How to Calculate Mobile App Valuation
App Development
07Aug 2023
Table of Contents
Mobile app development is on the hike nowadays. Various startups to enterprise-level businesses are hiring app developers to build mobile applications that can help them expand their businesses. When app development is one of the important factors during the process, getting the maximum ROI is another important factor that business owners tend to worry about the most.
The only thing you as a business owner can do is to get the app valuation. That can help you to get a clear idea about how your app is doing. Whether it is the right time to sell it or invest more in it. You can calculate the mobile app valuation considering various approaches one can adopt to get an app valuation. But before moving on with that, there are various factors that you should take into consideration to get an accurate app valuation. Let’s start with that.
Factors to Consider for App Valuation
Calculating the value of a mobile app involves a comprehensive analysis of various aspects, including financial performance, user base, market conditions, and potential growth. Below is a detailed guide to help you calculate the value of your mobile app:
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Financial Data
As you have invested that much in the mobile application, you must be tracking all your finances so that financial data can help you get the actual valuation of your mobile application. The financial data of your mobile application includes all the historical data which includes but is not limited to revenue, expenses, profits, and monthly or yearly revenue. It will help you to get the baseline.
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Revenue Streams
Almost every mobile application out there utilizes one or more revenue streams which include but is not limited to in-app purchase, subscriptions, ads, affiliate marketing, and more can help you generate income from the mobile application. According to the stats, from almost 5.195 million mobile applications, $567.49 billion in revenue was generated through the ads in the year 2022. Analyze all the listed revenue streams and get detailed data about their contribution to each stream from your overall income.
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User Metrics
The app metrics play an important role in your app valuation. Get accurate user metrics along with detailed reports such as active users, new user acquisition rate, the amount spent to acquire new users, user engagement rate, user retention rate, targeted user base age group, demographics, user behavior, bounce rate, and more.
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Competitor Analysis
If we take a look out in the market there are various similar apps you will find that offer the same services just as yours. For example, let's take the On-demand food delivery mobile application as an example. There are various applications you find on the app store such as Uber Eats, DoorDash, Zomato, and more that you can take as competitors of one another. So, find your potential competitors and their valuation. Collect their data such as their recent transactions, funding rounds, and more that can help you evaluate your position in the current market. Along with that, it can help you understand their unique selling point that you can apply to your business.
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Intellectual Property
Do you have any patents, trademarks, or intellectual properties associated with your app? That can bring value to your application. Make sure to consider them while you calculate your app valuation.
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App Maturity Level
The maturity stage of your app does affect the valuation. For example, if your mobile app is still a baby (6 months or younger); it will have slow or no growth at all in this initial stage. It is hard to determine whether the app is successful or not at this stage. The growth of your app does not provide much impact if your app is still in this phase. While if your app is in the growing stage, where you have a decent amount of app users, this is the time you might not get rapid growth but the consistency can help you determine the app valuation.
App Valuation Methods
I would like to break the bubble here if you are thinking there is just one way to get the app valuation. To let you know in brief, there are multiple methods you can get the app valuation such as income-based, market-based, user-based, and more. We will discuss each one of them later in this blog. Make sure to choose the app valuation method based on your preferences.
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App Risk and Growth
The risk and growth factors of the mobile app affect the mobile app valuation. Anything such as competition, technological changes, app maintenance, regulatory updates, app store limitations, and more falls into the category of app risks. On the other hand; app trends, user habits, and more are usually considered growth opportunities that can determine the future performance of mobile applications.
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Results of App Valuation
As you know, there are not just one but various different app valuation methods you can employ to get an accurate app valuation. Try employing every one of them to consider them based on their relevance and accuracy rate.
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Regular App Valuation Update
Just as your app needs updates frequently so does your app valuation. Getting an app valuation and keeping sticks to it won't bring any good results. The valuation of any app changes based on the app's performance, market changes, trend updates, user interest, and various other factors. You can keep track of it and get the valuation of your app on a regular basis to stay updated with how much your app is actually worth.
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Get the Help From The Professionals
You might not have an idea about how to get an accurate app valuation, but the professionals will have. You can hire professional appraisers, financial analysts, or any other industry experts to get an accurate app valuation. Along with this, professionals can help find the loopholes in your application, and how to overcome them along with helping you to enhance your app value. You can find references through LinkedIn searches, online searches, or referrals as well.
Now is the time to discuss the app valuation methods. You might find all the app valuation methods relevant to your business or might find none. This all depends on the data you already have and well you can utilize them.
App Valuation Methods
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Income-Based Approach
Just as the past the future matters too. You can get the app valuation following the Income-based approach. It can help app owners to determine future cash flows and discount them to their present value. There is a simple value you need to apply to get the income-based valuation which is as follows,
Valuation = ∑ (CF / (1+r)^t)
Where:
CF = Cash flow for each year
r = Discount rate (the rate of return required by an investor to invest in the app).
t = Year of cash flow.
The DCF (Discounted Cash Flow) approach is really simple and straightforward, offers Real-world performance, and helps you to plan your finances in a better way.
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Market-Based Approach
Just as mentioned above whether you mention it as competitor analysis or a market-based approach it can help you get an idea about your current position, who are your top competitor, how they got their way over here, and more. For this approach, you need to research and compare the recent transactions and market movements of multiple similar apps. There is a formula that you need to apply to get the app valuation based on a market-based approach. Before jumping directly to the formulas, you need to gather some data.
Find similar apps as yours in terms of industry, size, service offering, revenue model, target audience, and more.
Get accurate, recent, and relevant finance data about their app which includes revenue, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), and active userbase.
Calculate the valuation by applying the formula: App Value = Your App's Financial Metric * Valuation Multiple
Valuation Multiple = Average or Median (Comparable App Metric/Comparable App Value).
For example, if the average revenue multiple of comparable apps is 4x, and your app generates $500,000 in annual revenue, the estimated value would be:
App Value = $500,000 * 4 = $2,000,000
This calculation can help you get your market value. But keep in mind that, this is not the only method to get the market value of the app. Various professionals use different approaches to get the app valuation. It is advisable to reach out to the professionals and take their consultation into consideration as they can help you enhance the accuracy rate of market-based app valuation.
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Cost-based Approach
This approach leverages the development time frame and costs to get the app valuation. When you determine to get the app valuation through a cost-based approach take the app development time frame, app development cost estimation, resources involved, and other expenses into consideration to enhance the app valuation accuracy rate.
There is a process you need to follow to get the app valuation through a cost-based approach.
- App Development Cost: Reach out to a top app development company to get the accurate app development cost including the design, programming, testing, third-party APIs, and every other involved additional development cost.
- App Updates: Consider the post-deployment update and maintenance cost estimation you have faced or you might face to keep the app up and running for a long time.
- Depreciation Cost: Mobile apps are one of the Intangible assets that have a finite lifespan. So, consider the depreciation cost into the account and subtract them from the total development cost.
- App Valuation Cost: When you have all the accurate or estimated costs apply this formula to get the cost-based app valuation.
App Value = Total Development Cost + (Cost of Enhancements or Updates) - (Depreciation or Amortization)
It might not provide you with an accurate cost estimation, but you can get the app valuation to know whether your invest worth the trouble or not. If you are concerned about the potential future growth or intangible value consider a market-based or income-based approach rather than a cost-based approach.
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User-Based Approach
If you ever want to know the value of your app in terms of users, this approach is what need to get the app valuation. When most businesses out there neglect the importance of active users when they actually have one but it plays a crucial role to determine the worth of an app.
To calculate the valuation of your app based on users; you will need a total number of app users along with the value they provide to the app. To calculate the value of a single user, you will need the app’s monetization method, average revenue per user, user engagement, and future growth of the app which can help you get an estimated value per user. Once you determine the estimated value per user, apply the formula:
App Value = Number of Active Users * Value per User
For example, if you have has 100,000 active app users, and your per app value is $5; then your app value would be,
App Value = 100,000 * $5 = $500,000
It will help you get the app value in terms of users. Through the user-base app valuation approach, you can get a list of your competitor with almost similar target audiences and userbases.
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Intangible Assets Approach
As mentioned above, mobile applications are one of the intangible assets with a finite lifespan like brand reputation, patents, copyrights, and more. You can calculate the app value through this approach by applying a simple formula;
App Value = Value of Intangible Assets + Tangible Asset Value
If you are considering this approach, not just the app but consider all the intangible assets you own related to the technology; it could be copyrights, trademarks, trade secret trade, brand recognition, and more. Once you have a list of all your intangible assets, assign them a value considering all the important factors such as their uniqueness, ability for revenue generation, market demand, and all the other competitive advantages. When you have all the needed details about your intangible assets, it’s time to get the tangible asset value that is related to your app. It could be anything such as physical hardware or equipment and anything directly related to your mobile app.
Most of the time intangible app value is incorporated with other valuation methods. Getting the app value through the Intangible assets approach needs professional experience and expertise. So, if you want toemploy this approach make sure you consult professional appraisers, finance experts, or other professionals that can guide you properly by providing proper consultation for the area of improvements if needed.
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App Valuation for Paid Applications
This tends to be the most effective app valuation approach that most of the professionals out there utilize to get an accurate valuation of an app. Even though it has a really simple formula to calculate the app valuation which is
App Valuation = ( CLV – CAC ) x Users
But getting the accurate CLV and CAC amount requires different formulas. Before moving on with that, let’s understand what CLV and CAC stand for.
CLV - Customer Life Time Value
CAC - Customer Acquisition Cost
CLV = Average lifetime x Average Gross Profit per User
CAC = (Salary + overhead cost + paid cost + tools)/New Customers
As you might not be the expert on it, you can reach out to the finance experts that can help you get an accurate app valuation through this approach.
Conclusion
Getting an app that can help you to enhance your business ROI and value can be the best decision. But make sure to check the outcomes you are getting through the mobile app development. Leverage this app valuation method not to just see how well your application is doing but to find the area of improvement as well. If you think you can get the much-anticipated value of your app, our app development team is here to turn your app development idea into a reality.
Frequently Asked Questions
Various factors such as target audience, active userbase, engagement, churn rate, development investment, and more can affect app valuations.
Yes, an app development company can help you get the app valuation but keep in mind this might not be their expertise. So, it is advisable to hire appraisers, and financial analysts to get the accurate result of this complex process.
You can get the app valuation by getting a consultation from professional service experts, or you can even use online tools, or you can gather all the important data ad calculate the app valuation by applying different formulas.
Harnil Oza is the CEO & Founder of Hyperlink InfoSystem. With a passion for technology and an immaculate drive for entrepreneurship, Harnil has propelled Hyperlink InfoSystem to become a global pioneer in the world of innovative IT solutions. His exceptional leadership has inspired a multiverse of tech enthusiasts and also enabled thriving business expansion. His vision has helped the company achieve widespread respect for its remarkable track record of delivering beautifully constructed mobile apps, websites, and other products using every emerging technology. Outside his duties at Hyperlink InfoSystem, Harnil has earned a reputation for his conceptual leadership and initiatives in the tech industry. He is driven to impart expertise and insights to the forthcoming cohort of tech innovators. Harnil continues to champion growth, quality, and client satisfaction by fostering innovation and collaboration.
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