How to assess a mobile application?

Today, thanks in large part to platforms such as Build Fire, there are more successful mobile, Sass and market applications development on the market than ever before.

While there are many different types of magnetizable applications that can be sold, for example, market applications such as Shoplift and Magneto, which are often "add-ons" from third parties and Sass applications that are generally hosted in the cloud and accessed through a browser or proprietary client: mobile applications tend to be more universal in nature and refer to any application implemented locally on a laptop, desktop or mobile device.

Here, we will refer to these universal applications as we focus on how to value an application.

If you are the owner of a cost-effective application with a proven track record, you may have wondered how much your application is worth. It is a difficult question to answer, since each application business requires a detailed understanding of its unique complexities.

Certain drivers of valuation are related to the industry or the macro, so the departure planning should be considered from the first day to ensure that, when ready to sell, your application is in the best possible position.

Some crucial factors, such as the age of the business and the niche, can not be improved after the fact. In this article, we will focus primarily on the factors that influence the value of an application, while improving operations and business profitability.

Many variables are used to accurately assess application businesses and you can explore them in more detail here. Typically, some of the most important tend to be:

While you are not yet considering selling your business, understanding what makes an application attractive to potential buyers can help you generate value, not only at the time of sale, but also during the time the business operates.

No matter at what stage of your business trip you are, taking action whenever possible to positively impact the valuation drivers that we describe in this article can substantially increase the value of your application.

Establishment of reference earnings

The first step in determining the value of an application is to evaluate the gains. Profits will be the baseline to which other valuation drivers will apply.

Depending on the amount of gross income and the general structure of a company, we apply two different methods to establish the reference earnings: SDE and EBITDA.

The definitive guide for the design of mobile applications

The Seller's Discretionary Profits, or SDE, generally apply to applications with an estimated valuation of less than $ 5 million with an operator-owner model. With the owner leading the business, it is common practice to charge personal expenses to the business entity for tax purposes. In addition, an owner often pays a salary.

The combined amount of salary and personal expenses can comprise a significant amount of gross income. When SDE is used, this is "added" to the final determination of earnings. This helps determine the true underlying profit potential of the company, which could be hidden without the "aggregates".

Profit determinations for applications whose estimated value exceeds $ 5 million and are generally not operated by the owner are calculated using the most complex formula of Earnings before interest, taxes, depreciation and amortization (EBITDA). EBITDA is a standard industry method for analyzing the operational performance of larger companies.

By discounting expenses such as interest and taxes, EBITDA provides an accurate snapshot of the operating efficiency and profits of an application business.

Larger and more strategic acquisitions often use multiples of revenues for high-growth businesses in order to account for single investments and provide an accurate picture of the business's revenue potential.

Once a clear picture of revenue is established using SDE or EBITDA or a combination of both, the following valuation drivers help determine the true value of an application business.