John Berryhill on Domain Name Valuation (originally posted to the INTA list):

There is no shortage of self-styled “domain name appraisers” which use formulas relating to length, common word frequency, etc., but if “” is worth $4M, is “” worth more or less than that? and are probably the top two domain marketplace sites, which also provide appraisal services.

There is a somewhat widespread scam currently going around in which a domain registrant receives a random purchase inquiry.  When the domain registrant responds to the inquiry, the putative purchaser states that they will pay the amount provided by an objective appraisal, and the “purchaser” states that they only trust any of three or four services.  One of those services, coincidentally, is priced well below the other ones.  So, the domain registrant obtains the appraisal, sends it to the “purchaser”, and the “purchaser” is never heard from again.  The point of the scam is to induce domain registrants into buying useless appraisals.

One objective measure of domain name value is in terms of the traffic it generates, so long as the traffic is not attributable to a proprietary context (e.g. traffic for “shell” seeking shells is good; traffic for “shell” seeking an oil company is bad).

The clearest measure of domain name value is in terms of the traffic it generates.  In a recently reported transaction, a portfolio of domain names generating 17 million unique visitors/month was purchased for $164M.  Based on click-through revenue, that transaction reportedly valued each domain name on average at about 8X current annual revenue.