

Financial realities of the iTunes App Store - pxlpshr
http://appcubby.com/blog/files/financial_realities.html

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drbarnard
It was meant to be an overly simplistic look at the finances, not an actual
financial statement (notice the nice round numbers). I didn't make this clear
in the post, but our third app is already paid for and will be released soon.
I'm not out of the woods yet, I know that, but I'm headed the right direction.
And that's saying something in the App Store at the moment.

David - App Cubby

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patio11
That blog post has some Holy Mother of Accounting issues. We could start with
32k loaned from family NOT being income. The business is funneling money the
wrong way, guy! Actual income does not cover your dev expenses! And you need
paid marketing!

~~~
jjburka
yeah , it was interesting. It is a little difficult to actually see what they
are making , but it appears they have paid for some marketing either 12K or 7K
depending on if the 5K free marketing 'income' is applied to the expense

~~~
patio11
Here's my attempt:

Income:

Realized Sales: $32,000

Accounts Receivable: ~$7,000 (reading graph)

Subtotal: $39k

Expenses:

Programmers: $29,000

Advertising: $2,000

Administrative[1]: $5,000

Artists: $4,000

Debt Service: $1,800

Subtotal: $41,800

[1] I smell a new MacBook, or someone _severely_ overpaid for lawyers.

\----

Total: ($2,800)

Ignore the charity -- that is not a business-related expense. Ignore the
source of your starting capital -- I don't care whether it is a loan, selling
your car, or using cash you have on hand, it _is not income_. Ignore the
salary paid to yourself -- transferring money from one pocket to another
pocket does not improve or hurt your financial situation.

What does this simplified picture produce? The correct conclusion: this
business is _losing money_. Sales are in a downward spiral while advertising
is active and the blog author apparently thinks that taking a month off of
advertising and then turning it back on again is going to goose himself to
profitability.

That is fantasy.

I think everyone who sees dollar signs in their eyes when they hear of the App
Store needs to be sent to read this article. Here is a guy who has sold almost
$40,000 worth of software and STILL LOST MONEY. At the moment all he has to
show for it is a swiftly declining residual revenue stream (it will probably
fall below the costs of debt service by the end of January) and a pile of
money owed his family.

~~~
pxlpshr
you're making a quick assumption without knowing more about his methodology
and long-term strategy. I talked with him at length last night at a developer
meetup, and he's now in a position to capitalize on the technology assets he
had developed for $30k. He's in a much, much, much better position than half
the gumball developers on the store now.

I wouldn't be so quick to write-off people's real-world testaments like that,
especially when they are courtesy enough to open their books for other people
to evaluate and apply. You sound like the armchair critics on TC, TBH.

~~~
patio11
I am 150% in favor of real-world evidence and sharing information with other
entrepreneurs. That is why I make all my businesses financial numbers public,
too. (Not the usual sense of the word "armchair critic".)

What I am not in favor of is sugar-coating assessments out of social concern.
Why do we put things in graphs? To draw conclusions out of them. The
conclusion you draw out of a downward-sloping sales graph is not "Things are
looking up!" The long-term strategy, which is laid out in the blog post, is to
repeat the tactics (advertising) that failed before, seemingly without regards
to understanding why they failed the first time.

(Which is fairly simple: it is virtually impossible to achieve a conversion
ratio high enough to justify that price point with a ten-cent ad. You need to
either charge much more or have a back end revenue stream. The App Store is
not conducive to either. I pay six cents a click and sell an app for $25 and
it takes significant work to make money and those numbers.)

 _He's in a much, much, much better position than half the gumball developers
on the store now._

I agree with this assessment, which should be tattooed to the inner eyelids of
anyone thinking of publishing for the store.

~~~
drbarnard
More assumptions. The App Store does not conform to any discernible business
norms. The downward slope looks grim, but sales can bounce back at any moment
and for any number of reasons. One of which is that we will be featured on
wired.com tomorrow!

We've got some amazing new features that will be released before the end of
the year (again, already paid for), and could spark another few weeks of above
average sales. Even if the sales don't bounce back to the peak levels, we're
leveraging our existing code base and will be releasing several new apps in
the coming months.

As far as my long term plans... did you read the whole article? I said that
I'm NOT going to do any major marketing until something changes. I'm focusing
my efforts on what has worked so far: creating great apps and working with
Apple and the press to get free marketing.

