How I Made $92,000+ from a $1,000 investment by Buying an Existing App [Case Study]

In October 2014 I bought a mac app called Split Screen for $1000 and made $92,000+ till date.

This article is about showing you all that I did to make this happen.

1. How I shortlisted the app
2. How to Identify undervalued Online business?
3. When to plan the price change?
4. How to bring users to a new site – without spending a dollar?
5. Does User Ratings impact App Store revenue?
6. Few ideas to increase Product Sales
7. What to do once your product is successful?
8. So What Did I Learn?

First, here’s the proof:

If you are skeptical about my claims, here’s the proof:

Appstore Lifetime Revenue

Revenue Outside AppStore
So, $80,900 + $11,858 = $92,758 (as on 26th July 2020)

How I shortlisted the app

The mac app that I bought was Split Screen.

I was searching for some websites/ online businesses in October 2014 to buy from Flippa.

And I happen to see the listing of Split Screen.

There were many things which I liked about this listing:

• The app was poorly designed
• It making around $200 per month pretty consistently
• It’s revenue could be verified easily
• The seller seem to be a genuine person
• Most important: The app was exempt from Apple’s sandboxing guidelines

PD’s Checklist for buying existing online business:

• The seller should be open and honest
• Business should not be new
• Revenue should be easily verified
• Revenue should not be dependent on one customer / sponsorship
• Business should not be easily copied
• Major source of traffic should not be Paid traffic
• Business should be undervalued room for improvement
• Price to buy should not be more than 2x-3x the annual revenue

NOTE:

• Beware of the listing where the seller shows the income distributed evenly across all months. Why do they do that? Because:
  • Either they got one-off big sale one month and then there was little or no revenue for other months, OR
  • The revenues are declining and they want to hide that.
• Honest and open sellers always show actual figures for each month.

How to Identify an Undervalued Online Business:

There are many ways to identify an undervalued online business:

1. The product which the site is selling, is priced well below market rates.
2. The business is selling for less than 6x of monthly revenue. (this assumes the business is NOT fairly new – the older the better)
3. The site / product is poorly designed.
4. Site / business has less features than its competitors
5. The site is catering to just one set of audience / country / niche whereas it can easily be presented to a wider audience.

In my case, I clearly saw Split Screen to be undervalued. I was convinced that if I make the app better looking and increase the price, the market will still accept it.

So in spite of being launched four years ago I still felt Split Screen had potential to grow:

Reasons were:

• It had a very simple and not good looking app icon
• In spite of that is generated 2,000 + download on the day it was made free
• It was priced at just 99 cents whereas some of the similar products were selling for $13.99
• Because of sandboxing guidelines no new similar apps can be launched. So, competition would be limited to existing apps.

The listing had a reserve of $5,000 which valued the app at 2x annual revenues. But the listing did not generate a good response and the bidding ended at $900 and remained unsold.

I tried my luck by contacting the seller and offering $1000. To my delight, it was accepted.

Before the actual purchase, I verified the revenues by live screen sharing in iTunes.

At $1000, I was sure that I could break even in 5 months if I didn’t change the price and kept the app as it is.

To make sure the app was earning as claimed I didn’t do anything with it for a week. And it did earn as expected.

Now I rolled up my sleeves and started making changes to the app.

First came the UI changes.

I revamped the app icon and iTunes screenshots.

I also added more relevant keywords in the iTunes listing by doing competitor keyword research at Sensortower.

I made sure that I fully utilize all 100 characters of iTunes keywords. You should avoid the app name in the keywords section because it is already considered.

Instead, use that to fill similar keywords based on your Sensortower research.

Back to my story.
The new design did a good job of communicating what the app stood for. And that improved the number of downloads.

Then I started my price experiments.

First I changed the price from $0.99 to $1.99 and kept it like that, for a week.

It did drop download count from 37 to 27.

But because of the price increase, it ended up making 36% more than the previous week.

It encouraged me to increase the price the following week to $2.99.

Again total downloads dropped from 27 to 21 but the new price increase made 43% more than the previous week.

Subsequently, I kept on increasing the price to $3.99, $4.99, $5.99, $6.99, and $9.99.

At $6.99 I found my sweet spot. This is where the app was making maximum revenue.

Just look at what the app was originally making per week ($35 at $0.99) whereas what I was earning at the “right price” ($495 at $6.99).

That’s a 14x increase in revenue, just by finding the right price to sell.

When to plan the price change?

When experimenting with a price increase, I also tracked the revenue daywise.

See below screenshot:

This gave me the insight that Tuesday was the day with max sales and Friday / Saturday were the least revenue days.

Armed with this knowledge, I started setting the new price to take effect from Tuesday.

Tip: Whenever you do price experiments, have it run at least for a week. This will give you a better idea about your users and their buying habits.

How to bring users to a new site – without spending a dollar?

Now came the next phase of improvements.

Split screen had just 5 ways of splitting whereas other apps had more ways than that.

But because of Sandboxing Guidelines, there was no way I could add even a single feature in the app store version of the app.

That’s when I thought of launching a Pro and Ultimate of the app, to sell outside the Appstore.

I even bought a domain called SplitScreenApp.com and created a simple site on it.

I already had an IOS developer working for me and he created the Pro and Ultimate versions.
Those were priced at $14.99 and $19.99 respectively.

Ok, the site was ready. But how to bring traffic to this new site – without spending $$ in ads?

That’s when I got an idea.

As you know, I can’t add any new functionality to the Appstore app due to Sandboxing guidelines.

So, I just added a menu option called “How to use Split Screen?”

When clicked, it will take the users to this page where I had a video on how to use the app.

Just below the video, I had this:

As you can imagine, this one move started bringing steady traffic to this page and started increasing product upgrades.

Lessons Learnt: Use your existing products to bring customers to your new products.

Does User Ratings impact App Store revenues?

When I bought a Split Screen in 2014, there was no user rating window popup that reminded users to rate their experience.

And we added just that – not in a pushy way though. We showed the popup only when the user has used the app for a week.

But as soon as we did, we started getting a lot of app store reviews and it did help increase the sales.

How much?

Before User rating reminder (last 30 days): $1517.01
After User rating reminder added (next 30 days): $2234.29

Few Ideas to Increase Product Sales:

1. Do Product Deals:

I did a product deal with Two Dollar Tuesday and here’s how it turned out:

As you can see, it increased the number of downloads 7x, but the sale amount increased by just 51%.

Warning:
Doing product deals on a regular basis WILL damage your product sales in the long run.

Why?

Because people will start waiting for such deals to happen and only purchase your product then. Also, they will start believing that you are already pricing the product much higher and will not buy anything from you at full price.

So, in my experience, do product deals sparingly.

2. Sale Product as a Service and Sell Service as a Product:

At times, just thinking the way you sell your product/service makes a lot of difference. If you are selling a product, sell it as a service.

Example:

1. People selling Air conditioners sell Annual Maintenance Contracts as a service.
2. People selling web development services, sell monthly subscriptions of their service as a product.

What to do once your product is successful?

If you managed to increase the sales of your product, Congratulations!
But don’t stop there.
Use that spark of success to build the wildfire of massive success.

Here’s what I did:

1. I used the success of Split Screen and entered in the Mixergy Sales Challenge.  And won. Not only did I win a free trip/stay to San Francisco but also got a chance to meet one of the most influential peoples in Silicon Valley – Andrew Warner.
2. I used the Mixergy Success to land a podcast interview with one of the Top Bloggers today, Ryan Robinson. Here’s that podcast:
   
3. I used this podcast “success” to approach Flippa to interview me as a Success Story.
   And here’s what they did – My Success Story
4. On the Product front, I used the money I got from this app and built other apps which generated additional revenue streams.

So What Did I Learn?

I don’t recollect for sure, but I read somewhere that Thomas Edison just used one principle he knew to create a lot of inventions.

Success is not just about increasing revenues. It’s about triggering positive changes in your life. And you don’t need to be successful all the time. You just need one success and the desire to use that success to your advantage.

As far as Split Screen goes, what worked for me was: low business acquisition cost (5x monthly revenue), price experiments, UI changes, etc.

If you are planning to buy an existing online business, try to do your homework about what you would do once you have the business. And how that will increase your revenue. Having this clarity will go a long way in giving you fantastic returns on that online business.

If you have any questions related to this article, please feel free to comment below. I will be happy to answer them,

Thanks for reading and good luck with your online business!