Back in the 1980s, anybody could register a domain name for free over the phone. When a private contractor called Network Solutions took over the management of the global domain system in 1995, they started charging $100 for 2-year registrations regardless of the domain extension. Only a handful of extensions existed back then.

Things have changed quite a lot since. If you want to register a new domain name today, you will notice that different extensions have different prices. Even if you look up the exact same domain on different websites, you will most likely see different prices. Depending on the extension, you can buy a domain for less than a dollar or for more than $100 per year. All domains work in the exact same way, so why is there such a difference? We decided to look at the factors that form the price of a domain name. There are a few main players in the domain name industry that affect the price of each top-level extension.

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Who manages the top-level domains?

ICANN. The Internet Corporation of Assigned Names and Numbers is a non-profit organization that oversees the global domain name system and root servers. It is also the authority that adopts policies related to the operation of domain names. ICANN regulates both generic and country-code top-level domains (gTLDs and ccTLDs) and partners with Registry organizations that manage each domain extension.

Registry operators. A registry is a database of all second-level domains under a top-level domain along with their full registrant (owner) information. A registry operator/organization maintains the registry data, manages the domain registration process, and controls policies and registration requirements related to that extension. Some organizations are state-run, others are not-for-profit or commercial entities. Registry operators are often called just “registries”.

Registrars. These are retailers that sell domain names and act as the middle man between registries and domain owners. Registrars are accredited directly by ICANN for a period of 5 years. ICANN notifies all registries when a new organization passes the accreditation process. It is up to the registrar to work out the financial and technical details with each registry should they decide to offer a particular TLD in their portfolio. Many registrars offer additional services related to domains, such as WHOIS privacy, domain hijacking protection, etc.

So, how is the price of a domain name determined?

Different factors form the price of a domain name. Some of them increase the price directly, while others add to the price indirectly. All parties involved in the registration and the management of a domain name contribute to its final price. Let’s have a look at what each party adds to that price.

• ICANN fee. ICANN starts taking а $0.25 fee for each domain registration or renewal once a particular registry operator reaches 50,000 registrations for one calendar quarter or within four consecutive calendar quarters. The organization is not under government control since 2016, and since it does not receive government funding, this fee is one of its sources of income.
• Registry wholesale price. All registry operators sign a contract with ICANN to be able to manage a particular extension. The contracts for the original gTLDs, such as .com, .net, .info, etc., set a fixed maximum price that each respective registry can charge for a domain registration/renewal. The registry can increase the price by a certain percentage each year. Verisign, the registry operator for the .com TLD, for example, currently charges $7.85 per domain. According to the contract between the company and ICANN, the price can increase up to $8.39 by the end of 2021 and up to $10.26 by the end of 2026. Having such a price cap keeps domain prices for the original gTLDs relatively low. If you own a domain, you can easily plan your expenses if there are no other factors involved.
  
  The contracts signed between ICANN and the registry operators for the new gTLDs, however, do not include any price caps. Each registry can charge anything they would like. This is why some new gTLDs cost a few dollars, while others are quite expensive.
  
  A registry operator that manages a popular gTLD can ask for a high price, relying on the high demand, or for a low price, relying on a higher volume of domains being sold. Less popular gTLDs can be more expensive to generate higher income, or less expensive in an attempt for the registry to get a share from the huge domain market. This is why the price of similar gTLDs can vary greatly. For example, .build is three times more expensive than .builders, while .dental is two times more expensive than .dentist.

• Registrar price. Most registry operators do not sell domains directly, but work with registrar companies that take care of the registration process. Registrars have expenses that are covered by the difference between their price and the TLD wholesale price. There are quite a few registrars on the market selling different extensions and each one has different expenses. This is why the price of a new domain name with the same TLD can vary greatly depending on the company you decide to buy it from.
• Resellers markup. Although there are a lot of registrars, there are a lot more hosting providers that want to offer domain names as well. They usually resell domains from one or a few registrars and add their own share to the final price. Due to the volume of domains some resellers sell, you can often get a better price if you buy a domain from a reseller rather than directly from the registrar they work with. Domain resellers have expenses as well and the price they will set for a particular TLD depends on their sales, whether they offer hosting services or only domains, etc.
• Some registrars resell various TLDs from other registrars. The reason is that it is easier and often less expensive to become a reseller than to enter into a contractual relationship with a registry operator.

Apart from the direct fees for each domain registration, the parties above have additional expenses that are calculated in the price of a domain name. Here are a few examples:

• All registry operators pay ICANN $6,250 per calendar quarter.
• The registry operators for many of the new TLDs take part in an auction, paying different amounts of money. Nu Dot Co LLC, funded by Verisign, paid $135 million in 2016 for the right to operate the .web TLD.
• Registrars pay a non-refundable application fee to ICANN and an annual accreditation fee of $4000.
• Some TLDs have special requirements or require more specific support. In such a case, the expenses to manage the extension can be higher, thus the price of the domains with a particular TLD will be higher.
• A smaller market means that the registry operator may have to set higher prices to be able to generate enough income to operate. This is valid for a lot of country-code TLDs.

As you can see, some new gTLDs are quite expensive even to be launched. The data above is taken from https://gtldresult.icann.org/applicationstatus/auctionresults.

Many people consider domains to be just some text that you type in a browser to be able to open a website. Others oversimplify them and compare them to a simple line in a database. Some people even believe that domains should be registered for life or that they should not cost anything.

In reality, maintaining even one TLD can be quite expensive. Annual and accreditation fees for registry operators and registrars, local presence fees, infrastructure, electricity, Internet connection, employees to manage and support the domains, developers, marketing – there are lots and lots of costs involved. The money you pay when you buy a domain name is not pure profit for the company you buy the domain from. Most of it will cover the expenses for the various companies and organizations up the ladder, and only a small fraction will remain as profit.

Is it worth paying more?

The domain name is one of the first things your visitors will see. It is very important, so you should choose it carefully. For a personal website, it may not really matter what the extension will be, so you can get a cheaper domain. For a business website, however, it is worth paying more if you can get the most suitable name. Your-name.lawyer, for example, is several times more expensive than your-name.com, but it clearly shows that you offer legal services.

The same is valid for country-code TLDs as well – they are often more expensive than the generic TLDs, but they can add value to your website as they show your commitment to offer local products and services using a local domain name. In the long run, this can help you to get more visitors, while your website will have higher ranking in local search engine results. This is why, if you want to target a local community, it is worth to pay more for a local domain name.

ICDSoft’s standing on domain pricing

We at ICDSoft believe that domain names should be a commodity service. This is the reason why we sell domains at cost. If you buy a domain name from us, you will pay the exact same price that we will pay to the registrar we work with. We are a web hosting provider, and we do not add any value to the names we resell. Making profit from reselling domains is against our fair pricing for domains policy. It is important to know that even if you decide to buy a domain name without a hosting plan from us, we will not make any compromise with the level of support you will get.

Wrap-up

Different factors form the price of a domain name. Various fees, company expenses, software, and infrastructure costs are included. A lot of people are involved in the process of making it possible for a domain name to be registered and to be accessible online. In this light, a high price does not necessarily mean it is a rip-off. The costs for managing that particular TLD can simply be high due to various reasons.

It is up to you what domain you will register for your new project, but if you have the budget, you should probably choose the better option, which may not always be the cheaper one. Choosing the right domain is likely to pay off in the long run even if you have to pay more for it.