This email is a continuation of the previous one. You can read it by clicking here

Ok. I'm sorry if you were waiting for the email yesterday 😅

It's Wednesday and the newsletter is sent every Tuesday. So there is a problem!

But it's the first time it happened!

It's also the 20th email of this newsletter (officially, but you know I already sent more emails. They were just not part of the newsletter. You got it?)

20 emails have been sent already! And I'll write more! 😁

The valuation game

Let's talk about something spicy 🥵

Many people are building Shopify Apps to sell them later. And it's a great business, I don't have any problems with that.

But people are wrong about valuation. I've seen people with small Shopify apps who wanted an exit for 7x or sometimes 8x the ARR.

These numbers are real numbers for SaaS. But not for small Shopify Apps that are 1 year old with only a few thousand MRR.

So I did something. A little game.

I asked on Twitter how people would value a Shopify App with specific metrics:

• $20,000 MRR

• 20% churn

• 45% profit

• 1 year old

• 2.5% MoM growth

• Built with Node and React

And the valuation was already better than what I saw. Yet I saw numbers from $13,500 to $1,500,000.

Yes. There is a HUGE difference between $13,500 and $1,500,000.

Then I wrote a thread to explain how you can value a Shopify App and what you have to think about.

This thread was more for people who value an app too much. So let's dive into this!

First of all you have to understand what will increase the value of your app (or decrease it):

Tech stack

Is your app using a language many developers can understand? Is it easy to find someone to work on your project? How is your code written? Can we understand it easily?

MRR

How much money are you making each month with your app? It's simple. The higher, the better.

YoY growth

It's the year-over-year growth. The faster your growth, the better.

Churn

How many paying users are leaving your app each month? Or even better: how much revenue are you losing every month?

You have to keep it low. But for a Shopify App, a 2-digit churn is average. But the number of installations and conversion rate are also higher.

Creation date

Is your app 1 year old? 2 years old? An app that is 5 years old means the app is working overtime and it increases the value. But if you don't have a high MRR and your app is 5 years old, it also means you're not growing a lot.

Profits

Your app generates revenue, but what are your expenses? Usually, Micro-SaaS like Shopify Apps are built to be highly profitable, so spending 95% of your revenue will severely impact your valuation.

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Now that they checked these metrics, they will need to find the risks. They don't want to buy something that won't be valuable in a year. If you have a lot of risks then the valuation will be lower.

So what are the risks of Shopify Apps?

• You build something on top of a platform. It means they can remove your app or build your features.

• Your users are limited to the users of the platform, it's not infinitely scalable.

Now obviously, there are risks but also opportunities (like the App Store or the trust you get from Shopify) but the buyer will take everything for the valuation.

We have to add a new risk today: recession. This is not the perfect time for buyers so it might impact your valuation. If there are fewer buyers than sellers, the valuation will go down.

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Now based on everything I've said, if you have an app making decent revenue like $15,000 a month and you don't have 2 years of revenue, if you exit for 4x you're lucky.

Honestly, if you're building an app and want to stay realistic, tell yourself you're going to sell for 3x as it's average for Shopify Apps.

And I've seen people selling for that valuation.

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Let's talk about profit. Some people say their app has 90 or even 95% profit.

That is not possible!

They think it's 90 or 95 because they are not counting their own value. They are usually doing development, marketing and support themselves. And think their time doesn't matter. But it's not true, and the buyer will probably hire people to manage the business, or they will pay themselves.

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Now. You're probably wondering: How can I sell for $1M?

Well, let's create a small scenario:

If your app...

• Makes $20,000 MRR

• Has a standard tech stack

• Has an average churn

• Is at least 2 years old

• Doesn't have support taking all your time

• Is making decent profit.

Then yes you can probably sell for $1,000,000. But again, it will depend on many other factors, and also on the buyers.

At least you have a target now!

But I want to finish this section by saying something:

Don't build Shopify Apps just because you can sell them at the end. Build Shopify Apps because you like it. Otherwise you won't make it to the million ❤️

Wins of the week

$500,000 earnings 🚀

We reached this magic number with WideBundle! This is only the beginning, let's go for $1M!

Interview with Jan 🎤

Jan (from the Ytb channel "Coding with Jan") interviewed me recently and you can find the interview on Youtube.

42 minutes of value!

So if you want to learn how I started with my apps: Watch the video below 👇

Meet the 25 y/o who makes $30,000 per month with Apps — www.youtube.com

What makes an app successful? How to come up with ideas? How to validate them? How about ongoing work? That and more is what we're talking about today. :-) ...

Tutorial of the week

The tutorial will be small as this email is already soooo long. And it will be a continuation of the valuation game.

If you want to sell your app for the best valuation, here is what I suggest:

• Write processes for your support with frequently asked questions so someone can easily do it at your place

• Keep your financial metrics (users, revenue, expenses, etc) in a google sheet so you can give it to the buyer

• Work on your churn as it's probably the most important metric (even more than the MRR)

• Structure your source code properly (you don't have to do it on day 1, but take a few hours every month to refactor a little bit). Keep documentation of how you structured it.

• Create assets like a community for your app. Your reviews on the Shopify App Store are also an asset.

• Keep your profit high

That's it for this email!

Let me know if you liked it! And share it with someone who might find it helpful!

See you next week,

Mat 😁