I took a Financial Accounting course my first semester of sophomore year in college. I don’t remember much from the class except for one thing the professor told us that I will paraphrase: “accounting is more of an art than a science.” I think the same thing can be said about the pricing of domain names on the aftermarket.
Everyone seems to have their own strategies that work for them. Some people price their domain names with the expectation of getting a specific return on their investment (I often hear 10x). Some people price their domain names sky high so they don’t leave any money on the table in the event the perfect buyer comes knocking and needs the domain name. Other people price them to move inventory and generate a solid cash flow. Some people don’t ever put BIN prices on their domain names. Many people employ different pricing tactics depending on the specific domain name.
When you overprice a domain name, many prospective buyers will simply look for something else if it is beyond their budget. They may not know they can make an offer or they may not know how to make an offer. They see a name for sale at a specific price, and if it is more expensive than they wish to spend, they will choose something else.
If you underprice a domain name, you may be leaving money on the table. A buyer may be expecting to pay $25,000 for a domain name, but they see it on Sedo with a $8,000 buy it now price, and they jump on the deal right away.
The irony with overpricing and underpricing is that most times the domain seller will never know whether or not the outcome would have been different had their pricing been different.
There is no real science to how I price my domain names. Generally speaking, I price my names based on how much I paid, my gut feel for what it is worth, the difficult in acquiring the domain name, what I would imagine it selling for to the right buyer, comparable sales, the prices of comparable names for sale, and probably a bunch of other factors I am not thinking about. Ultimately, it takes me about 10 seconds to determine the price of one of my domain names, but I regularly update my pricing depending on other factors.
When people ask me for guidance and advice about pricing domain names, I tell them it’s more of an art than a science.
“The irony with overpricing and underpricing is that most times the domain seller will never know whether or not the outcome would have been different had their pricing been different.”
Very well put. That precisely sums up the pricing dilemma for investors. Domain investors do not have that key piece of information which would help them optimize their pricing decisions.
However, with enough public sales data, one can deduce to some extent what end users are willing to pay for a particular domain – or guide prospective buyers to the correct market price – and this reduce the information gap confronting investors.
It is luck and timing too.
It’s part art for sure. I quickly abandoned setting formulas such as 10x. I take them as they come, and re-evaluate the market with each inquiry. My pricing, while seemingly arbitrary, is not generally the case. In many situations I consider the name a direct investment in a future company and hence the sale to be something like a ‘buy-out’ or an ‘exit’ from the buyers company/organisation. So I price them higher. And it’s not all irrational because I can typically justify my pricing e.g. based on a buyers finances via public sources. I wouldn’t say ‘hey your revenue is x, so therefore you can afford x’, only where there are clear competitors for the name would I suggest that such and such company could probably easily afford x amount and it could sell at any time…, etc.
Had I a larger portfolio I may be more scientific or rational with pricing, but with 300-odd names listed and only a few sales each year, there’s not enough data. Starting out my expectations where a bit high, but despite being too greedy on some deals, I do try and trust my inner voice and just say no when I feel I’m under selling. I guess it’s evened out.
What’s more concerning is I’m hardly buying. Partly because I’m after quality, and partly because the type of name I was buying before is not coming to market not to mention when they are it’s silly expensive, not by 20% or 50% but 200% and 300%+. I think a few new investors will need a reality check in a year or two, but you never know, the market seems so unpredictable especially with all the ‘cheap money’ being thrown around. In any case, something drastic would need to change where the end-user, across the board, discerns a much greater value in these assets than they have up to now.
Domain pricing depends on the viewpoint seller, it is far more important than the actual name. I would say this is not an art but a science.
People just copy the pricing of their other similar names that they hold and believe whatever they came up with is “correct”, in reality it is often just random depending on how much money they need. Over time it builds up into a pattern and because sales are coming in they believe the pricing in optimised.