This is an interesting read and congratulations to you.
If I understand it correctly the app was pulling in $100,000 a year and required only an hour of maintenance per month? I'm curious why you chose to sell for $500,000 rather than continue with a long term revenue stream? Was there concern on your part that you could keep these revenue up in the long run?
He said he worries 365 days a year that he'll lose out somehow. He specifically mentions the dependence on Apple, e.g. if they change their search algorithm he may be fucked, and there's no independence there. He's small-time and has near zero revenue streams outside of the apple store. (he mentions the Android port being a failure).
About the Android port failure... he's saying Android makes him barely any money at all, but you can imagine he spent $10-20k on that at least last year.
The first year he did things like hire a studio to record an audio book. That may sound cheap, but a bible audio book is 70-75 hours long, and each hour recorded costs $300-600 (you could also do it for $200 or $800, but both aren't very typical). Even for low-quality, shortened books, it's still a significant expense.
He's got costs, the $100k isn't even operating profit, let alone net income.
For example, he mentions he increased his revenue from $75k to $100k from y1 to y2, but also lost money due to new licensing deals that cut deep into his margins, saying that he's not sure it was worth it.
Between a new revenue stream of which he doesn't think it was profitable, and a port to a new app store which he says generates practically non-existent revenue, it doesn't look like he's got the resources to singlehandedly build this out to a ridiculous cash cow. The $100k of course is awesome, but he's had to put in time to make it grow (inc. a brand new app, none of that he refers to when he says he has 1 hour of monthly work to sustain the app), some of these growth projects failed, and he probably invested quite a bit in the first place, more than the $500 he refers to as his initial investment.
After taxes and expenses I'd expect say $50k to be left as net income. I'd take $500k too, for sure. That $50k to say $75k tops he's netting per year, takes at least 8-10 years to beat a $500k lump sum that's reinvested. Now of course he has opportunities to grow the business, but here's the thing... if he grows the business, he's now working part-time or full-time, which carries a significant opportunity cost, too. And it's not without direct costs, either, like developing or licensing content. Further, in those 8-10 years everything can change, particularly the competitive landscape, the OP's purchaser probably would've bought another top 5 app and thrown resources at it.
In short, I think he did quite well with $500k but that's based on a lot of my assumptions and interpretations of his brief comments.
By selling he gets a chunk of money in the bank (possibly less than he'd have earned over time and certainly less than Salem thinks they can earn with the app), but he also avoids a marketplace battle and he can go work on other things. Salem avoids having to develop a competing app and gets a significant and likely fast-growing installed base.
My suspicion is that both sides feel like they came out ahead - Trevor got a couple years of good revenue followed by a nice exit; Salem got a market-leading app that likely will prove popular in some global markets where smartphone usage or capabilities are likely to increase over the next decade - what are the forecasts for smartphone usage in Central and South America? Additionally, if Salem isn't already an international player, having a top-rated app may let them expand other operations to cover more international international markets without having to do a lot of risky physical investment or international marketing first to break into those markets.
You've got too extra letters there :)
"An online post pointing out a spelling error will inevitably contain a spelling error."
Chilly's Postulate
Chillys Postulate
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Only someone with a time machine could calculate if his business would survive 5+ years it would need to take provide a similar return.
That means it would take you 6.5 years to make the same amount of money. Do you want to run an app for 6 years if you could get the money today + do something else? That $400k can start making 5-10% returns a year.. starting today.
The cool part of the story is that even though it took him seven frustrating months to close the deal, he was earning money every month. Theoretically, with that kind of revenue stream he could have dragged things out for months or years, and the buyer probably understood that.
A great position to be in, and to be so young, too. * envy * :)