Real-world overhead costs for a physical store should be used as a primary measurement to determine the value of a great domain name. Other important factors relevant to value include natural internet traffic, market characteristics, popularity and relevance associated with the domain name as well as the dynamics surrounding the ability to drive additional internet traffic to the domain.

Common Storefront Costs

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Typical OH for One Store

Rent $2500/mo, $30k/yr, $300k/10 yrs

Electric $500/mo, $6k/yr, $60k/10 yrs

Insurance, garbage, security, maintenance, $1,000/mo, $12k/yr, $120k/10 yrs

$480k (@ 10 years) before salaries not including several other unmentioned business expenses

Sunk costs that are local versus a domain name that is global 🌎

The Cost of a Store

And what is the COST of building just one store? The land, the building, the furnishings, the employees, the YEARS of research to find a proper location? These costs should also be considered for appropriate domain name valuation.

The Cost of a Kiosk

In the real world, you expand by adding more locations. Then, for greater coverage, you add more locations. In the online world, you expand by having a great idea and a great and memorable domain name.

Let us cite an example from the real world. Suppose you have 20 locations at urban malls across the state of Florida. A kiosk in one of these malls will cost you about $2,000 per month. That is a kiosk; it is not a storefront! With each location costing rent of $2,000 a month, you are spending $40,000 per month! That is just the rent! That does not include any other expenses that go with it. Online, you just need one great idea and one great location, and you will serve the world.

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Traffic

Traffic is the ultimate validation of a domain’s value. It is the face value of the domain that other domains don’t possess. Traffic value is tremendous.

In that regard, one new customer every day could be worth tens of thousands of dollars. That is what “Face value” means.

Traffic allows you to value a domain name using its profitability. Measure the annual revenue increase and multiply it by at least 10 years.

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Customer Value

Let’s say human cloning costs $100,000, for example. And let’s assume that the domain in this scenario is solely responsible for landing one new monthly customer— just 12 per year. That’s $1.2 million in sales. If it is one per week, it’s $5.2 million. If it’s one per day, you’re looking at $36.5 million. Multiply that out by 10 years, and you’re looking at $365 million!

What is the lifetime value of a new customer?

I’m certain that AT&T and Verizon and insurance companies know that answer immediately. That’s why they advertise on TV all the time because it’s that good.

So if a communications provider gives you a free phone they must know that the retention rate is many years. Maybe even decades.

So if a domain itself is responsible for 10 new customers a day times 365 days a year, that is 3,650 new customers per year. If each customer has a lifetime value of $10,000, we are talking $36.5 million.

Even if it’s worth only 1 new customer per day at $1,000 you are $365k/YEAR.

If you extrapolate that out 10 years it’s worth somewhere between $3.6 and $365 million.

So the next question is how many years of new customers should that entity pay for? How many years are those new customers worth?

When you sell a business, you’re going to get a minimum of two times or three times the value.

So now you’re bringing that $365,000 (1 new customer per day at $1,000) up to 1 million without even drawing a sweat.

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Your domain name is:

• Your world headquarters
• Your first impression to the world
• Your first line in your business plan
• Your brand, traffic, trust and your SEO
• Your online skyscraper used to build dreams
• Your long-term advertising & marketing tool
• A profit center. You don’t pay for a great domain – it pays you
• A billboard w/ traffic that you own forever with rent free attention

The lifetime and expandable foundation of a business in the 21st century is built upon a solid domain name.

(Credit: Rick Schwartz, domainking.com)