Or what is anything worth for that matter.  I always believed that anything is worth what someone is willing to pay for it.  It all boils down to demand really, is there demand for that good?  Demand is what drives the price up on any commodity, be it a pair of shoes, a domain or a piece of real estate.

I often read about how domains are equated to real estate.  Sitting on a prime piece of real estate that’s located in an excellent location is like having a domain that has potential undeveloped value.  I don’t agree 100% with this analogy.  For starters, real estate requires that the neighboring area is also well developed and has traffic.  This does’nt apply to domains, at least not in the same way.  Domains don’t necessarily depend on neighboring domains to have traffic.   Also, the domain doesn’t necessarily have to have any traffic yet to be of value.   So how does it equate to real estate and how can we value a domain’s worth?

Well, first let’s divide domains into two categories, developed and undeveloped.

Undeveloped can be parked or unpublished.  They are generally just sitting there with no or little substantial content.  They rely solely on their domain name, and the demand on this name,  for worth.  We need to find out if there is demand.  We can do a google search for the exact word or phrase and see the number of hits we get to see how popular the word or phrasing is.  We can also use online services to see how many times a month that word/phrase is searched for.   Estibot.com’s online appraisal site gives us this data.   Once we find it’s demand, we then need to determine if this is a niche term or a general term.   In looking for a domain’s value, we’d like to determine who the end user is.  Having a domain appeal to a niche market may limit it’s value because some market’s may not be interested in paying top dollar for a domain.

Having a general term will have higher potential for getting top dollar.  Looking at the search results, you can determine who will be the end user and possibly what they may be willing to pay.

Another factor we would like to consider is the competition for that particular word or phrase.   We can overlook this when doing our keyword selection to our  search engine optimization but looking at it now will give us an idea if what we have is already heavily populated.   A high keyword competition means that lots of other domains are competing to get traffic from those keywords.  Having lots of demand for a set of word or phrase with little competition is best.

Besides having demand for the word or phrase, and low competition we need to see if the word or phrase is marketable in a money making way.   Let’s take one of my domains as an example, Peraturan.com.  It has 1.9 million hits on google with 2200 searches a month.   The keyword competition rating on it is 5/10, not too bad.   The word means regulation in Indonesia.  I have yet to find a market for it.  I cannot get affiliate ads for it since there aren’t many affiliate ads related to it.  Estibot values it 2200 dollars, it’s algorithm takes into account it’s traffic, google searches and competition rating (among other factors) but, as far as I can tell, doesn’t have a way of judging it’s marketability.  So we need to take into account how marketable the word or phrase is to determine it’s value.

To summarize the worth of a undeveloped domain, a generic term is more valuable than a niche term.    Better to have high google searches a month for the term and high google frequency (demand) and low keyword competition.  You should also be able to find a way to market the word/phrase.

Let’s look at developed domains.  A developed domain has a website.  Either it’s a mini-site, blog or full fledged ecommerce site.   I have found that the one determing value to a developed site is  it’s traffic.  If the site has traffic, the site has been well developed and has developed a market.  The bigger the market, the higher the traffic and the more valuable to the domain is.   When determining a value for selling a business, the general rule of thumb is to get your puchase price back in 3 to 5 years.  I don’t think this translates directly to purchasing developed domains but it could serve as a general guideline.  Consider how old the domain is and how long it’s been developed.  The younger the domain and how long it’s been developed will reflect on it’s price as well.  If the site is relatively new and hasn’t built a market then it’s harder to determine it’s potential value.  One will have to do market research to determine the potential for growth for the site.    Also, take into consideration the untapped potential hidden behind a poorly developed site.   Here we can apply the real estate analogy, a developed site is like a developed piece of real estate.  The existing building being the existing website, how well has it done and is there potential to a remodel to better serve the customer.  I believe the analogy works well with developed domains.

To summarize, when considering the value of a developed domain, look at existing traffic and how well implemented the site has served it’s customers.  Demand for your domain will be higher if you have more traffic.  Is there a need to better the site to better serve the customer.   Improving a sites appearance and functionality to increase traffic will increase it’s value.    Remember, a bad site will drive away traffic and diminish a domains value.