More than 5 million apps are available for download from the Apple App Store and Google Play Store. Consumers spend an average of four hours a day on apps, and it’s a trend that seems to be holding steady. If you’re scoping out the market for buying an app, now might be the time to jump in. But how can you find apps for sale, and what should you consider when looking at one to acquire?
This article will walk you through the key considerations when it comes to buying an app. While looking for apps for sale can be overwhelming, the information below will help you better understand the critical components to know when you’re searching for your next investment.
Types of apps
We can break apps into three basic categories:
Native apps are designed for one specific platform or system. You can’t use a native app made for a particular device, like iOS or Android, interchangeably. In other words, an iOS app will not work on any other device than an iPhone. These types of apps tend to be high-performing because they are optimized for a specific platform and access a range of APIs that puts no limits on app use.
Web apps are responsive website applications usually coded in HTML5, CSS and Javascript. Web apps are delivered via a mobile browser and are faster and easier to develop than native apps. Compared to native apps, they can live on all platforms and therefore are less costly to maintain and update. Netflix, Google Docs and Dropbox are examples of web apps.
Hybrid apps, as the name suggests, are a mix of native and web. This type of app supports both technologies. If a hybrid app doesn’t need support from a database, the app can work offline. However, if you’re considering buying an app, it’s important to note that hybrid apps are sometimes lower performing than native or web-based apps. According to Tech Target, “User experience (UX) may fall if the user interface (UI) isn’t similar to and well enough designed to what browsers the user is used to.”
Android and iOS apps
When you’ve decided on the type of app you’re looking for, you should consider the pros and cons of choosing between Apple iOS and Android Apps (or looking for an app made for the Google Play store or the Apple app store).
If you choose an Android-based app, you have Google’s unmatched global search capacity. This is particularly important when it comes to ads.
According to Buildfire, “Android has the largest global share in lower-income areas and developing nations. It holds an advantage over Apple in emerging markets such as Asia and Africa.” This is because of its broad price range and a lower entry-level price point. However, Apple dominates the profit shares because its users tend to be more active.
Also, there seems to be a trend where Apple users spend more in the App Store than Android users do in Google Play. This could affect the app’s in-app purchase or price tag of the app.
The App Institute summarizes it well: “Apple users are more engaged and loyal, but Android allows you to reach a broader audience. Whatever you decide, make sure it’s right for your app.”
What to look for when searching for apps for sale
First, determine what kind of app you’re looking for and what type of space you’ll want to dive into.
You might be in the market for an app to gain passive income or generate some good cash flow. Another reason for buying an app could be to eliminate your competition or access helpful technology. Maybe you’re trying to add to your existing portfolio. Regardless of your motivation, there’s an array of considerations before you make your pick.
After determining your why you are looking for apps for sale, then identify your what in broad terms. Do you want to buy a marketplace app, a universal app, or a software as a service (SaaS) app?
Next, get into the what in specific terms. What is the app capable of? What does the growth potential look like? Does the competition seem overwhelming? These are all questions you need to find the answers to in order to make an informed decision.
More specifically, make sure you’re looking at the following when assessing a possible acquisition of an app:
Competition and market demand
What similar apps are out there, and what’s the demand for apps in this category? Search the app store for keywords and do some digging. This is the perfect time to take advantage of growing markets, so when you’re assessing an app, define which pain points it’s addressing.
What does the competition look like in your niche? Assess if the app you’re considering is competitive enough or if there are too many similar apps in the market already. It might be hard to stand out, and if so, you could be better off pursuing a different path.
Monetization strategies/models
There are several ways apps make money. Most commonly, apps utilize recurring monthly or annual subscription payments. For software applications, it’s common to use licenses where you pay once to install the application. Within the yearly or monthly subscription plans, developers use different incentives to achieve downloads.
Some apps use a free-to-download with in-app purchases (freemium) model. Many popular apps use this as a way of attracting users. The app is free to download, but the user needs to pay to access the premium version. Revenue comes through people opting for the in-app purchase option. According to Apple, “Successful freemium apps operate as services that are continually updated to attract and retain users. You can offer multiple types of in-app purchases, including subscriptions.” Apps have different in-app purchase types. Either consumable (buying lives or gems in a game), non-consumable (a photo app filter), auto-renewable subscription (cloud storage, weekly magazine) and, lastly, non-renewing subscription (season pass to streaming content).
Up-front, pay to download is another payment model. There is no extra fee associated with this model. The user pays a one-time price to download and use all functionalities. The cost for the user is usually higher, but the app should reflect the price they’re paying. The app will need to offer a premium, high-quality experience for the user.
A combination of the two subscription models is the paymium model. The user is required to pay for the download and can upgrade within the app with in-app purchases. There is the option for subscriptions based on different tires, and this gives the user flexibility to customize the payments to their needs.
Downloads
This is one of the first metrics you’ll look at. It simply tells you how many have downloaded and installed the app. The number of downloads will give you a feel for the app’s high-level popularity, but it doesn’t tell you much about the financials. It’s simply one piece of the puzzle. Session frequency, session length and total time spent in the app are other indicators of how well the app performs.
You can use mobile market data and analytics platform tools like App Annie to find the number of downloads and explore other key metrics.
Active users
So, you know how many have downloaded the app. But who’s using it? Find out how many active users the app has and how much they engage with the app. You can look at the amount of time they spend on the app daily and how many users are active each month. The consumers who frequently engage are loyal customers, and you do not want to lose them, as they will be the most profitable.
Churn rate
This goes hand-in-hand with the active user metric. Churn rate is the percentage of users who unsubscribe, delete or stop using your app. You’ll want to see a low churn rate or a reasonable explanation for slightly elevated churn. If applicable, there should be strategies in place to combat high churn rates and improve user engagement.
Retention rate
Getting people to download the app is, of course, a top priority. But it’s also necessary to keep those users happy. Similar to the church rate, retention rates reflect whether or not the users are satisfied with the app and its capabilities. This metric will help you understand which features are popular and keep people coming back to the app. If the app has something valuable to offer, it will draw consumers back after their first use. The focus should be just as much on retaining users as getting new downloads.
App reviews
App reviews are essential when looking at apps for sale. Ratings and reviews can influence other users and their perception of your app and willingness to test it out for themselves. Plenty of users download apps solely based on reviews. You must take a long, hard look at the comment section of the app you’re buying. What do people love about the app, and where are they finding faults? What’s the overall sentiment from users? Look at the competitors and their reviews, too. If there are red flags off the bat, perhaps it’s not a suitable investment for you.
Demographics
According to Similar Web, their “App Demographics provides insights of users for the specified Android application, including age and gender breakdowns. Data is available in 28 countries.” Some of the features in the App Demographics section include attributes of the app’s typical users (age group, gender and overlapping app usage).
App Analytics is Apple’s tool for iOS apps to track metrics like App Units (number of first-time purchases of your app through the App Store), installations (total number of times your app was installed or redownloaded) and sessions (the number of times the app has been used for at least two seconds)
The analytics tool also provides metrics on App Store impressions, product page views and more. Apple notes the following on their analytics tool, “Keep in mind that App Analytics displays data from devices running macOS 10.14.1, iOS 8, and tvOS 9, or later, and that data is displayed only when a certain number of data points are available.”
There are other mobile analytics tools available, like Appfollow, that can help ensure you’re getting the metrics and reports you’ll need to make an informed decision.
According to Microsoft’s cloud computing service, Microsoft Azure, you can use their Mobile Apps feature of Azure App Service to “rapidly build engaging cross-platform and native apps for iOS, Android, Windows, or Mac; store app data in the cloud or on-premises; authenticate customers; send push notifications, or add your custom back-end logic in C# or Node.js.”
Google Analytics provides an extensive list of “mini guides” describing the different metrics and how to analyze them. You’ll need to use the newer Google Analytics 4 property (not Universal Analytics) to access the reports and analytics from both your website and your app. Universal Analytics properties only support websites. Last year, Google announced that “we encourage you to create a new Google Analytics 4 property (previously called an App + Web property) alongside your existing properties.”
App set-up
Buying an app is no small undertaking. You’ll want to analyze the current owner’s setup and how the company functions. Carefully examining things like code, development, standard operating procedures (SOPs) and owner reliance should be a priority for you as a buyer.
An app is entirely dependent on technology. As an investor, you have to analyze code, data and all supporting documentation thoroughly. It could be helpful to hire a third-party developer to look at this for you (unless you’re a capable developer yourself).
SOPs
It may not be the first thing you think of when looking at apps for sale, but with all the moving parts of an app, it’s necessary to have SOPs in place. When these documents are in place, the whole team will have clear-cut directions to abide by for different processes. The SOPs should provide a solid road map, step-by-step, for what needs to happen throughout a given procedure.
You’ll want to know what it will take to operate the app and run the business side of things.
Consider how involved the owner is in the day-to-day running of the app. Is the business going to be reliant on the owner’s involvement for the foreseeable future, or does it run well independently? This is something to take into consideration. Make sure you have a plan to accommodate each scenario.
Keyword ranking
When you’re doing a competitive analysis, make sure to include keyword research. You should assess the overall strength and ranking of the top keywords of any Apple App Store or Google Play store app.
Preferably, the app should be ranking well for the main keywords within its niche. The app could rank differently for the exact keywords in the Apple store or Google Play since their algorithms differ somewhat, so make sure to look at both (if applicable). To research the app you’re hoping to buy, ask for insight into the seller’s App Store Optimization tools and Google Analytics account.
A question to consider when investigating rank is to find out if the app creators are putting enough effort into search engine optimization (SEO) and App store optimization (ASO). If not, take this into account and note that boosting these strategies can drastically improve the app’s number of downloads.
App Marketing Agency, Pre Apps, lists Top 7 App Store Optimization Tools 2021 (For Apple Store & Google Play). Not surprisingly their tool is listed as number one, but there several other tools listed as well with pros and cons, which could be worth exploring if you decide to acquire an app.
App growth and revenue
How old is the app, and is it still growing? Those are two essential questions to find the answers to. The key is to look for sustainability. Ask yourself, based on research, will this app keep growing in the current climate and does it have sufficient longevity?
Carefully examine the financials of the business and verify its monthly spend and monthly revenue. The data should hopefully reflect sustainable growth.
Lifetime value (LTV)
The lifetime value informs you of the expected amount of cash to be received from a customer. Through Google Analytics you can access the LTV report to help you understand the value of different users based on lifetime performance. “Analytics calculates the sum of purchase events, and AdMob earnings events during the user’s first 120 days of app usage. The lifetime value (LTV) is the average of this metric for all users.”
According to mobile marketers Aarki, LTV “tells you how much each new user is worth – and thus provides you a cap for how much you should pay to acquire that user.” LTV can measure many metrics and, most importantly, inform the decision on your app’s marketing budget. You’ll want LTV to be around 3x your Customer Acquisition Cost (CAC).
LTV is a helpful tool when predicting future growth and making sure you’re getting a positive return on investment (ROI). When calculating the LTV, you need to factor in variables like churn, monetization, retention and virality.
LTV can be broken down into three categories of variables:
Monetization – How much a user contributes to your app revenue (in the form of ad impressions, subscriptions, in-app transactions, etc.).
Retention – The level of engagement a user has with your app and how often they return to your app within a certain period.
Virality – The sum value of additional audiences a user will refer to your app.
Acquiring an app through FE International
Now that you know what to look for when assessing apps for sale, the next question is: how do you find high-quality, pre-vetted apps available for acquisition?
FE International has over a decade of experience in app exits and acquisitions, and we are also the industry thought-leader on how to value an app. When we do valuations of apps, we consider each business holistically, and our team of highly skilled and experienced associates and analysts perform expert research and analysis.
See our current listings of apps for sale, as well as other SaaS, e-commerce and content businesses.