I have been developing iOS apps for a few years now. They do pretty well, and yesterday I was approached with an offer to buy one of them. The offer was for $40,000 dollars for an app that generates roughly $650 a month in income. The app has been growing, slowly but growing. I have no idea of this is a fair deal or not.
How do I evaluate the app's worth?
We can't know. The question you need to ask yourself is: "Is this app going to make me more than $40,000?".
This is unfortunately a question which is impossible for us to answer. You say the app makes you $650 a month. If it would keep doing that, it would have reached that goal in 5 years. But will it?
You said it's growing, but will it keep growing? We don't know. Apps are a highly volatile market. The hot app of today might be obsolete tomorrow. Either because the app is riding on some short-lived lifestyle trend, because it will soon reach market saturation (anyone who needs the app already bought it) or because someone is already working on an app which does the same thing but better and has a larger marketing budget. You have to estimate if your app will stay relevant for years or not.
Or maybe your app is actually vastly underrated and waiting for its huge breakthrough? Statistically speaking that's very unlikely. But again, we don't know your app so we have no idea what its true market potential might be.
Also, will the app stay relevant without further work? How much of your own time do you plan to invest into supporting that app and how do you value an hour of your work? You need to subtract that from the income it generates.
But should you decide to sell the app, a few words of advise: Read the contract carefully! I have heard about people who got tricked into selling away their IP rights under really predatory conditions. For example a story about a publisher who tried to trick a developer into signing a contract where the developer was obligated to change and update the app for several years in whatever way the publisher demands without getting paid for it! Congratulations, you literally just sold yourself into slavery!
If you sell your app, make sure it's either a deal where you have no further obligations or one where you enter a business agreement where more work equals more money for you and where you have a reasonable exit clause in case you want to focus on something completely different.
When you are not 100% sure what you are actually signing up for or would like to propose a different arrangement, then it can be very helpful to seek advise of a professional attorney. When you are a freelanceer, then a good lawyer is part of the cost of doing business.
It is a decent offer. When one evaluates a business proposal the typical discount rate is 20%. That is a business is only worth investing in if it returns 20% on the initial investment.
So the math is this, 650*12=7800 yearly income. Divide that by .2, comes to 39K, basically spot on with the offer.
So you are left with the age old decision of which is more valuable the "bird in hand, or the two in the bush"?
The app could go viral shortly and be generating ten times the income it is now. In that case you would be foolish to take the 40K offer. Or the app could die, and next month the income could start a dwindle towards zero. In that case it would have been prudent to take the offer.
What is mostly likely that the buyer has a plan for this app to make it generate more income that will take work, but they are likely correct. One way to "hedge your bets" is to sell part of the app. Maybe take 30K and maintain a 25% ownership, which is pretty equivalent of what they are offering.
There is always the possibility of negotiating up, if the initial offer is 40K, what are they actually willing to pay? Can you get 75K and maintain 10%?
To take a different tack on the subject I would think about what else the potential buyer does in the app space. The buyer wants to pay you $40k for it which means they believe it to be worth more than $40k. Unless you have a very specific reason not to, you should assume they have more information than you. This means that someone who has more information than you thinks your asset is worth more than $40k, to them.
This leads to the next question which is, what can they do with it that you can't? Without knowing anything about your app, it seems unlikely that the buyer is going to do the same thing you are which, presumably, is having it for sale in the app store collecting mostly passive income. To me, it seems like they would market/advertise it more, make changes to it, and/or incorporate it into other products that they have. You need to decide how plausible it is that they can make more with it than you can. If you think it's highly plausible then lean more to selling if not then lean towards holding. This is just one other dimension to think about, not the only way to think about it.
I'll assume that the app does not grow significantly in revenue. Then one important thing to consider, economy wise, is this:
It depends on the nature of the app. If it is a game, or a lifestyle app for a certain niche, nobody thought of before, I would probably take the offer. I don't see those type of apps suddenly experience an unexpected user growth and as the others already pointed out, apps are pretty volatile regarding the user base.
However, if the app is rather generic and of potential use for a large group of yet unreached users, like a social network, a new online service or a useful app for a trending topic (comparable to how "blockchain" was a hyped topic over the last 1-2 years), I would try my best to push it to its limits.
This is a matter only you can evaluate, but by already asking this question, you imply that you yourself do not see that much potential in the app to justify declining the offer. Otherwise, you would treat the app as your "baby" by trusting it more and thereby start solely working on this app to exploit its potential.
Furthermore, to include my own rationale: if I don't see it as a million-dollar idea myself, I would rather go the safe way of taking $40k. Maybe you sold the app under value and you could have made $60-70k over a few years, but as long as you don't see a potential of tenfold or more revenue, why take the risk? You could end up with way less than $40k.
It's awful. You have an asset that 'yields' nearly $8000/yr, and are being offered $40K. The buyer would get a 20% return each year with a potential increase given your statement that the sales are rising. If I had a friend with such an app, I'd be happy to invest for a portion, say 1/4 of that revenue stream for a much higher price, and treat it as a potential for a windfall.
The real question to me, how badly do you need the money, and would it be used to create the next app(s)? Other than that, I'd ask why you're not more actively promoting this one to get it to a much higher level?
