Wednesday, May 4, 2016
While online businesses may have few assets, the domain name is indispensable and one of the most important. An online business cannot even function in the virtual market without a domain. Thus, understanding the value of this asset can be very important during the valuation of an online business as it can possibly increase the value of the business. Many domain names are essentially worthless. But if you own a recognizable domain that has incurred heavy traffic, then negotiations with a prospective buyer could be highly fruitful.
A Warning against Automated Calculators
Oftentimes, automation is seen as the key to success for an online business. But not all automation is equal. Automating emails, social media updates or data entry of a business is a great way to increase profit, but using automated calculators is never wise. They generate arbitrary data that cannot take into account many qualitative factors that demand human attention. Nonetheless, there are many free “domain appraisal tools” (i.e. calculators) such as estibot.com and valuate.com. Learn what these are, avoid them (and business advice from people who recommend them) and do not trust a buyer’s bid for your domain name or online business if the only data he can cite was generated from one of these tools.
Understanding Domain Valuation
The domain name’s value is a completely subjective ideal of what a seller thinks it is worth and what a buyer is willing to pay. Many people like to point out that a domain name is only worth what a buyer is willing to pay for it. They fail to mention that the seller can use a number of different marketing and management strategies to help increase the number on the final price tag. Discovering the most important factors of domain valuation means that you can make them a focus of your business policies and increase not only the value of your domain but also your entire business. In fact, because the domain is an asset of your business, increases in its value automatically correlates to an increase in business value.
Of importance are two variables under which all other factors fall. The sum of these two variables can give you a reasonable expectation of value for your domain name:
A domain’s generic value is generated by the domain name itself. Readability; lack or presence of numbers, hyphenation or other non-lettered symbols and signs; direct association with a business or through an intermediary (widget.com vs. wordpress.widget.com); and numerous other things that determine the aesthetic and professional appearance of your domain can either increase or decrease the generic value of the domain.
The value of traffic is generated by the number of visitors to websites affiliated with the domain name. As this increases, the domain increases recognizability and becomes more valuable to a prospective buyer. After all, the buyer is looking for a return-on-invest. Investing into a commodity like a domain name that is already well-known is a plus. If the business and its customers come with the highly trafficked domain name, you could be looking forward to a nice payday.
Valuing a domain name is subjective and liable to negotiation, qualitative analysis and quantitative statistical anomalies. There is not simple or single tool for domain name valuation. Nonetheless, you can generate a good asking price by avoiding and knowing the risks of automation calculators and focusing on the domain’s generic value and the value of its traffic instead.