Updated: May 2020
In 2019, there were 4.8 million apps across the iOS and Android marketplaces. With a crowded market, users are still eager to find the apps that they enjoy for entertainment, productivity, and more. Mobile app downloads increased by nearly 9% from 2017 to 2018.
If you’re planning on growing an app development startup, it’s important to cut through the competition. To do this, you’ll need to make sure your financials are organized and accurate from the start.
By using a financial planning template, you can understand how to best use startup funds. It’ll also help you decide how to divide resources and ramp-up. We’ve outlined some essential financial planning tips to help you get started.
Why is Financial Planning Important?
Financial planning for app development is essential. For starters, successful financial planning can help you determine if your business will last for the long run. Without a financial plan, it’s easy to run out of capital and go into debt. By tracking revenue and expenses, you can keep your business out of the red.
Your plan will put together your initial budget and projected revenue to determine how to allocate funds. It can also help you determine how to use your marketing budget more effectively. A successful financial plan will include projected and actual numbers along with your budget. To meet your projected numbers, your marketing budget should help you ramp up accordingly.
Another benefit of financial planning is additional funding. You can use your financial plan to present to investors. The investors will use your projections and current budget to determine if they want to invest and how much. Investors will want to know everything from cash flow, customer acquisition cost, debt, and more.
It’s important to remember that financial planning should be engrained in your businesses. While it’s especially important for startups, you should have an ongoing process that your accounting department will use. As your business grows, your initial financial template can help you determine if you’re meeting goals or falling short. Investors will also need to see your financials periodically to determine how to maintain the relationship.
Forecasting Your ROI
To get started with your financial plan, you’ll need to develop some forecasts. As a startup, this is one of the best ways to begin setting parameters. Start by looking at your industry benchmarks. Public industry benchmarks are average numbers taken from a variety of companies. They’ll include the average spends on everything from marketing, payroll, operations and more. These numbers will help you understand if you’re spending too much or too little.
You can also use revenue benchmarks to develop long-term goals. Your company’s budget and business plan should affect your revenue goals. However, benchmarks can show you what a realistic five-year goal might look like once you’re up and fully operational.
Using revenue benchmarks, you can add a sales forecast to your financial plan. Much of this might be educated guessing depending on how much information you have. However, you should include as much known information as possible. If you’ve already calculated your app value, your sales forecast might include your Seller’s Discretionary Earnings.
Benchmarks help you chart a course for success, and they’re also important for gaining more funding. If you’re presenting your financial plan to investors, they’ll reference industry benchmarks to determine if your projections are realistic. As your business grows, investors will also look at how you compare to industry benchmarks.
Developing a Budget
As a startup, budgeting is key to creating a lasting business. Even though an app isn’t a traditional brick and mortar business, you’ll still have startup and ongoing costs to factor every year. We’ve categorized these costs below.
Your startup costs include everything that you’ll need to get your business moving. Keep in mind that some of these costs may transfer into ongoing resources, such as legal counsel and software. Most app developers will pay for startup costs with their initial investments.
- Development – Will you be hiring an in-house developer or outsourcing to a development agency? Your development costs will vary depending on who’s building it and what type of app it is.
- Equipment and Software – If you’ve hired in-house developers, they’ll need personal equipment and software. This may include computers, touchpads, development software, and more.
- Legal – As you’re getting started, it’s important to have initial legal counsel. Business lawyers can help you conduct trademark and patent research to understand if your app is infringing on intellectual property. Furthermore, your app may need legal disclaimers for users depending on what you’re offering.
- Submission Fees – Once your app is ready, there will be submission fees to have it featured on app marketplaces like the Apple App Store and Google Play for Android.
- Recruiting and Hiring – As you’re getting started, you’ll likely need a few core employees to help keep your business moving. This might include a lawyer, accountant, developer, and marketing executive. Some businesses may not choose to invest in the recruiting process, while others could spend hundreds of dollars per month on recruiting software and services.
Your ongoing costs may change over time. It’s important to develop accurate estimates for your ongoing costs so you can determine how much you’ll need to break even. Keep in mind that many startups don’t turn a profit until their second or third year. Until then, they’re working toward paying off their ongoing costs using initial funding and investment.
- Marketing – Marketing can include everything from traditional outlets like TV, print, and radio. These days, apps are best marketed online through digital formats like social media, pay-per-click (PPC), and content marketing.
- Payroll – Your business is only operational so long as you have the resources to keep it moving. Your employee salaries are a key ongoing cost.
- Operations – Operations can include everything from office rent, utilities, insurance, taxes, and supplies.
- Hosting – Just like a website, apps need to be hosted on a dedicated server. Hosting costs are usually monthly and depend on a variety of factors. Hosting sites will need to know the type of app you have as well as the number of users and projected growth over time.
- Enhancement and Maintenance – Your initial development cost will get the app up and running, but you’ll still need to account for continual development. As your app gains more users, you’ll be able to track user behavior. Using these analytics, you can optimize your app to make it easier to use or more engaging. You’ll also need to prepare for ongoing maintenance. Just like a website, you may deal with bugs or security issues that need continual updates.
As a startup, you may not have all your budget numbers upfront. You don’t need to be too detailed, but you’ll still need to include all of your known factors. At the end of the day, investors will be more interested in how you expect your budget to change and grow rather than the exact numbers.
Personalize Your Financial Planning Template
Financial planning for app developers is a unique process for every company. Even if you’re using a financial planning template, it’s important to customize it for your needs and requirements.
Using your projections, calculate your burn rate and runway. Your burn rate is everything that you expend to spend per year. Your runway is your funding divided by your burn rate. This number will tell you how long you’ll have before you run out of current funding.
As you’re working through your financial plan, your runway should be a priority to understand how much money you’ll have throughout the year. Investors will especially want to see that you’ve calculated your runway correctly. If you have a promising business plan that’s expected to run out of funding within a year, investors will be more willing to offer more capital or extend the relationship.
Work With Experts
Even if you have an accountant, you’ll need all the help you can get to set up a financial plan. Researching industry benchmarks is a good baseline. You’ll also need to understand your market landscape, industry news, and more.
Work with experts like consultants and business mentors who can help you through the process. Try to find experts who have access to resources and helpful relationships. Anyone with connections to banks, lenders, and investors may be able to help you navigate your industry’s financial landscape.
Revisit and Revise Your Financial Plan
A financial planning template should be a living document. It isn’t something you can work on as a startup and forget about once you become operational. Instead, you should return to your financial plan at least once a year to measure your goals and outcomes.
Have you met your projected revenue for the year? How do your expenses compare to industry benchmarks? Are there areas where you can cut costs? Asking these questions will help keep you on track to stay afloat and develop new financial goals.
Contact us today to find out how we can help you get started with the app development process. Our developers work with Australia’s leading businesses and corporations.
An old article from March 2016 below:
You may think that starting your own company is a daunting task. Apart from the necessary planning and market research that needs to be done, the financial side of things requires a lot of focus and determination. Are you ready to be all in?
To ensure their success on the market, business startups also need a dedicated mobile app for complete customer reach and an increased profit. But an effective mobile strategy requires more than just a mobile-friendly website.
Did you know: According to a recent study by Knicket, there are approximately 40,000 new app releases every month, with an estimated 200 billion app downloads per year by 2017.
Planning the budget for your app development startup
Financial planning is crucial for the successful outcome of any business. An efficient business planning template for app development should include ideas about:
- how much money will be needed to get off the ground.
- what to expect in the first few years in order to best allocate the available resources.
Additional planning for developing the app could include suggestions regarding supplementary staff, premises (or work-from-home) or any other type of additional software or equipment.
A short overview of the costs involved in the mobile app industry
84.5% of Australia’s mobile phone population has accessed the internet using their mobile devices in 2015, alone. This speaks to the powerful source of influence and conversion that the mobile industry is capable of.
Here are some interesting facts regarding the costs and revenues involved in app development:
- 76% of Apple’s App Store revenue was made from in-app purchases in 2013.
- 38% of iOS’ apps are paid while Android has 31% of apps as paid on their platform.
- The App Store has approximately 20,000 apps which cost more than $6.99.
- The average cost of an app is $1.47 on iOS, compared to $3.74 on Android.
Forecasting the real costs of your app development startup requires rigorous financial planning and a reliable view of the market. To get things started, you need to create a plan for business in the real world.
These are the steps that need to be taken in order to achieve just that:
Start-up costs – Depending on whether you are a sole trader or not, the start-up costs don’t account for a great deal of money. Instead, think about calculating costs based upon the situations presented below:
- what your wage is
- the marketing costs involved
- the development costs involved
- hiring an accountant
- how will you raise startup funds (for example, through crowdfunding, banks, venture capital firms).
The budget for app development – In other words, what are the costs involved in the development of the app and the budget allocated for it. Think about the platforms your app will be launched on and the submission fees and processes included.
Submission fees – If you want to submit an app to the iTunes Store, for example, you will need to sign up for a developer account first. Each platform has their own submission fees and additional benefits included in their program.
Monetising the app – From signups and emails to efficient advertising and multiple payment options, monetising your app is crucial in order to transform your startup into a profitable business.
The marketing process – This is what makes your app go viral! If you want to market your app accordingly, think about:
- getting good reviews
- having a good SEO
- reviews from bloggers prior to the app’s official release
- advertising through social media
- having a great social presence
The successful outcome of your app development startup begins with a good financial plan. EB Pearls can help you develop a powerful and efficient financial planning template for your app development startup. We’ve got app developers in Sydney and Melbourne Contact us here for more information regarding app budget and revenue suggestions.