A simple rule: 1% of sales
If a great domain name compared to a good domain name will increase
sales 2% and the margin is 50%, then a great domain name is worth
1% of sales.
For example, a domain name that will increase profits 1% in a $10,000
business is only worth $100 to that business.
If that same domain name will increase profits 1% in a $100,000
business, the name is worth $1,000 to that business.
If the same domain name will increase profits 1% in a $1,000,000
business, the name is worth $10,000 to that business and so on.
But, this is only the demand side of supply and demand analysis. Price
is determined by both supply and demand. A $10,000,000 business is
not going to pay $100,000 for a domain name if similar domain names
are available for $10,000 or less.
In some businesses, such as pure-play dotcoms where consumer
branding is important, a great name may increase profits 2%, 3%, 4%,
or even 5%. In other businesses that are more offline than online and
branding is not important, a great name may only increase sales a tenth
of a percent or less.
In theory, one should take the present value of expected sales over the
life of the product/business. However, since most new
products/businesses fail to earn a profit, I am using a certain 1% of 1-
year of sales instead of expected sales over several years. Therefore,
the 1% rule is somewhat conservative.
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