The valuation of domain names in general is an interesting topic and usually brings out some interesting ideas and methods for valuation. The latest method that caught my eye is from Andrew Rosener (and spelled out in full at DomainSherpa.com) and the idea is based around your potential ranking position in organic search. You take the exact match search number for a keyword domain name (usually from the Google keyword search tool) and use 80% of the exact match search volume number to represent a number 1 organic ranking position and the traffic that would go with that position. Then you use the CPC (cost per click) value also from the Google keyword tool and multiply by the result of your 80% of search value.
An example may be easier here …
I’ll use one of my names as an example, BlenderFoodProcessor.com.
Exact match search volume is 480 local monthly searches and the CPC is about $1.20.
Then we take 480 multiply by (.8) and you should get 384.
Now we can take the 384 and multiply by $1.20 and get $460.80 per month and carry that out to a year (multiply by 12) and get $5,529.60.
We can even take this a step further and create a 2 year multiple value $11,059.20 or a 3 year multiple value $16,588.80.
These numbers are looking really good in my eyes (as the seller) … and at this point if you feel the need to make an offer, I will certainly listen. However, is this approaching a market value for you as the buyer and me as the seller? The suggestion is that the above numbers approximate a maximum retail (end user) value range for the domain.
I think we can use some additional numbers to help evaluate a product specific keyword domain name. This type of domain definitely lends itself to selling merchandise – namely food processors in this case, through a website. We should all be able to agree that the absolute minimum commission earned for a sale of one food processor through Amazon would be 4%. Again, that is the minimum. If we use Amazon as our market place we should also be able to establish that the average price of a new food processor is about $25 on the low end.
Not all buyers are created equal. If the buyer is a manufacturer or distributor then there will be a much different set of numbers to evaluate and more than likely allow room for a higher purchase price as the gross profit margin would be significantly higher. If the buyer is just entering the market and intends to send traffic to Amazon to make sales then we can assume the earnings are fixed at a 4% minimum.
Continuing with our example and assuming the buyer is sending the traffic to Amazon then we can say that for every $25 sale a commission of $1 is earned. You will need to sell 600 units at $25 to earn back a purchase price of $600 for the domain name. Now if we also assume a 3 year payback schedule that is 200 units per year for 3 years (about 17 units per month).
After poking around on Amazon I see that the average purchase could potentially be about $50 for some items when you add in the “frequently bought together” items. This helps because now (as the buyer) I only have to sell 300 units at $50 to earn back my domain name cost. If we assume the same 3 year pay back schedule then we need to sell 100 units per year for 3 years (about 9 units per month).
On the manufacturer side we could assume a modest 40% gross margin and $10 per unit gross profit on a $25 sale. This is where I think the selling price needs to be adjusted. Using 200 units per year we now have $2000 per year and over 3 years at total of $6,000 for a purchase price.
If we look at a distributor and assume a 15% gross margin which would produce $3.75 per unit on a $25 sale. Again, using 200 units per year we have $750 for the first year and a purchase price of $2,250 for a 3 year schedule.
Does this answer the question “How do you value product specific keyword domain names?”.
There really is no one valuation method and a domain name is only worth what the next person in line is willing to pay for the asset. In the above example I would say that the bottom end of the value scale would be $600. This domain would have a measured reward and a low risk as an investment.
What ideas or valuation methods do you have for product or service keyword domain names?