The Different Types of Valuation Models for Websites

The market for buying and selling websites, domains, and templates has exploded over the last few years, despite a general decline in the affiliate industry itself. While payouts decline and costs increase, there seems to be a steadily growing demand for finished assets, to the point at which designers have gone so far as to design, improve, and flip websites as a full time profession.

That being said, who is it that’s making these purchases? And more importantly, how is it that they’re able to distinguish between which website is worth tens of thousands of dollars, and which is worthless? By combining some financial valuation tricks with an understanding of how it is that traffic creates value for a web-page, we can come up with a framework for exactly how to value a website based on tangible worth.

Domain Valuation

Placing a value on a domain is as much of an art as it is a science. That being said, because of the way in which we can tie tangible value to keyword prices, we are able to ascribe value to a domain based on the keyword-specific traffic that it attracts. This method of valuation is effective because of the way in which it takes into account the worth of the traffic that the domain name could bring in from organic search venues. From there, we can use auction platforms to value the kind of premium that the market will place on domain prices.

While there are several resources out there that are providing a list of as many as 14 valuation aspects that can be used to come up with a final price point, it is important to remember that a valuation model needs to be tangible in order to determine the true value of a purchase. As such, I’m only going to be looking at those aspects of valuation that can be concretely measured, and then evaluating the intangible worth of a domain as an aspect of the premium that is placed on similar assets in the auction environment.

Top-Level Domain

While there are a great deal of top-level domains in existence today, it is important to recognize that there is a fairly clear hierarchy associated with which domains are worth more than others. For example, while a .COM domain provides a great deal of worth for a commercial website,.EDU or .GOV domains are considered to carry a great deal of worth in terms of their ability to contribute to Page Rank value. Alternatively, .INFO domains are extremely cheap to purchase, and are therefore heavily associated with unwanted spam and low quality material.

So how exactly do we determine the difference in value between a .COM, .INFO, and .ORG domain? The first strategy would be to start at the source of domain valuation and look at the comparative proportion that is being used by domain registrars at the source. For example, if I search a registrar to find out the price of registering a domain called ‘ugliestcatsever’, I’ll find the following results:

If I put these values into a proportion against the value of the .COM top-level domain, I can begin to see a trend in the basic concept.

Initial Domain Cost Ratios

Notice the pattern? This provides us with a basic valuation framework for discounting the different values for top level domains. However, given this data, we now need to see if the actual data holds up in the auction environment. While the data is a bit more limited, it is fairly easy to access metrics on the valuation of the most popular domains. Interestingly enough, upon evaluation of the sample, we can see precisely how it is that the market values top level domains in comparison to the registrar.

Auction Domain Cost Ratios

The main take-away from this sort of analysis is that there is a small but material difference between the value of a domain at registration, and its price upon resale. Specifically, it would seem as though a .NET or .ORG domain might have a tendency to depreciate in resale value due to its inability to substitute for the recognisability of a .COM, whereas a .INFO or .BIZ seems to actually gain value over time, if it is capable of establishing itself as being something more than a spam haven or content farm.

Next article in this series will be about the length of a domain name.

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