Explain "Replacement Cost" in a Negotiation | DomainInvesting.com
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Explain “Replacement Cost” in a Negotiation

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Getting to the right price in a domain name sale negotiation is often difficult. The buyer doesn’t want to pay more than a certain amount to buy the domain name, and the seller is often asking more than the buyer is willing to spend for it. Convincing someone why a domain name is worth the asking price can be a challenge, but a domain seller might want to mention the replacement cost as rationale for the price.

To me, the replacement cost for a domain name is the amount of money I would need to spend in order to buy an equal or better domain name if I would sell one of my assets. If I sell a domain name for $10k and it costs me $15k to buy an equivalent domain name, I am losing out because I am lowering the value of my portfolio while not generating enough income to improve it. For someone like me, it doesn’t make sense to sell one of my domain names for less than the replacement cost of an equal or better domain name.

I think the majority of domain buyers do market research before making a purchase decision. They have likely come across other domain names that have sky high prices, so they should have an understanding about the prices of similar domain names. Sometimes explaining that it will cost you more than their offer to buy something similar will strike a chord with them. If they understand that, they may realize why your price is what it is.

Every negotiation is different. Many prospects don’t really care about the seller’s rationale for the domain name price. Those prospects may stick to their offer regardless of why the domain name is worth what it is to the owner, and there isn’t really anything you can do to convince the prospect to increase the budget. However, this might give a prospective buyer a bit more insight into how you came to your asking price, and the price might make more sense.


About The Author: Elliot Silver is an Internet entrepreneur and publisher of DomainInvesting.com. Elliot is also the founder and President of Top Notch Domains, LLC, a company that has sold seven figures worth of domain names in the last five years. Please read the DomainInvesting.com Terms of Use page for additional information about the publisher, website comment policy, disclosures, and conflicts of interest.


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Comments (12)

    Mike

    Because every domain name is UNIQUE, any kind of comparison is a misleading tool.

    November 23rd, 2014 at 9:48 am

      Elliot Silver

      Yes but for me, I can sell a name and buy something of the same value at a certain cost and that helps guide my pricing.

      Also, I presume most prospects have inquired about many names, and they have probably seen high prices elsewhere, so they would understand this.

      In reply to Mike | November 23rd, 2014 at 9:52 am

      Elliot Silver

      You can also take the opposite tact and tell the prospect that the price is high because the domain name is irreplaceable.

      In reply to Mike | November 23rd, 2014 at 9:53 am

    AbdulBasit Makrani

    There are also some buyers who are willing to spend very little money although at the same time they agree the domain has more value. Not because they are not a tight budget but still they don’t want to pay more than a certain figure is fixed in their brain.

    November 23rd, 2014 at 10:30 am

    todd

    If we can’t get them to understand why a name costs a certain amount of money then there is no way they are going to understand the concept of replacement cost.

    November 23rd, 2014 at 11:04 am

    Leonard Britt

    The vast majority of end users are only willining to pay low $ Xxx for a domain. A replacement cost justification is likely to be viewed as BS because they believe every domain should cost $10

    November 23rd, 2014 at 2:44 pm

    BullS

    Instead of explaining the replacement cost, why don’t you explain to them the Opportunity Cost of NOT owning that domain name.

    If you don’t get it, your profit will go down and worst still, your competitors will buy it!!

    Majority of the people do not understand the benefits but they understand losses and the FEAR and the risks.

    Learn from the insurance dirty tactics–the fear factor.

    November 23rd, 2014 at 3:24 pm

    gelu

    similarly if a buyer is asked to pay a huge multiple of replacement cost, he might wonder if that is correct

    November 24th, 2014 at 5:50 am

    Eric Rice

    However an inverse of that exists for the domain owner also. Lets say you have X domain which is a good domain but not category killer. The likelihood of you getting another decent or higher offer exists but it is not guaranteed. You may never get an offer as good as the one presented and many domains actually go unsold forever. If you sell at $x now and invest that money into something else at 6-50% return (6% would be stocks and 50% would have to be a new business venture) you are locking in a return and grown of that cash/capital. You would have to think about this concept individually for each domain based on its quality and likelihood that you will actually get a better offer and in a timely manner.

    November 24th, 2014 at 10:38 am

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