Why are premium domains so damn expensive?

We’ve all seen premium domains for sale at absolutely insane prices.

I mean, how can an address on the internet cost between hundreds to tens of millions of dollars? Why are businesses happy to break the bank for short, keyword-focused domains? How does that even benefit them?

In this article, we’ll try to answer all of these questions. We’ll take a deep dive into the value of premium domains, the value they bring to the table, and why anyone would even consider buying a domain for six figures and more.

Let’s get into it.

What drives the value of premium domains?

Remember that time Tony Soprano told his son, “Buy land, AJ, 'cause God ain’t making any more of it.”? This is a good way to think about domains—they are a scarce asset. If you’re in the market for a good .com domain, it’s important to keep in mind that they ain’t making any new ones.

The good part, however, is that there are investors who are willing to resell domains to interested parties and that you can get your hands on one.

But let’s answer the important question, “Why buy a premium domain?”

They’re short and easy to recognize

Premium domains are typically very short and simple, which is exceptionally important in the modern business ecosystem. There are lots of companies out there and having a name and a domain that stands out is absolutely essential.

More importantly, short names are easy to remember. As a result, this increases its memorability and makes it easy to type into search and spell it to Siri, Alexa, or whatever.

Having a short brand name and domain simply makes sense from a user and customer experience standpoint, which typically leads to more traffic, sales, and user engagement.

They’re easy to associate with specific products or industries

Imagine a domain like "Bikes.com"—right away, you learn everything you need to know about the business. This domain name pretty much carves out a prime spot for the company on the internet, making it immediately recognizable, credible, and authoritative.

The scarcity of premium domains has fundamentally been driving up their prices as well as businesses’ interest in purchasing them. Over the years, domains have been becoming longer, since no short alternatives were available. Consumers all over the world have grown accustomed to this. As a result, today, short URLs have become a luxury, and often the centerpiece of a company’s branding efforts.

These domains aren’t just memorable—they're strategic. They enable businesses to directly appeal to their intended audience with pinpoint accuracy. Or, I don’t know, take "VeganSnacks.com" as an example. This domain immediately attracts the attention of those interested in veganism. This, as a result, will considerably increase the marketing efficiency and grow the potential for customer loyalty through its specific appeal.

They have a lot of branding potential and enhance trust

Over the years, the internet has become a faceless all-knowing entity. While it exists in the digital realm, it has a strong grasp over our lives and what we consider as valuable. This is precisely why premium domains are sometimes worth millions—we, as civilizations, have commonly agreed upon their inherent value (unconsciously, of course). It’s the same as money. They’re just pieces of paper that we agreed to assign a certain value to. But I digress.

While millennials and Gen Z are more likely to be more brand-oriented, a large chunk of consumers are still happy to just go to [wine dot com] to make their next order of Bordeaux.

This implied trust that the average consumer has in regards to a domain is, in part, what drives the price and value over premium URLs. As a result, domain resellers will gladly increase their prices and organizations will happily pay, since there is a considerable promise of increased revenue.

Impact on reducing marketing expenses and improving search engine rankings

Using premium domains strategically can significantly boost your brand's visibility and save you money. Fundamentally, a good domain can cut down on the marketing expenses that you would otherwise invest in building brand recognition. These savings will allow you to allocate your resources more efficiently in other areas.

Often but not always, premium domains come with high domain authority and a bunch of backlinks, which are all valuable aspects of search engine optimization. As a result, this means that your business will rank higher since search engines prioritize websites with sites that are seen as more credible and relevant.

This preferential treatment in turn increases organic traffic flow. This means you won't have to rely so heavily on paid advertising, further optimizing your marketing budget for sustainable growth.

TL;DR

Premium domains are scarce, much like land, making them valuable assets in the digital space.
They're short, memorable, and enhance user experience, leading to increased traffic and engagement.
Premium domains are easily associated with specific products or industries, boosting brand recognition and authority.
Their scarcity has driven prices up, making short, relevant domains a luxury and a key branding tool.
Premium domains offer significant branding potential, enhancing trust, and reinforcing brand loyalty through their distinctiveness.
They reduce marketing expenses and improve search engine rankings by being inherently recognizable and credible, optimizing marketing budgets and boosting organic traffic.

Market value and pricing

So we mentioned above that the price range for premium .com domains stretches from a few hundred dollars to several millions. This disparity in valuation is primarily due to factors such as the domain's uniqueness, its brand potential, and overall market demand. Premium domains, especially those that are memorable and have significant brand-ability, are considered high-value assets within the digital marketplace.

This is all fine, but we need to see the buying decision from a business’s perspective. At the end of the day, even large corporations have to substantiate multi-million dollar purchases, especially for digital assets.

Buying a premium domain with an active business

Roberto Moro Visconti wrote in The Valuation of Digital Intangibles that organizations use financial metrics like Price-to-Earnings (P/E), Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA), and Enterprise Value to Sales (EV/Sales) to accurately assess the value of premium domains that are associated with existing businesses (this is an important point because these metrics do not apply to premium domains unrelated to existing businesses).

These metrics offer insights into the domain's capacity for income generation, its overall market valuation, and sales figures, respectively. By leveraging these earnings multiples, a comprehensive and robust framework is established for evaluating the economic worth of premium domains, highlighting their scalability and low variable costs.

Wu et al. (2009) point out that the traditional methods of calculating a website's value, like looking at its income and applying some financial formulas, miss out on some important semantic considerations and non-financial factors. They suggest combining traditional finance methods with something called semantic theory, which looks at the meaning and content of the website to help figure out its value.

When experts try to put a price on a domain, they look at a whole spectrum of different things:

The name of the domain itself—does it sound and feel good?
How much money it's making and spending, especially in terms of advertising and hosting—this is relevant if you’re purchasing it from an existing business.
How steady its earnings have been over time—same as above.
The type of website it is (like a blog, an online store, or a static page).
How many people visit the site and how often—even if a domain has been inactive for years, that doesn’t mean that it doesn’t have traffic.

According to Meystedt (2015), domain valuation tools use a mixture of criteria to determine value, including:

The search volume of a particular keyword in Google or other search engines.
The PPC (Pay-Per-Click) rate that advertisers are paying for the keyword in Google.
The length of the domain name.
The extension of the domain name (.com, .net, et cetera).
The age of the domain name.
Past sales of the name in question.
Comparable sales of other domains in the same category.

In the same study, Meystedt suggests that businesses will happily pay exorbitant prices for what they call “category-defining” domains, give that they come with a whole array of benefits like:

Instant trust and credibility in the eyes of prospective consumers.
Authority status in an industry.
The ability to rank higher on search engines with proper development.
The ability to use existing type-in traffic to generate additional sales.
A defense against the entry of other potential entrants/competitors into a marketplace. The ability to advertise a single URL and convey exactly what business a company operates.

TL;DR

Premium domain values range from hundreds to millions of dollars, based on uniqueness, brand potential, and demand.
Valuation uses financial metrics like P/E, EV/EBITDA, and EV/Sales for income, value, and sales comparison.
Factors beyond financials affect value: synergies with intangible assets, technical infrastructure, income generation, direct traffic, SEO rankings, content quality, social presence, and user engagement.
This multifaceted valuation approach underscores premium domains' economic importance in scalable digital business models.

How is Zlipa different?

Our goal as a company is to strike a reasonable balance between the value of premium domains and their costs. Some domains sell for thousands and millions of dollars—that’s cool. If corporations are happy and able to break the bank for one of those—good for them, but those prices are by no means accessible to early-stage startups and solopreneurs, which is why we price our domains at a truly affordable price, and every brand name comes with professional branding included.

More importantly, we don’t chase dictionary names in our domain names. We focus predominantly on invented names that follow our phonetic rules and pass our in-house radio tests.

Check out our list of curated domains riiiiiiight here.