than book.com since people are much more likely to search for 'books').
- Recent traffic—how much inherent web traffic the domain name generates each year (see section above).
- Selling price of previous similar domains—can suggest the current market value of a domain name.
If you do not have the experience or knowledge, there are brokers and companies available to assist you. Luckily there is another useful data set relevant to generic domain valuation: comparable domain sales. If you can locate the records of other domain sales of similar type (industry vertical and matching attributes), you can at least bracket the likely generic value of the target domain. You can go to the sales history on DomainTools to look up this information.
Clearly there is no 'right' answer to domain valuation. However, the information above should give you a head start on thinking about how to approach this challenging endeavor. In addition, if you have already decided you want to sell a domain, you can simply put it up for auction at any of the many domain industry auction platforms and the 'market' will tell you what it's worth.

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Domain Valuation: How do I Value a Domain Name?

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