Our objective today is to understand:

• What makes up the value of a domain name? (there are 2 components)
• What are the factors affecting each part of a domain name’s value?

What makes up the value of a domain name?

When we talk about value, there are 2 separate components that makes up a domain name’s value. They are the domain name’s:

• Natural Value
• Development Value

Natural value refers to the value that the domain name gives itself. For example, the domain name, ChocolateCoffee.com, was recently sold for US$2500. Its keywords and market demand solely determined its value. In plainer terms, it means that without further development, the domain name’s natural value was $2500.

Development value, however, refers to the value of a domain name after some effort was put in to develop it. In other words, you try to affect the domain name’s value by gaining more relevant traffic. And traffic represents money-earning opportunities to serious buyers.

The chart above shows you how the development value and natural value add up. Basically, Natural Value is the base value that cannot be easily affected. While, Development Value is the added-value on top of a domain name’s natural value. Natural Value + Development Value = Total Value of Domain Name .

So, the question is how can you influence both the natural value and development value of your domain name? Read on.

The Factors of Natural Value

We have covered this briefly on an entry about how to choose a domain name. Nonetheless, let’s recap. Here are the determinants that affect the natural value of a domain name.

• Length of domain name -should ideally be below 20 characters
• Easy to remember
• Keywords or Dictionary Words - should have a ready market or niche (commercial value)
• Easy to pronounce
• Brandability
• Natural Traffic - traffic gained from the keywords alone

How do we appreciate a domain name’s value through  above determinants?

By using the determinants to choose the right domain name in the first place! Because after registering a domain name, next to nothing can be done to appreciate its natural value. (I will dedicate a/some post(s) on some techniques to find a good domain name.)

The Factors of Development Value

These are the determinants of development value.

• Quality Content -do you have content that attracts return-visitors
• Relevant Traffic -is your traffic related to the domain name’s keywords
• Monetisation Potential -can your developed domain name be readily monetised

Whatever I’m trying to say should be clear now. A domain name with a website will naturally be valued more. Because it fulfills the three factors above. With a website of quality content, you gain relevant traffic and with some form of marketing, even more traffic will be gained. And traffic means money!

Through the process there is a high possibility that your site will gain pagerank from google. And many buyers take pagerank as an indicator of your site quality.

The question is, are you willing to spend time to develop a site for your domain name? If not, what can you do. Watch this space.

Logen Lanka

In short, we want to reduce uncertainties like:

• Will I be able to sell my domain name eventually
• Do I have enough cash to sustain my domain name investments in the short term and long term

The overview of this series will reveal how to cut losses and increase your earnings when investing in domain names.

Let’s picture this. Logen just bought 10 domain names that he intends to resell. However, there is a risk that he will not be able to sell it at a profit. How does he reduce his uncertainty of not being able to cover the $10 cost price of each domain name.

To reduce this uncertainty, two things can be done. First, increase the demand of your domain names by appreciating their value. Second, ensure that you have a constant inflow of cash to support at least part of your cash outflow.

Appreciating The Value of Your Domain Names

The first point of appreciating the value of one’s domain name is straightforward. Part 2 of this series will deal with how to appreciate domain name value.

Receiving Cash Inflows to Support Cash Outflows

However, for the second point, it warrants a bit of explanation. What does having an inflow of cash to support outflow of cash mean?

For instance, Logen’s investment on 10 domain names will cost $100 per year for renewal. If he intends to hold it for several years, you can only imagine the costs incurred for every year. If he has a steady stream of cash inflow of $50, his cost of investment will be reduced to $50 per year.

Domain Name Renewal Cost – Inflow of Cash = Net Outflow

$100 – $50 = $50 of outflow per year

That’s all for the overview. The second part of the series will teach you how to appreciate the value of your domain name. And the third part will teach you more about cash inflow.

Logen Lanka