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How would you value a domain name?

     
7:39 am on May 18, 2014 (gmt 0)

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So I read on several threads and blogs that the domain names worth is basically "what the buyer is willing to pay" but if we were to use math and logic to appraise a domain name:

Assuming the domain is a common word, and a .com, is it fair to say that the domain is worth:

(CPC * Number of monthly searches) * 36

For some reason this formula doesn't make sense for this particular domain name.

Lets use: "SwissChocolate.com" as an example.

Exact Monthly Searches: 8,052
Cost Per Click: $1.10 USD

that would be over $8,000 dollars a month. Multiply that by 3 years or 36 months would give you $288,000.

What am I doing wrong here?
7:55 am on May 18, 2014 (gmt 0)

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"number of searches" is not the same as "number of clicks on YOUR website"
10:01 am on May 18, 2014 (gmt 0)

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The formula is more like (for ad based websites):

Number of monthly searches x CTR = Number of visitors

Number of visitors x CTR x CPC = ad revenue per month

Value website ~10x ad revenue

Assuming that every search includes your website.
2:54 am on May 19, 2014 (gmt 0)

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"number of searches" is not the same as "number of clicks on YOUR website"
Good point. Yes, I agree that the website doesnt rank #1 on Google however, then how do they valuate domain names when it doesnt have traffic?
Are they assuming the .com has great potential to rank #1?
My other question is if my site ranks #1 on Google can I then apply the above formula or do I multiply that by 70% since usually the first link only gets 70% of the traffic. And also do I multiple the CPC by ~70% since thats the share Google pays out after deducting their own share?
Value website ~10x ad revenue
I thought they usually multiplied it by 2-3 years and sometimes more depending on the traffic sustainability.
3:28 am on May 19, 2014 (gmt 0)

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The traffic sustainability is one of the more critical factors in valuing a domain these days. There's just no tried and true what works reliably these days. Ultimately, your valuation is what the other fellow is willing to pay.
8:09 am on May 19, 2014 (gmt 0)

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first link only gets 70% of the traffic


The top organic link would be lucky to get half that, especially if the search term has ads above the organic results.

multiple the CPC by ~70% since thats the share Google pays out


Yes. Potential domain purchasers would have little reason to assign value to cash flow that ends up in anyone's pockets but their own.

Cost Per Click: $1.10 USD


What's the source for that number and how was it determined?

Does it allow for the fact that advertisers are often charged less for their clicks than the amount they're bidding? Does it allow for the fact that the highest bidder isn't necessarily the one that gets the click?

great potential to rank #1


"Potential" is another way of saying that "the work to establish this domain as a real site hasn't been done yet". Buyers and sellers often have very different opinions about the value of "potential". Even a perfect keyword domain will need to be backed by quality content, knowledgeable on-site optimization, and lots of savvy promotion to have much chance of ranking these days. W-O-R-K.

Gaining traffic from organic search would be easier in some sectors than others. Much would depend on the strengths and weaknesses of the competition. That would need to be judged on a case-by-case basis.

how do they valuate domain names when it doesnt have traffic?


Sellers can set whatever price they want. Whether they'll get it is another matter.

As long as there's not too much emotion in the mix, potential buyers will be constrained by their best estimates about how much income they could generate by having this domain, compared to other possibilities. Such offers will usually be less than the seller's fantasies.
9:29 am on May 22, 2014 (gmt 0)

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thank you buckworks. You have always been very helpful. :)