This article will assume that your mobile app is already developed - or at the very least, a Minimal Viable Product (MVP). We’ll help unpack why you may want to sell it, what it’s worth, what you need to do before you sell it, and then who you can sell it to.
Between 2014 and 2018, revenue generated from mobile apps in South Africa experienced a compound annual growth rate of 12.8%, with nearly 26 million smartphone users in South Africa today. This demonstrates that this type of asset is not only lucrative, but that it is highly likely you’ll find a buyer with the right preparation, valuation and advisory team.
Why Do You Want To Sell Your App?
There may be personal or professional reasons as to why you’re looking to sell your mobile app. These most likely include::
- It is flying off online shelves: (Google PlayStore or iTunes). You’re looking to cash in before the competition catches up.
- Tax incentive: Often, the capital gain tax that you’ll pay on the sale of an app is less than the tax you’ll be paying on the profit that you are declaring as income.
- Pursuing other business opportunities: Tech entrepreneurs are often keen to move on to the next big idea before their business gets bogged down in HR and scalability issues.
What’s important to keep in mind before you enter into negotiations of any kind is that it is up to you to look after and protect your best interests. Unlike other more regulated industries, tech brokers will stick to the terms of their listing agreement but not necessarily always act in your best interests.
Their experience will outweigh yours considerably, so if you’re looking to start a bidding war or get several buyers interested in your mobile app, then consider remaining discreet about your reasons for selling and get an appraisal from someone outside of the tech world (a business lawyer or tax consultant would be good external opinions to seek out).
This brings us to the magic number: how much do you want for it? How do you begin to calculate your mobile app’s value, and what is it worth in the marketplace?
How Do You Evaluate the Worth of Your App?
Selling your mobile app business as a going concern to a willing buyer is all about revenue sustainability. If you were to sell your restaurant, the buyer would want to know who your regular customers are. In much the same way, revenue sustainability involves assessing the advertising model that your app employs to value your business, which is usually one of the following:
- Paid app: Paid apps need to have unique functionality that makes it worthwhile to pay money upfront. If you can show in your monetization data that your users are shunning cheaper (or free) alternatives, then you’ve laid a golden egg.
- Subscription: Customer retention is key here as subscription models rely heavily on keeping users engaged with their app. If your personal value to the app is closely linked to customer engagement (i.e. creating new content), then extricating yourself entirely will factor in to the app’s valuation.
- In-app purchases: The buy-in is easier at the start (i.e. to download a game), but your user will end up spending on extras (i.e. ‘lives’, weapons, added features). If you can calculate your app’s Lifetime Value (LTV) per user, you can start to understand your app’s worth.
Putting a price tag on your mobile app involves the conventional business approach of subtracting your expenses from your revenue to determine a net profit. We’ve outlined your potential revenue streams above, and your expenses will include licensing and maintenance costs, app store fees, legal bills, and monthly salaries.
You can also contrast your valuation with the price that apps in similar industries might have sold for. Consider the aforementioned time commitment (how much time you need to put into the app), the marketing strategy, the genre (are you catering to a bespoke customer base?), and lastly, the growth opportunity, when calculating the value.
If you’ve got all your financial details and research ready, you can generate a valuation with BusinessesForSale.com and use these insights to kickstart the selling process.
Now that we have a valuation figure in mind, it’s time to dot the ‘Is’ and cross the ‘Ts’. You’ll need to perform due diligence when selling your mobile app.
What Would Due Diligence Look Like Selling an App?
Due diligence involves ensuring that everything is above board when it comes to the potential sale of your mobile app. Your intellectual property rights need to be clearly articulated and protected, as you’ll struggle to sell your app if you have a disgruntled coder who went in on a joint venture (JV) with you and feels hard done by now that you’re looking to sell.
Any freelancers, agencies, investors, or partners ideally need clear contracts right from the start of your app-building as this can scupper a potential sale later on. All of your information – from the figures you arrived at to the people that helped get you there – is up for scrutiny when a seller’s mobile app is being appraised. A good broker will develop a “blind” description that makes your business appealing without divulging too much private information.
Then, when it comes to seeking out potential buyers, the same rule applies: anyone you speak to must sign a Non-Disclosure Agreement (NDA) so that word doesn’t get out that your app is for sale before you want it to be – and that your confidential proprietary information is suddenly there for all to see.
How Do You Find A Buyer For Your App?
In the South African ICT (Information and Communications Technology) scene, there exists the business networking NPO Silicon Cape that exists as an ecosystem of tech talent, entrepreneurs, creatives, and angel investors that together serve as catalysts for forwarding tech enterprise in South Africa. Membership is open to all.
Join these types of networks if you haven’t already. Follow people on LinkedIn, connect with people in the industry to which you are looking to sell to, and compile a list of potential investors that you can pitch your mobile app.
Highlighting the technology of your app and compiling a full benefits list for potential buyers is a rewarding process as you articulate your business’s unique qualities.
Closing The Deal
Selling your app will involve a close scrutiny of your monetization methods that will take anywhere between one to three months as you inch closer to the sale. For your part, you’ll need to resolve any outstanding financial obligations you may have, including employment contracts and licensing and business permits you may have in your name.
With transfer of ownership you will be looking at either an outright sale (with cash upfront), or a gradual sale (a more flexible finance option that may see you tethered to the business for some time).
Cloud integration, keeping your data secure, and keeping up with platform design guidelines are all challenges you will need to overcome as you inch ever closer to the finish line sale.
How BusinessesForSale.com can Help You Sell Your App
We can help you sell your business online, by giving you access to thousands of buyers from around the world.
If you’d like support from an advisor, you can also search for a broker to help you sell your business.