Got an offer for my app. Should I sell?


8

I have a free trivia app that I launched about three years ago, which generates about $90K in revenue each year. My costs are very little and most of it is profit. The only real cost is my time to fix bugs and update when a new version of iOS comes out.

I got a real offer for 2x the yearly revenue ($180K). The party verified that they are serious by sending me a statement of his portfolio account to demonstrate that he has the funds and not just wasting my time.

Here are my questions:

  • Is that a fair price for a mobile app with that amount of revenue?
  • How can I negotiate a higher price since there aren't any other offers to pit this one against?

I'm leaning towards indeed selling it since app store revenue is never guaranteed. A newer can come and take your spot in the category overnight and take away the crown.

In terms of growing this business, I feel I have reached a limit on what level I can take this app.

Acquisition Apps Selling Business App Store Ios

asked Mar 29 '14 at 01:10
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User32788
74 points

6 Answers


5

First off, congratulations on your success and getting an offer, that's an accomplishment.

I don't think the multiple itself is a big issue although it can be better if your true profit is over 50%, but it was the first offer, which means you do have some room for negotiation. You have nothing to loose from trying to improve the offer. Here are some points to use for negotiation:

1. If you have even the slightest growth rate YOY or even in the last few months, come up with a better yearly revenue estimate for 2014 and use that as a base for multiplier. Use projected revenue instead of past revenue as a base for multiplier.

2. Add some consulting time to cover transition period and/or any fixes you had planned that they might want done - say 2-3 months after sale at a high market hourly rate with some minimum guaranteed (for you to be available) and a max, if you are concerned about your availability. This of course only if you are interested.

Of course the buyer plans to grow the revenue, the most obvious way would be to create a version of the app for Android platform, which is fast-growing globally. If iOS platform is your specialty, expanding onto a new platform would cost your something upfront before you make any money on it. Same goes for building new apps to introduce to your current customers, the idea either appeals to you or not.

I don't have experience with mobile apps and curious if everyone with answers has experience with that market, because I feel mobile apps business is more volatile than a web-based SAAS business, as you actually point out. Entertainment mobile app isn't exactly a "cash cow" since 1) customers are not locked into contracts 2) cost of switching isn't an issue since it's an entertainment app 3) you don't have control over your distribution channel (store rankings).

If you are not confident about ability to generate the same revenue for a long time or improve it you should trust yourself on that assessment, especially if your revenue was flat recently. If you feel you aren't as enthusiastic about maintaining or improving this app or you want to try something different, that's a reasonable factor as well.

Good Luck!

answered Mar 29 '14 at 20:57
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Webbie
2,835 points
  • Using the growth rate to figure out the projected revenue for the next two years is the way to go! – Goldie Hartman 6 years ago

7

Some things you should think about before making a quick decision:

  • If someone's offering you 2 years of revenue, they obviously see value in your app. I feel it's a very low multiple, you should be able to negotiate a higher multiple.
  • Is having the two years of revenue upfront going to change your life? If not, you're likely going to regret selling it two years from now. Even if your earnings fluctuate, unless you severely break something, they'll continue for a few more years.
  • You say that you have reached the ceiling of what you can do with this app. Are you sure? If someone sees value in it, their goal is likely to grow revenues. Of the app itself and utilize the userbase to promote new apps.

TL;DR You're selling your cash cow for a very low multiple. Either negotiate a higher price, or grow it yourself.

answered Mar 29 '14 at 10:19
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Chrissie Gray
1,107 points
  • I don't know if I would call an entertainment mobile app a "cash cow", a term I would use for a business with customers locked into contracts or high cost of switching. Is mobile app business as predictable as web-based or somewhat comparable? – Webbie 6 years ago
  • @Webbie While not a cash cow if you compare it to a SaaS app (which would be comparing apples to oranges), the revenue he seems to be consistently generating for three years suggests it's not as volatile as most "fly by night" apps. A somewhat related example would be FlappyBird. Even after the developer took it off the app store, it still generates him thousands a day from ad revenue. It's harder to do as compared to other businesses, but it's entirely possible to reduce volatility of revenue from mobile apps. Companies like Zynga wouldn't exist if that wasn't the case. – Pablo Smeltzer 6 years ago
  • Thanks for the advice everyone! – User32788 6 years ago

4

I agree with @Chrissie. 2x is chump change. You're better off holding on to it and try to grow your business. Both in terms of this app and new ones. Two years is a short time and then you'll be starting from ground zero.

Option 1: Negotiate a better deal with this buyer.

Option 2: Use this as an opportunity to get more buyers involved (Flippa might a good option to do that) and let buyers compete.

Option 3: Keep it and make use of your existing customers for more apps that you build.

I would have gone with Option 3 if I were in your shoes.

answered Mar 29 '14 at 10:28
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Rocco Schmidt
308 points
  • Multiples in the 2-5 range are reasonable, so I wouldn't say 2x is "chump change". It's probably not too far from a fair multiple. – Webbie 6 years ago
  • The multiple varies significantly from industry to industry. You would need to see that the average for this segment is. There are some where even 5x is low, and some where the average is 1-2x revenue. – Goldie Hartman 6 years ago

2

Me?

I would negotiate 4 x rev and package a "high value" throw-in that actually isn't that high e.g. tell him you will work with him x amount of hours in the first 6 months developing x ideas to grow the app etc

@scottsbarlow

answered Mar 29 '14 at 10:39
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Scott Barlow
21 points

0

Generally a business is worth 10x net profit - unless it is a wasting asset business and it is the final year.

Your problem is you do not have 100 million users.

Then you would sell for 100x net profit - minimum.

I would hold and develop in the related area.

2x sales (net profit) is completely undervalued.

answered Mar 29 '14 at 14:01
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Nicolaas Smith
7 points
  • Where did you get that 10x multiplier? That is way too high and not typical. For many buyers revenue is more important than profit and often times the price is a combination of the two. – Webbie 6 years ago
  • Also, it's 2x revenue, not profit. – Webbie 6 years ago

0
I say sell.

You seem young and talented. Your time is very valuable.
It doesn't sound like you enjoy working on this app too much.

If I were you, I'd sell. Then use the money, time, and talent to start something new. Something that I actually love working on.
answered Mar 30 '14 at 00:36
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LaserBear
100 points

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