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Micro SaaS Insider — July 21

Welcome to Micro SaaS Insider – the free version. We analyze deals and use Moneyball tactics to discover undervalued, mispriced, and hidden gem micro-saas businesses for sale.

Today we explore a Shopify App which integrates Shopify accounting data into QuickBooks, which lies at the intersection of 4 great categories.

Let’s explore

Why Shopify Apps?

We recently wrote about arbitrage opportunities within the Shopify App Store.

There are two main reasons:

  1. Shopify announced that it will no longer take a cut of revenue for apps inside the Shopify app store, up to the first $1M in revenue. This means smaller app developers get to keep 100% of sales from apps they develop.
  2. The Shopify app store appears to be grossly under-supplied. The number of Shopify merchants is growing much faster than the number of Shopify apps.

With this in mind, we set out to understand the landscape of Shopify app categories.

App Category Analysis

We were inspired by this post from Marketplaceapps.co last week, and wanted to expand upon the findings.

So we scraped data from the Shopify App Store to try and understand which ones present the best opportunities for developers and buyers.

(Note: This analysis is rough and contains inaccuracies, as not all data could be fully scraped. But it should be a good starting point for exploration.)

We looked at apps in 11 categories. For each category, we then calculated:

  1. The total number of apps (lower the better)
  2. Average price (higher the better)
  3. Average revenue (higher the better)
  4. Average rating (lower the better)*

*Low average ratings in a category means consumers are unhappy with apps in that category compared to others. Thus, there is better opportunity for a quality app to enter the category and gain market share.

To start, we used conditional formatting to visualize the best and worst categories for each dimension.

As you can see, apps in the Sourcing and Selling, Merchandising, and Inventory and Fulfillment have pretty good marks. Relatively low competition, good average price/revenue, and low average ratings.

But we didn’t stop there. As we love to do, we then created derivative metrics to understand how these dimensions related to one another.

Specifically, we came up with 4 derivatives:

  1. App Count to Price Ratio
  2. App Count to Revenue Ratio
  3. Price Strength x Revenue Strength
  4. App Count to Rating Ratio

From here, we can some bifurcation start to emerge. The top categories are starting to appear much stronger than the weaker categories.

Finally, we calculated a proprietary metric called Total Strength, which is the square root of the sum of the derivatives — a simple way of smoothing everything out.

Interesting! It looks like the best overall opportunities are in the following categories:

  1. Sourcing and Selling
  2. Merchandizing
  3. Inventory and Fulfillment
  4. Finance and Accounting

These categories have relatively low amount of competition, the highest median revenue, and the lowest reviews among other app categories

So with that, we went on the hunt to find an app in one of these categories.

And we found a pretty good one on MicroAcquire.

Shopify Accounting App

  • Asking Price: $40,000 – $45,000 (After a recent $5,000 price cut)
  • Multiple: 3.54x (unadjusted for new Shopify cut) 2.83x (adjusted)

Note: The URL is hidden for Insiders Only. Start a free trial to see it. No credit card required. See URL (Insiders Only)

What problem does the app solve?

Accounting & taxes is a huge pain point for ecommerce merchants. It’s laborious, confusing, and takes lots of time that could be better spent growing the business. If you’re a Shopify seller, you probably loathe this part of your job.

This is a sleek Shopify accounting app that integrates all your sales, refunds, inventory and fees into QuickBooks. Sales and expenses that usually need to be reconciled manually are now automatically ported into QuickBooks from Shopify. No tedious data entry needed.

Inventory is an especially tricky part of running an ecommerce operation. And interestingly, this app has attempted to create a proprietary system to record sales while tracking inventory and without inventory.

This, along with the fact that it pulls in data from PayPal as well, is what makes it quite innovative/unique compared to some competitors.

How does the app work?

  • Users install the app on their Shopify store, and connect to QuickBooks.
  • When Shopify creates a new settlement file, the app automatically fetches it, crunches the data and generates a summary of revenue, refunds, expenses and other transactions.
  • Data downloading happens each night in the background.
  • Sales are reconciled to your deposits so you never overstate or understate revenue.
  • The app generates journal entries from each settlement and posts them to your accounting system based on the ledger accounts you have selected, either automatically or on your command.

Who is the seller?

The seller is a CFO and controller for a number of startups. He knows the space well, and has bootstrapped this app over the past 3 years (started August, 2018).

To save time, he is outsourcing much of the work to a developer, but still spends about 2 hours per week on new feature creation, and about 2 hours per week solving support tickets (1-5 per week).

The seller has two other software businesses that are requiring more and more of his time. To transition to the new owner, he is happy to do weekly calls for the first month, then monthly calls for the next 2 months

How does the app make money?

There are five plans. Pricing is based primarily on number of orders per month.

  • Baby: $9/month
  • Mini: $19/month
  • Starter: $39/month
  • Standard: $69/month
  • Premium: $139/month

The app has 45 paying customers, most of whom are on the Mini or Starter plan.

How much is the app earning?

The app’s current MRR is roughly $1,000, or about $12,000/year.

Over the past year, the app has earned:

  • $9,700 in revenue
  • $6,800 in profit

Over the last month,

  • $1,100 in revenue last month
  • $900 in profit last month

Both revenue, profit, and profit margin are starting to ramp up nicely.

Note: These figures have not been adjusted for Shopify’s new app take rate. Going forward, bottom line revenue will increase 25% by default.

What are the growth opportunities

  • Create a standalone app on QuickBooks Online (QBO) marketplace
  • Upgrade the QuickBooks desktop portion of the software. Not all QuickBooks users have migrated to QBO, and many of these legacy desktop users are asking for this.
  • Offer QBO marketplace integrations for Stripe
  • Acquire new customers via Shopify’s marketplace. The Shopify marketplace allows for advertising. This channel should be the #1 resource in scaling.

Technical considerations

  • The seller is a developer himself, so the app has been constructed with care and intention.
  • All Shopify apps are Ruby on Rails. Finding Ruby developers is very easy.

Inferred Value

[Insiders Only]

Insider Score

Price Relative to Inferred Value For sites with a fixed asking price, this measures the asking price against the inferred value. This metric is not applicable to auctions.

17/20

Platform Strength

> Shopify merchants and GMV are growing extremely fast, and the Shopify app store is probably under-supplied.

10/10

Age & Authority

> This app is 3 years old

6/10

Ratings and Review

> The app has 2 five-star ratings, and one recent one-star rating.

6/10

Recent Growth

How much has this asset grown over the last twelve months.

> This app is growing nicely

7/10

Category Strength

> This app actually falls somewhere between two categories that rank highly in our opportunity matrix above: Inventory and Fulfillment, and Finance and Accounting

9/10

Maintenance and Upkeep

This measures how heavy the time & cost requirements are for the app.

> This should be a moderately simply app to run and maintain, but adding features will take considerable effort.

5/10

Competition

> There are a 2-3 strong competitors.

5/10

Overall Insider Score 72%

Recommendation & Outlook

Apps in the inventory, fulfillment, finance, and accounting categories should be given special attention, given our analysis above. This app lies at the intersection of all 4.

This app is solving a very real and specific pain point for ecommerce sellers. It has a somewhat unique set of features which, while not perfect, should be enough to carve out some loyal market share for the next few years and beyond.

The app is earning pretty decent side money, and this will increase 25% under Shopify’s new take rate. The seller has recently dropped the price by $5,000, and the app is priced at a comfortable multiple (even before taking into consideration the new take rate)

There is definitely some competition in the space. But there is also room for more than a few players. The switching costs of apps like these aren’t tremendously high, and all it takes is one or two well-researched features to create some serious customer loyalty.

From a price standpoint, I am guessing there is definitely room for negotiation, especially given the recent price drop, age of the listing, and recent negative review, which hurts rankings in the app store. All of these can be used as levers for negotiation.

Good luck!

Note: The URL is hidden for Insiders Only. Start a free trial to see it. No credit card required.

See URL (Insiders Only)


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Author

Ben Knight

Ben Knight

Ben Knight is a musician, writer and edited who is a Master's graduate in writing, editing and publishing. He has released an album with his band Mellow Daze and writes and edits for a number of blogs, as well as for publishing house Melbourne Books in Australia. He also believes it to be an objective fact that 'you' should be spelt 'u' because it looks funnier that way. He can be found at benknight997@gmail.com for writing and editing-related enquiries.

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