I searched long and hard thru the Game Dev community here and I didn't manage to find a good enough answer for a situation that I need help with.

Here is the deal - I've spent about a year to single-handedly develop a mobile game which is a mix between MMORPG and idle battle games. Wouldn't like to go into too much depth as to which game we are talking about and who is trying to buy it but, 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. Now the game is pretty beneficial for me since I live in a region with a very low-income standard so the money I get from the game might not be much for many other people but for me, they are equal to about 1.5 ~ 2 monthly salaries (we are talking average salary for this country). That is about 600 Euros of pure profit after I pay for all the expenses. Of course, this number fluctuates depending on different events and sales I release and general user activity. It is a free-to-play-game so the income is mostly from microtransactions for in-game rare currency and special event item packs purchases.

Now the issue I have is that I am not sure how to set a price for the acquisition. What feels right for me would be to calculate the potential average income from the game in the next 12 months and add to this the average salary per month for a game dev of my qualifications multiplied by the number of months it took me to develop it to its released state. That would round up to about 15k euros.

When I think about it 15k euro isn't a small price to pay, but the game will pay that off in the next 1-2 years, and it might even grow much faster after they make investments for advertising and release new features and so on and so on. This means that after the second year they should be on a clean juicy profit from that deal, and that sounds good to me as well since 15k euros for me is a decent sum of money considering that the game has been running for about 14 months. And lets not forget that it has been beneficial for me for the last few months so it hasn't been always uphill.

What I need really is an advice as to is this price of around 15k Euro justified and is it a good deal for both sides, since I don't want to shoot way high and blow the acquisition, but I don't want to give the game away for a low price since it really holds a lot of potential, and it is my first fully released game.

A Primer on Valuing Intangible Prodcuts

What I need really is an advice as to is this price of around 15k Euro justified

It is not justified at all. You are 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:

1. 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).


2. 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)


3. 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)


4. 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 the 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:

1. They are proposing to purchase all legal rights to the mobile game.


2. 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?

1. 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.

2. 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.

Question 2

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.

First of all, congratulations to releasing your game. Few people can claim to have created a commercially successful game all by themselves in just a year. You can be proud of that accomplishment.

Now what's that accomplishment worth?

It might help you to take a look at this from the other perspective: Imagine you had some money and you want to invest it into something which generates you revenue. You wouldn't care what it once cost to make. You only care about what return of investment it is going to generate for you in the future. The past development cost for that thing isn't really that relevant. It's sunken cost.

So when you want to know what your game is worth in the long-run, estimate the profits it will generate in the future and subtract the cost it will take to maintain it. That's what the game is really worth for another person. If you think that the game could generate more profit if someone would invest some marketing and/or further development into the game, then you could also do an estimation based on the income you think it could generate, but you need to deduct the costs this would entail.

You may want to look into the concept of annuities. The idea is that if you know what the expected income stream of an asset is, and you know what the cost of money will be, you can compute the present value of the asset.

For instance, if you expected the cost of borrowing/loaning money during that period to average, say, 6%, and if an asset were to generate a net income of 7400 euros a year for the next five years (that's approximately 600/month at 6% interest), then one can look up the present value factor in an annuity table -- which happens to be 4.212 in this example -- multiply 7400 by 4.212, and find out that the present value of this hypothetical object would be 31,253 euros.

I've made the above calculation based on a five-year lifetime for your game, though I really haven't any idea of what the profitable lifetime of a mobile game might be. If the lifetime is only two years, it's worth more around 13,500. If the lifetime is 10 years, closer to 54,500.

This should give you an idea of where to start. Of course, you need to take in not only what the asset is worth to you but also what you think the asset is worth to the company considering buying it. The former is the lowest number you should accept for the game; the latter is the highest that the company might pay for it. But at least this analysis should give you somewhere to start.