It’s a matter of supply and demand. There are 30,000 words in a small
dictionary and 150,000+ words in a college dictionary, but not 10,000
businesses are willing to pay $4,000 for a domain name.
Since there are no comprehensive statistics on the prices of domain
names sales, a few reported sales can skew perceptions. These high
prices are from:
Teenage juvenile drug dealers often make boastful claims that they
make $10,000 a week, which are reported in the press. Likewise,
domain name speculators often make claims to have made $10,000+
and the most extreme claims are reported in the press.
Have 15-year-old drug dealers made $10,000 in a week? Maybe one
out of a hundred had a $10,000 week, in addition to bad weeks when
they made little or lost their “investment” to the police, rivals or bad
debts – similar to a cybersquatter losing a domain name.
Or it’s not all money down the drain.
In addition to contributing to your brand equity and profits, a quality
domain name is an asset that can be resold if your plans change. In
other words, your investment is not money down the drain.
If you purchase a quality one-word domain name for $3,000, you may
be able to sell it for $3,000 if your business fails.
This only applies to quality domain names. The market price for
domain names may rise or fall like the stock market or any other
market.
Because the domain name market is a thin market, don’t expect to sell
the domain name right away.
Also, if you overpay for a domain name, because you want that one
specific name, don’t expect the next person to overpay you.
Overpaying usually happens with generic domain names and clever or
fad domain names.
Once a name is promoted and becomes known to consumers, it
becomes more difficult and expensive to change. First a new name has
to be selected and purchased.
Then there are the “menu” costs of changing the printing on menus,
catalogs, letterheads, signs, logos and so on. A logo has to be
redesigned. These may cost 1% of sales.
There is the marketing cost of informing customers and running a
renaming marketing campaign. There may be some customer
confusion and some loss of brand equity (goodwill). This may cost 3%
to 9% of sales.
This 5% to 10% rule is also very approximate. The cost of changing a
name is the reason why many firms don’t change a limiting legacy
name.
The most common mistakes that force people to change their name
are:
The big company will pay me $100,000 is usually a false hope because
it ignores the supply side. This is similar to the water-diamond paradox
in economics. Why is water so inexpensive when it is essential? If
people had to, people would pay $10/gallon for water to live.
Diamonds, while beautiful, are not essential but they are expensive.
The answer is that the supply also matters.