Do Businesses Know How Much Their App is Worth?

Today, we will now see how the value of an app can be gauged in today’s market.

How are mobile apps valued?

An app’s time-on-the-market and its overall user-base both share a lead role in determining its total value. Although there exists more than just a single method for app evaluation, the majority however tends to estimate an app’s value based on its average monthly revenue being multiplied by a specified number of months.

See more: The Pros and Cons of Mobile Apps in Modern Business

For example, if an app generates around USD$700 a month in revenue, the app’s owner might expect to sell it for the price which is 10 months’ worth of revenue, which is USD$7,000. 

The total amount of time an app has been published on the app store is a determinant of the value of the months’ worth of revenue multiplier, which is also known as its Return on Investment (ROI). 

Reworking the example above, if the app generates USD$ 700 a month and has been in the app store for around 5 months; then the app owner can venture to sell it for approximately 9 months’ worth of revenue i.e. USD$ 6300.

Read more: How To Build Successful B2B Apps

Other owners with apps that are still in their sprite stage might choose not to monetize their apps right away. Why? Because these apps tend to be valued based on the worth of an individual user. The same rule of ROI is applied to the worth of the app’s individual users and the formula is as under:

Total users or downloads of the app / Total revenue

Other and more complex valuation algorithms consider additional elements, including an app’s daily or weekly ratings, engagement, ranking and vice versa.

How should app owners value their app?

Circumstances differ, and the circumstance of the app’s owner will determine the final verdict of their creation (the app obviously). This is verified by a mobile app development company based in Winnipeg. Either the app might not be as bright as the competitor’s app or perhaps it still generates enough revenue to stay ahead of others.

With that in mind, if the app owners are trying to sell their app to another app developing entrepreneur (colloquially referred to as appreneur) then there might be a slight depreciation in the app’s value (devaluation of the app) which is justified.

In any case, a lot of websites offer their own unique algorithms that either work in-part or completely to estimate an already published (in store) mobile app’s accumulated value. 

Most app ideas creating entrepreneurs base the value of their app on such websites and at times, they often reference their unbiased results before stepping in the market for buying and selling apps. Among them are Sensor Tower, AppTopia and AppPrice.

Read more: How to Make a Budget-Friendly Mobile App?

How to calculate an app’s Average revenue per user (ARPU):

It should be understood that some websites calculate this value for app users.

Utilizing the new set of data collected on a monthly basis, app owners should apply the previous formula (total users or downloads divided by total revenue) to each month of the year during which the app performed quite well. Now, each month’s revenue per user should be averaged to determine the app’s ARPU.

Using this ARPU, app owners (appreneurs) can determine the value of their app. Estimating and adding onto the total users a prospective number of individuals which the app owner is anticipating/targeting to acquire, perhaps based on the current trends in rates of user acquisition.

Then, app owners should take their new total of users and multiply that number by their ARPU. The newly produced number is itself a fine estimation for the app’s total value.

Know more: Guide to Successful Analysis of Mobile App Needs and Features

Is this the correct way of estimating an app’s worth?

In times of today, a lot of people look to strike gold as early as they can. When they make an app and calculate its six month value, then they try to sell it as early as they can to monetize on it handsomely. Why can they not wait a bit more? An introduction of advanced technology/programming language/tool may make the app outdated.

However, those who are not in a hurry make forecasts of the future value of the app by helping it stay longer in the app store. Once the time comes, they then monetize on it with a handsome amount.