A domain's value can be determined by several methods.
"Consider the 'Super Bowl' analogy. Some businesses can spend $8 million dollars or more for one 30-second Super Bowl commercial, which is over and measured quickly. If it works, there is a return on investment, and if not, it is a significant hit to that company’s profit and loss statement.
For a similar cost, if they had purchased their exact match or category .com domain name, they would have a balance sheet asset that is an appreciating, amortizable, resalable investment, while adding exponential enterprise value and utility to the business. The same executives and investors who shun a seven-figure domain acquisition are probably spending P&L money to advertise their forgettable, non-matching domain name all over the internet."
Source: Richard Harroch and Andrew Miller, Internet Domain Names: The Most Valuable Real Estate For Your Business, Forbes, August 27, 2022.
Another appropriate domain valuation method involves the Lifetime Value of a New Customer. The formula is as follows:
Domain Value = (Lifetime Value of a New Customer) x (New Customers Per Day) x (365 Days) x (Years)
Lifetime Value = $1,000
New Customers Per Day = 1
Years = 20
Domain Value = $7.3 million
Other methods of domain valuation include the following:
- the value of the idea
- the profit margins, when applicable
- the gross sales, when applicable
- the cost of a sign that can be seen worldwide, even from outer space
- the cost of an employee who works 24/7/365
- the cost of digital advertising (ex. Facebook, Google, etc.) for having a weak domain name
The benefit should be calculated over 20 years, minimum. If a domain purchase is financed over time, it should more than pay for itself each month.
Sources: Rick Schwartz and Michael Saylor