A Primer on Valuing Intangible Products
What I need really is an advice as to is this price of around 15k Euro justified
It is not justified at all. You're attempting to determine the market value of an intangible product (the mobile game) based purely upon its cost of production. This does not represent the true value of the product. The true value of the product is how much "the market" is willing to pay for the product. What the market is willing to pay for your product is largely dependent on why and how they value your product. Since your product is an intangible (software), this carries enormous implications contradictory to the implications of valuing a tangible (your computer, cellphone, food, furniture, etc).
The reality for intangible products is that their value is largely predicated upon the perceived value of their use or utility. In this instance, for mobile gaming that means the its ROI. The ROI for mobile games however, may be forecasted in one of 4 ways:
- The expected ROI from selling the game: the company sells 100K units at €5 with a marketing cost of €1 euro per unit (€400K revenue: 25.6x ROI).
- The expected ROI from microtransactions: the company implements microtransactions and receives average earnings of $10 per month from 10K regular users for a year (€400K revenue: 5.6x ROI)
- The expected ROI from reselling the game to a larger firm: the company purchases your game for 15K, dumps 100K of development making it more robust, then resells it for 500K. (25.6x ROI)
- The expected ROI from an IPO: the company performs an IPO and this game is popular, how will the perceived value of the game affect the value of the IPO?
Notice that for all of this, the cost of producing the intangible is small relative to the earnings. This is extremely important for intangibles because a large amount of the capital cost is usually paid upfront, either through purchase of the intangible or through the initial development of the intangible. Once the intangible is ready to ship, its packaged and distributed. Being software, the cost of distribution is incredibly small compared to the distribution cost of tangible products (compare the cost of distributing a mobile app to that of IKEA furniture). For a mobile game, you're looking at hosting costs, which are proportional to the number of active users, which in turn also drives revenue. Consequently this usually guarantees hosting costs are always a fraction of revenue. Maintenance & support costs may also be analyzed too; but, that introduces the value added of improvements to the intangible.
Considering you are already making €7200 (€600/mo x 12mo) profit annually you clearly already have a reliable user base on the order of hundreds to thousands depending on your actual pricing of microtransactions or the game itself. Furthermore, I cherry picked random numbers off the top of my head. Since you have been running this game and used to work for that company you know much better what numbers would be more realistic.
The Market Value of Your Mobile Game
You described the following:
a company I have worked for before reached out to me with a proposal to buy the game from me so they can reap the profit from it and develop it further since they are a professional game dev company while I am a single person and I can't really reach the game's full potential as far as growth and player base goes.
This sounds like a description of what you understand from what the firm described to you. This informs me of a few potential issues:
- They are proposing to purchase all legal rights to the mobile game.
- Their purchase is predicated upon the false assumption that you cannot reach the game's full potential in growth and player base on your own.
Combined, this suggests to me that they are intentionally trying to devalue your work and get the game for a low price. Why do I think this?
- The predicate that you cannot reach the game's full potential on your own is blatantly false.
You can attempt to start your own game studio with initial investment coming from any of the following sources: startup incubator, Venture Capital funds, Angel Investment Funds, Private Equity investments, or business loans.
You already have a proven product with 14 months of growth and earnings to show for it. What you really need is a sound business plan and capital to action the business plan.
Alternatively you may also continue to grow it at the current rate and improve growth or start up a studio as profits allow for it.
- They are suggesting to purchase full rights to the game. Considering you have many other options that would have you earn capital whilst retaining ownership and direction of the game, this is a red flag. If the company purchases full rights to the game, then they are empowered to cut you off immediately. This implies they have no intention to consult or work with you to determine the future of the game and are seeking full ownership of the game before ever seeing the code (which is a risky move).
Furthermore considering the nature of your question, it's obvious that they did not make an initial offer and are seeking for you to provide the initial offer. With respect to businesses purchasing software rights from an individual this reeks of abuse and deception because it forces you to start at a disadvantage (not knowing anything about how to price an acquisition for starters) and allows them to negotiate from a position of incredible strength.
is it a good deal for both sides
No it is not. You are short selling yourself and the value of your game.
Talk to a lawyer and make sure you are making a sound decision for the game and your business. Selling off all rights to the game is dangerous.
Talk to a business analyst to determine the true market value of your game.
Finally consider how much the company would be willing to pay for your game if they had to compete with another firm also trying to purchase rights to the game?
That said you are attempting to value the acquisition purely upon its cost. This is erroneous. The value of an acquisition is the price at which competitors will demand the acquisition, which is dependent on their perceived value of the acquisition.