Part 1 - How to Price Your Domains for any Market

Part 1 - How to Price Your Domains for any Market

As I’ve stated in a previous article, pricing domains can be a difficult task. Many domain owners firmly believe that the price completely depends upon the buyer. The problem with this position is that it runs contrary to the fact that priced domains are more likely to sell. In this article, I’m going to attempt to put some mathematics behind pricing domains in ANY market vertical.

Escrow.com

I made my first attempt at pricing domains in an article last year. At the end of the article I suggest that a lot more thinking needed to go into the model…..so here goes!

I’m a firm believer in economic theory and the rules of supply and demand. High prices are the result of a combination of high demand and low supply while low prices are a function of both large amount of supply and low demand. You can see the rules of supply and demand all over the business world; from oil and iron ore right through to dog food.

Supply and demand lead me to attempt to build a demand curve for a set of keywords in a market vertical. I entered mortgage, loans and finance into Google’s keyword tool and out popped 703 keywords with both the estimated volume of traffic, recommended price point and demand (ie. competition) for that keyword.

After a little bit of Excel magic I was able to produce the below demand chart for the financial category. I will be the first to indicate that you can actually get a more accurate curve with greater numbers of data points but the essence of the demand curve will remain intact. The interesting thing is you can also build the same sort of curve for any group of keywords.

Demand Curve

So what are we looking at? This is a pretty good picture of a marketers view of the keyword landscape for their particular market. Remember, this does not provide a picture of what they are spending but how much they value a particular keyword.

The only reason marketers will consistently pay more for certain keywords is because the traffic from that keyword provides a return on their investment. This is the why each keyword has a different price point. This means the demand curve is a mirror of the conversion rate for each keyword.

We do know that the average keyword domain sells for around $AU2000 ($US1,500). It could be then said that keywords around the “weighted mean” (ie. the point at which the areas to the left and right of the chart are equal) of $21 will attract the $2K price tag. Domains down the curve will sell for less than $2K and those above this point will sell for more than $2K.

For example, “second mortgage rates” has a bid price of $12.60 which slides it about 25% down the curve from the weighted mean which would suggest this domain is worth around $1,500. On the other hand “second mortgage loans” (a more targeted keyword) is selling for $21.33 and places it right about the mean and a price tag of $2,000. “Second mortgage” is a shorter keyword and has a price tag of $22.86 which pushes up the demand curve by 5% which suggests the domain is worth around $2200.

These prices are guesstimate and I will attempt to do a more accurate pricing later in the article. What’s interesting is keywords such as “refinance second mortgage” is 45% higher on the demand curve than the mean and are deemed more valuable than the shorter keyword versions. So why is this the case?

Remember the demand curve will only keep in place if the underpinning metrics of a sale are met. It’s not just about traffic volume or “brandability”. Ultimately, it’s all about sales! This suggests that people that click on the keyword “refinance second mortgage” are more likely to purchase a second mortgage compared to individuals that click on “second mortgage”.  In fact, we can calculate the number as being nearly 40% more often.

This flies-in-the-face of the assumption that a short domain is a good domain. Sometimes shorter keyword domains provide more traffic but they bring a lot of tire kickers who don’t purchase products or services. The simple act of typing in more letters can be one of the more interesting qualifiers of whether a consumer will purchase or not.

For instance, everyone would assume that “best loans” is a great domain….and yet, the marketers don’t like that keyword and push it down the demand curve. What they love is “home refinance” and are prepared to pay top dollar for traffic from that keyword.

Here’s the problem with this analysis. The amount of $2,000 for the weighted mean is an assumption for this market vertical. I believe that every market vertical will have an average value that domains are sold for…..the majority of this type of information is held by the incumbent marketplaces.

What I’m saying is that for the finance sector rather than $2,000 it could actually be $10,000 or even less for the weighted mean. In my next article I’ll continue to dig and pull out more on the mid-point number.

Battleframe

Part 2 - How to Price Your Domains for any Market
Why My Mother's a Genius!

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Comments

Guest - Leonard Britt on 15 March 2017
Finance Domains

I was recently approached by a finance company for a domain name. Their offer high $XXX. They currently have a website on the .CO of my domain name and use another domain but it is not even the name of their company. Their website states they have underwritten many many millions of dollars of loans and their Linkedin profile shows nearly 150 employees. So in my view their offer is just too low given the size and normal operating costs of the underlying business.

I was recently approached by a finance company for a domain name. Their offer high $XXX. They currently have a website on the .CO of my domain name and use another domain but it is not even the name of their company. Their website states they have underwritten many many millions of dollars of loans and their Linkedin profile shows nearly 150 employees. So in my view their offer is just too low given the size and normal operating costs of the underlying business.
mgilmour on 15 March 2017

I think that I begin to answer these questions in the next article.

I think that I begin to answer these questions in the next article.
Guest - Hugh on 16 March 2017
Good Article

Michael...very good article...Hugh

Michael...very good article...Hugh
Guest - Tucker on 17 March 2017
Talk about a beautiful mind...

Another brilliant analysis, Michael! Talk about a beautiful mind, yours is consistently one of the smartest blogs in the domain space.

On behalf of all the silent lurkers out there who passionately read and value your work, but rarely if ever come out of hiding to thank you for it, thank you, thank you, THANK YOU!

Another brilliant analysis, Michael! Talk about a beautiful mind, yours is consistently one of the smartest blogs in the domain space. On behalf of all the silent lurkers out there who passionately read and value your work, but rarely if ever come out of hiding to thank you for it, thank you, thank you, THANK YOU! :)
mgilmour on 18 March 2017

My pleasure, and it really is. Getting feedback from anyone spurs me on to write about our wonderful industry. Thank you for your comment....it actually made my day :-)

My pleasure, and it really is. Getting feedback from anyone spurs me on to write about our wonderful industry. Thank you for your comment....it actually made my day :-)
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Monday, 20 November 2017