Making sure that prospects can find your Web site is critical. Due to the shortage of desirable domain names, companies often find themselves with something that’s just not right as their primary home on the Web. Take Goldstar Events, an online marketer of tickets for live events.

“We noticed over the years that it was the natural thing for people to call us Goldstar. Even we call ourselves Goldstar,” says CEO Jim McCarthy. The problem: The company’s domain name was GoldstarEvents.com, leading many searchers to land on an unrelated site at Goldstar.com.

To eliminate that disconnect, McCarthy bought Goldstar.com earlier this year even though it was a five-figure investment. It was a tough check to write, but McCarthy chose to spend the money after determining the potential impact of the new Web address. Luckily, we’re past the heady dot-com days when multimillion-dollar domain name sales were common -- the most infamous being ECompanies Venture Group’s $7.5 million purchase of Business.com.

To help other marketers in a similar situation, we asked how McCarthy how he justified the price. Here are five questions to help you assess the value of the perfect domain name, plus tips on how to negotiate with a seller:

Question #1. What is the potential impact on Web traffic?

A new domain name may be worth the investment if it helps you achieve higher search results. For example, Goldstar.com had a page rank of 4 on Google, as seen on the Google Toolbar download. By contrast, GoldstarEvents.com typically received a rank of 5 or 6.

“This is not meant to be negative, but there’s no reason for that site to have a rank of 4,” says McCarthy. “We thought, ‘Wow, perhaps people are going to this site looking for us?’ ”

Some evidence supported his guess: McCarthy saw a discussion of a theater show on Yelp.com that included a post mentioning that tickets were available through Goldstar Events, but with a link to Goldstar.com.

With the new domain name, McCarthy is sure they’re capturing traffic who couldn’t find the company before at the wrong Web site. Before the purchase, McCarthy’s team saw that Goldstar.com was getting approximately 4% of the traffic that GoldstarEvents.com received. Assuming that much -- if not most -- of that traffic was from users looking for the company, he now estimates they have received a 2% bump in traffic.

“It doesn’t take long for a medium-sized investment to pay off with 2% upside on your traffic.”

Question #2. Can it improve your branding and public relations efforts?

Anytime there’s a difference between a company’s name and what customers call it, marketers have extra work on their hands. Despite his team’s diligence about referring to their complete name in media appearances, press releases and other marketing outreach, the marketplace still thought of the company as “Goldstar.”

Getting the name right is one of the most important marketing tools of a successful business, McCarthy says, so he was willing to make the investment in Goldstar.com to align the company’s marketing efforts with its public identity. “We are matching our URL with the name we are known as.”

Question #3. Does it offer future business model and marketing flexibility?

Consider the potential long-term impact of a broader domain name:

- A longer, more specific domain name that reflects your business now might put you in a box later on as the company evolves. McCarthy saw GoldstarEvents.com as a potential challenge if the company ever expanded beyond selling event tickets, or moved into something else in the entertainment industry.

By contrast, Goldstar.com was broad enough to accommodate a more ambitious business model. “To us, it speaks to category leadership. It’s a broader, bigger name that has the weight of an Amazon.”

- A new domain name also may open up new marketing efforts. McCarthy sees the Goldstar.com name as a chance to revisit the company’s branding efforts, including new marketing strategies or revamped visual elements and other collateral that can boost customer awareness.

Question #4. Will it mitigate risk?

When trying to decide what a domain name is worth to you, consider what it might be worth to another company -- especially a competitor. The current owner of the domain name might not be doing anything with it that directly challenges your business right now, but there’s no telling who might acquire it in the future.

Although not a huge factor in McCarthy’s decision, risk mitigation was something he considered. Goldstar doesn’t face other companies in the entertainment industry with a similar name, but there are a handful of companies, such as Midwest restaurant chain Goldstar Chili, that could conceivably have made a big online marketing push in the future, and for whom the Goldstar.com domain name would be quite valuable.

“This may not be the most realistic way to look at it, but ask yourself one question: If you’re saying no to the price, would you still be saying no if a competitor or nemesis was about to buy it?”

Question #5. How does the cost compare to other marketing expenses?

Each transaction is unique, so it’s tough to determine whether the asking price for a domain name is reasonable. McCarthy recommends one approach to help you put the investment in perspective:

- Find out the asking price of the domain name, then find another business or marketing line item on which you spend a comparable amount. You may find that the price of the domain name is equal to a week or two of total salary for your company or equivalent to the cost of two medium-sized marketing campaigns.

- Once you have an existing expense to serve as a benchmark, consider the potential short- and long-term benefits of acquiring the domain name. Determine whether its long-term value could be equivalent to a couple of marketing campaigns or a week or two of payroll.

“If the seller is asking for five or 10 grand you might think, ‘Jeez, that’s expensive.’ But really, it’s intellectual property.”

3 Tips on Negotiating the Purchase

If you determine that investing in a new domain name makes sense, you still need to come to terms with the seller. The process will depend on a number of factors, including the seller’s status (e.g., an existing business that’s using the domain name versus a squatter who’s merely holding it as an asset) and the maximum amount you’re willing to spend.

Here are three tips on how to approach the negotiation:

Tip #1. Get to know the current owner

McCarthy recommends opening negotiations with an exploratory -- not a transactional -- approach. Rather than contacting the owner with an immediate offer to buy the domain name, begin a conversation by determining what the owner’s interests might be.

Use the first conversation to assess how important the domain name is to the seller’s business or whether they’re just sitting on it because they think it has value. For example, McCarthy’s first conversations with the owner of Goldstar.com helped him learn that the owner was recently retired and that the domain name supported a small online operation that marketed a few books the owner had written and promoted his daughter’s music career.

Tip #2. Respect the current owner’s business

If the current owner is using the domain name for business purposes, respect that operation even if it’s on a much smaller scale than your business. It’s not a good idea to start off negotiations by insisting that your business has bigger plans or a greater need for the domain name; that can turn off the seller.

McCarthy spent time in his first conversation describing why Goldstar Events was interested in Goldstar.com. He explained what his business did and listened to the owner describe his history with the name -- including previous offers he had rejected -- and his current business situation.

“If you take that approach, you may find you have a common interest. I told the owner I felt like I could bring something to him and his domain and wanted him to feel good about whom he was selling to.”

Tip #3. Prepare to compromise

Compromise is essential with any negotiation, but it’s especially important when dealing with a seller who’s merely holding the name as an investment.

-Don’t react emotionally if a seller’s first price is way too high. Understand that there are many reasons why a seller believes the domain name is extremely valuable, but explain the financial constraints you’re operating under as well.

- Look for ways to explain why you may be the most likely -- or only -- legitimate buyer in the marketplace. Sellers can negotiate from a position of strength because the domain name is a unique commodity, but your business may be in a position nearly as unique that makes you the best possible buyer.

Goldstar was in the position of being the company with the most name recognition in the marketplace and felt comfortable that the domain name market isn’t as overheated as it was during the dot-com bubble of a few years back. “Very few people are spending recklessly for domain names these days, and most sellers realize that, too.”

- If the offer is too high, make a counter-offer that’s closer to your original limit. Remember that a seller who’s merely holding a domain name as an investment has no other way to make money from that asset than with a transaction. They’re motivated to close a deal, too.

“Be committed to talking that out. If the seller asks for $50,000, and you were thinking more like $10,000 to $15,000, that’s still a good day at the races for the seller. They have no reason *not* to make $15,000 off you that day.”

In the end, McCarthy spent slightly more than he originally budgeted, but he was able to close the deal by splitting the difference between the seller’s asking price and their counter-offer. By analyzing the potential short- and long-term ROI of the investment, he made that decision comfortably.


Useful links related to this article

WHOIS search, a tool to identify the current registered owner of a domain name:
http://www.networksolutions.com/whois/index.jsp

Goldstar Events:
http://www.goldstar.com