Choosing domain names can often be a difficult choice. When selecting a name most people think in terms of their business name, personal name or a word or phrase that has meaning to them or their company. What many people don't think about is how a domain name will for search engine optimization (SEO).

The domain names of websites do play a big role in the SEO of a website. For instance some companies are willing to pay millions of dollars for certain domain names. Casino.com sold for $5.5 million while diamond.com sold for $7.5. If a domain name was not that important, why would these companies pay millions of dollars for them?
Keywords for Domain Names

A webmaster should choose the best keywords for the website and be sure that the domain name has the keyword or keyword phrase in the name. For example, a plumbing company would want the keywords "plumbing" or "plumber" in the domain name. A good idea would be to add the city or area that the plumbing company does business in.

This can be tested by entering the word "plumber" into a search engine and seeing what domain names come up on the first page.
Keep it Simple

Keep the name of the website as short as possible. Since the Internet is so popular, short domain names are becoming more scarce, but it is possible to still find them. Buying a domain name may also work if the name is taken and the company or person is willing to pay money for it. Too many characters in a domain name also increase the potential for misspellings and potential visitors forgetting the name of the website.

Avoid Meaningless Characters in Domain Names

Dashes, underscores, numbers and apostrophes usually do not work well with domain names. They add too much confusion to the address and often don't make sense. If a domain name is taken, try for another relevant keyword and different variations of it.
Dot Com Domain Names

Whenever possible a person or company needs to opt for a domain name that has .com as an address. There are plenty of other domain extensions to choose from such as .net, .org, and .biz, but a .com is always the best choice if the name is available. Even today, most Internet users still think of websites as .com and any other extension may be hard for them to remember or they may visit a competitor's website at .com instead. It is also believed that a .com extension gets higher rankings with search engines.

Although choosing the best domain names for websites is important, it is only one part of the puzzle when it comes to search engine optimization. A relevant and properly optimized domain name won't necessarily break SEO attempts, but it can have a very positive effect on SEO efforts.

SOURCE:
http://seo-tools.suite101.com/article.cfm/choosing_the_best_domain_names