How to price sale of entire app, source & all?

Discussion in 'iOS Programming' started by kylekai, Dec 10, 2010.

  1. kylekai macrumors member

    Joined:
    Nov 23, 2009
    #1
    I have an app that another company wants to buy, source code, rights, everything. How would you price something like that? Let's say it's a one-time cash sale, no royalties, and an agreement not to compete for 3 years. Suppose the app brings in about $600 per month, and has been on the market for 2 years.

    One school of thought is to set the price for one years worth of sales, or $600* 12 = $7,200. Or round up to $10K? Too low? Too high?

    Any opinions? Thanks!
     
  2. zachsilvey macrumors 6502

    Joined:
    Feb 5, 2008
    Location:
    Battle Ground
    #2
    It really depends on what you think the app is going to be worth down the line. Obviously the app isn't going to bring in $600 per month forever. Also take into consideration the time you spent in development. Lastly look at what the license entails, you are giving up quite a bit in that agreement, that should factor into your decision.

    I recently sold an app in a similar situation. It was a fairly simple app and I had only spent about 12 hours working on it, after some last minute changes it rounded up to 15. After negotiations me and the buyer, who happens to be an author, came to a compromise at $2700.

    It really comes down to what the client is willing to pay but don't underestimate what your work is worth.
     
  3. firewood, Dec 10, 2010
    Last edited: Dec 10, 2010

    firewood macrumors 604

    Joined:
    Jul 29, 2003
    Location:
    Silicon Valley
    #3
    Too low would be my guess.

    $600 per month positive cash flow would require around $240,000 in the bank at the current U.S. T-Bill 10 year rate to generate the same amount of income. You can calculate the NPV of your cash flow for other interest rates and time periods using a spreadsheet, and pick the ones you think are realistic.

    How long do you think your app will have legs? I've seen iPhone apps over 2 years old that are still generating about the same (or increasing!) amounts of cash flow. So counting only one year of cash flow is way too short, unless your app is of extremely topical interest to this year only. You might want to count lost cash flow for the entire duration of the non-compete, 3 years. Then do an NPV analysis at whatever your predict the interest rates to be.

    If you were to hire an experienced qualified iOS developer at a nice rate (if you can find one), how many hours would it take for them to rewrite your app to the same quality level from just the spec? Multiply those hours by the hourly rate. How much marketing would it then take to get that new app the same level of visibility in the App store as your current app (ranking, ratings, etc.)? That would be the buyers alternative, and they would (A) be taking a risk on getting the project done right, and (B) lose a lot of your cash flow during the development period. But price too high, and the buyer might just take that alternative and have a new app written by some other team.

    How desperate are you? Or do you have a better use for the cash right now? People do sell houses/businesses at a great loss to avoid bankruptcy, pay for an emergency kidney transplant, etc. Is that your situation? If not, no need to negotiate weakly.

    IMO.
     
  4. kylekai thread starter macrumors member

    Joined:
    Nov 23, 2009
    #4
    Great replies, thanks! Sales have been steady if not increasing, even tho I haven't updated it for the last 6 months. Rarely any support issues either, so it's pretty much a steady, hassle-free income. It has gotten some good publicity, including a review in the NY Times, so that's worth something also. A lot to consider!
     
  5. wlh99 macrumors 6502

    Joined:
    Feb 7, 2008
    #5
    <snip/>

    Interesting approach. My first thought is to consider the app a business, which sometimes are valued at 10x cash flow. That would be $72k.

    Presumably the buyer wants to make a profit on the app, and presumably doesn't want to wait 10 years. But if they are interested in further development and investment, that could be shortened for them.
     
  6. firewood macrumors 604

    Joined:
    Jul 29, 2003
    Location:
    Silicon Valley
    #6
    Hmmm... Perhaps a business with that kind of valuation might be considered to be an risk/return investment equivalent to trying to get an average of 10% annual returns out of a stock portfolio. Typical investment, usually with better returns than putting the money in T-Bills, but also with significantly higher risks.
     
  7. kylekai thread starter macrumors member

    Joined:
    Nov 23, 2009
    #7
    Sold!

    I ended up selling it for the equivalent of about 3 years worth of income from the app. It worked out well for both myself and the purchaser. :D
     
  8. Nnavick macrumors regular

    Joined:
    Oct 13, 2010
    #8
    Congratulations for the sale!!!:D

    What is the name of the App?
     
  9. kylekai thread starter macrumors member

    Joined:
    Nov 23, 2009
    #9
    Thanks!
    The purchasers requested I not state the name of the app for now.
     

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