It’s that burning question, the one most startups have when it’s a few months (or years) after they should have started thinking about it. I don’t think it’s the first question that goes through a founders mind, which is why most startups just hand-register something for $10 that’s good enough to get started.
So you wanted to call your startup Bright and end-up starting with something like Briiight.com or GetBright.com, or BrightApp.com. Either way, you now have a confusing domain name that leads to lost emails when people accidentally email firstname.lastname@example.org, and lost traffic when people who hear your name and go to Bright.com.
A good domain name doesn’t have to cost six-figures (but they can and are sometimes worth it) but it might cost more than $25,000 to really get the domain name you’re looking for. Fred Wilson, a partner at Union Square Ventures in New York used to recommend startups spend up to $25,000 on a domain name, he’s since upped it to $50,000.
“We’ve noticed the average price of a good domain has risen fairly dramatically in the past year. We used to advise companies to spend $10k or less on a domain, then we upped that recommendation to $25k. We recently upped it again to $50k. I suspect domain prices and pre-money valuations of newly launched startups are highly correlated.” (Source – AVC.com)
I’ve seen there are usually two critical factors that go into determining the right budget for a domain name:
- If your product is B2B or B2C
- Your current stage in the funding cycle
The logic is fairly simple here but I’m always surprised that people don’t hone in on these two things sooner. First, if your product is B2C, a domain name is likely very important, and it is absolutely critical that when a person hears your name, they remembers it, and can easily get to it online. If you sell a B2B product your domain name is still important, but it might not be as important as a consumer-facing company that relies on their website as the primary way they make money.
Take a startup like Etsy for example, if they didn’t own Etsy.com life would be hard. People creating accounts and buying and selling on their website is the primary ways Etsy makes money. On the other hand, take a company like Keen (keen.io) which sells APIs – in this case people will read and learn on their site but what they sell, happens on the backend.
The second critical factor is the stage in the funding cycle they’re in. When Fred recommends $50,000 as a budget, he’s definitely not speaking to startups that just raised $100,000. I have personally heard numbers thrown around by investors that range between 10% – 20% of the most-recent raise, and usually only if the startup is consumer-facing.
So if a startup just raised $1M and they are consumer-facing in a space where getting traffic to their site is critical, spending $150,000 on a domain name might not be out of the question. If they raised $4M – $5M spending $350,000 wouldn’t be as outrageous as you think.
Just think of some of the well-recognized companies you know, startups like Jet.com or TF.com (Tuft & Needle) – these were definitely not $100,000 or even $200,000 domain names, these are big, monster, expensive names that in many cases are worth the expense, just at the right stage in a startup’s lifecycle.
Okay so what’s my official answer to the question of, “How much should a startup spend on a domain name?”
I think a startup should first take-into account if they are B2B or B2C. If you’re a B2B startup, think long and hard about how important that “perfect” domain will really be to your business. If you’re a B2C startup, ask yourself if a good domain name could be make-or-break for you. Next, look at what you raised last round, multiple that by 0.1 – what number are you looking at?
This is a quick-and-dirty way to logic through this and at least get a realistic estimate for what might make sense for your startup. If you just raised a $6M Series A round and your website is where all the magic happens, a $400,000 domain might be completely worth it. If you’re a B2B company and you’ve only raised $500,000 – you might not want to spend more than a few thousand dollars. There is no one answer, but there is a relatively straight-forward way to get a good estimate by using the logic I described above.
Of course, this is just my opinion and you might think my logic is a bunch of malarkey. Either way, if you have already determined your budget and are actually in the process of buying to buy the domain, make sure to read my article on Medium.com about how to actually going about acquiring a domain you’ve decided you want to make it yours.