In recent years, Fulfillment by Amazon (FBA) has become among the largest and exciting ways to make money online. Selling an Amazon FBA business makes an attractive investment for someone who lacks knowledge and experience to start a business but wants to buy a business easy to manage.
Merchants sometimes reach a point where they want to or should sell their Amazon FBA business, and they may wonder how to sell. So, are you looking to exit the Amazon FBA business for one reason or another and wonder how to go about it and if it's worth doing? This guide will guide you through every step you need to consider when selling your Amazon FBA business.
Can I sell my Amazon FBA business?
Several things can help you determine if you will sell your business, and each of the key factors will play an important role in determining its saleability.
They include:
a). Type of FBA Business
There are three major types of Amazon FBA businesses, and each category is a section your business may fall under:
i). Reseller
These businesses have a high risk of selling them in listings, and you have to compete for the buy box. This means a reseller will purchase their products wholesale then sell on Amazon as retail.
When selling Amazon FBA businesses, this business type can be hard or impossible to sell even though you make huge profits. Some the reasons include:
- Highly volatile as the competition in this category is limitless
- Supply problem since even though you are buying wholesale, there is no guarantee that your items will always be available on sale.
- Lack of proprietary products means the buyer only purchases access to your Seller Central Account on Amazon.
ii). Private Label
Your brand's uniqueness will give a product, and it's better than having another label on the same product. In this type of FBA business, you will have your own brand and full control over everything, including the sales volume that has to do with the product.
The private label Amazon business is more attractive to potential buyers because of its consistent supply. In addition, since the items have a history, there is a higher chance that your product will continue to sell.
iii). Proprietary products
The uniqueness of your product and brand where the more unique it will be, the higher its value. This business type would take the crown if there were competition for these online businesses. In this business model, Amazon business owners sell their product and therefore, since only your company sells, buyers will pay a premium to get it.
b). Age of Business
This is a known fact that many buyers prefer the older Amazon FBA businesses. This is because, during the first year, most sellers focus on finding what works, and the second, third and fourth year is dedicated to optimizing net profits for sale.
Notably, there is a hierarchy of value that most buyers will use, and it includes:
- Over three years-Great
- One to two years old-Good
- Less than a year old- Not great, and you can expect low ball offers
c). EBITDA/SDE (Annual net profit)
Your Amazon FBA business will only be considered if it has only made a profit, and a detailed net profit and loss statement will help you know how much net profit your Amazon business brings you every month. This is why it's vital to use accrual accounting to track your profitability every month. The higher the annual net profit, the more attractive your Amazon seller account to buyers.
SDE (Seller's Discretionary Earnings)= Your Revenue – Cost of Goods Sold / Operating Expenses + Owner Compensation.
Some common business expenses that determine your Amazon business worth include shipping services and fees, packaging costs, storage costs, software and various FBA fees.
d). Defensibility
This means how easy a competitor can enter the market with a similar product and affect your market share, and this will depend on how hard it is to source your product. If your product is readily and widely available in the Amazon marketplace or Alibaba, there will be no barrier to stop your competitors from intruding on your market share. In addition, if your product is quite easy to find, all a seller will have to do is start a new product listing, and they will have the same product you do.
On the other end, if you hold a patent for your product, this will add value to your business model, and you can see your multiple when calculating your selling price increase. Some factors will increase your defensibility, and they include:
- Propriety products- Even the most sophisticated FBA competitors, will struggle to outrank a proprietary product from a strong brand. This helps you secure your market share and give your business an attractive investment.
- Customer loyalty to your brand
- Inferior quality of the competitor's identical products and you having a higher quality
e). Diversification
Diversification gives your business's valuation and will offer a seller a real boost. All potential buyers are looking to minimize their risk. One of the biggest risks with an Amazon FBA business is account suspension, and the other is losing the rankings on Amazon.
Suppose you can show how your business will navigate in case of these worst-case scenarios. In that case, it will give an interested buyer peace of mind and therefore increase the chances of your business selling at a higher price than what it's currently worth.
There are several levels of diversification an FBA seller can pay attention to:
- Products, traffic sources and niches outside Amazon
- Traffic sources and niches within Amazon
- Having one form either the traffic sources or the traffic
In addition, to successfully diversify and increase your business worth, there are some steps you can take:
1. Listing multiple products in multiple niches
2. Create profitable paid traffic with Amazon where you can use sponsored ads or pay-per-click
3. Have some traffic sources out of Amazon, and you can do this through your social media, website or email marketing
4. Avoid having a single niche or product bring you more than 70% of your Amazon business earnings.
f). Competition
How easy you can lose your rankings determines how easy you can lose your income. If potential buyers know that there is a high possibility of being kicked out of your current position, they wil avoid your Amazon business.
In addition, if you are trying to sell your Amazon FBA business in a part of the buyer's market with plenty of sophisticated FBA competitors, then there is a high chance that your sales may drop overnight. However, diversifying your Amazon business so that only one or two products are in the highly competitive markets will minimize the risk in the buyer's eyes.
What is Your Amazon FBA Business Worth?
The value of your Amazon business is how much it can produce profit, and every Amazon seller would like to know this. This will depend on many factors, but the monthly net income for most Amazon businesses is between 20x and 30x. It can be hard to know the real value of your Amazon FBA business until you start selling it, but there are some ways you can get an estimate of how much your Amazon FBA can get.
When valuing an Amazon FBA business, you can consider factors, but the rule of thumb is to take your annual net profit and multiply it by two. The market pays two to four times the SDE (Seller's Discretionary Earnings) for Amazon businesses but keep in mind that the potential buyer will buy your inventory at cost. This will also include the cost of getting products into FBA warehouses.
The profit of your Amazon business will be calculated as follows:
Total Sale of Goods – Cost of Goods Sold – Expenses + Owners Pay
However, don't include any personal income and if you are paying yourself a salary as the business owner, add it back. If you are also paying company taxes, include it since you won't know the taxes structure of the buyer coming in.
Why Sell your Amazon business?
There are various reasons a seller may want to sell their Amazon FBA business, whether it's to invest in another business, retire early or make big financial decisions such as purchasing a property. While a seller may be attached to their brand, selling their Amazon business may offer them freedom from the daily tasks and give them the ability to enjoy the fruits of their labor and the relief from running their large Amazon business.
What Makes an Amazon FBA Business more Valuable?
If you are concerned that the selling price of your Amazon business is too low to sell, there are specific things you can do to make your business more valuable to a buyer. The amount a buyer is willing to pay comes down to relative risk and return-on-investment (ROI). The lower the risk, the higher the price and vice versa.
Investors looking to purchase an FBA business will look for points of differentiation and strength, and the most common areas of focus include:
a). Best Sellers Rank
Your key products Best Sellers Rank are necessary for your sales and customers and, therefore, is important to check for a potential business buyer. While no one can tell the definite calculation behind BSR, it is a function of the most recent sales and a predictive algorithm based on historical sales.
The key to an attractive BSR from a potential buyer's perspective is growth and consistency. If your products indicate a consistent BSR over time, then this shows a strong signal to a buyer that your products have excellent and sustained traction with the customers.
b). Brand Site
A dedicated brand site for your FBA business will make sense if you are starting to build a brand presence on the Amazon marketplace. From a buyer's perspective, it means that direct searches for your brand wil show on a legitimate-looking corporate website that will reinforce your business quality and drive traffic back to the products on Amazon.
From a customer's perspective, the brand site is an asset of the business they acquire and a potential source of emails, customers and traffic. One can use an active content strategy such as blogging about the products as it will drive more traffic to the site and leads to a larger awareness of the brand, which likely converts to more sales.
c). Suppliers
The dynamics of suppliers in Amazon businesses is critical, and there are three elements that savvy buyers check:
i). Lead Times
A seller can't make money if they lack items in stock since there have been stories of FBA sellers running out of inventory and having to wait for one to two months to get the stock back. Therefore, a dream buyer will ensure strong control set on production and shipping lead times to avoid such inventory difficulties.
ii). Trading Terms
On Amazon, the price and differentiation of your products will give you an advantage over competitors where most FBA businesses depend on having the lowest price to beat the competition. In addition, if you have a unique product or a wholesale rate, buyers will ensure this is contractual and can transfer with the sale under the same terms for a sustained period.
iii). Operations
If you deal with multiple suppliers, you will have a lot of points of contact and shipping and product considers, and most buyers are looking for ease and simplicity. To add a significant value to your business at the sale, you should have an operational setup where a lot of the work will be reliably outsourced or automated.
d). Product Mix
Splitting the products you sell by margin and sales is crucial for potential buyers where if you are selling ten products and one product accounts for 90% of the profit and revenue, you have a single product business. For every ecommerce business sold, most buyers are looking for two things: low concentration of the total sales/profit percentage a product accounts for and margin consistency. A 30-50% margin is respectable, but items that fluctuate in profits worry buyers.
h). Advertising
Consistent advertising and profitable campaigns increase buyer values by demonstrating how your paid campaigns consistently generate profit. This will show that paid marketing works, and it can be a second avenue of growth for the buyer.
i). Competition
The competition level in the Amazon business is operating is an essential part of a business sale and not just for Amazon FBA businesses. However, this can be offset by a proven competitive advantage, so sellers should be focused more on improving areas like price and differentiation and worry less about the competition.
j). Amazon Associates
Amazon allows FBA sellers to earn affiliate commissions on customers they refer to their products which means if you have a successful brand site, you can earn 4-10 affiliate commissions on sales generated from the site of your own products. This is another lucrative income as the commission is not added to Amazon fees or deducted from your revenue.
How Does the Selling Process Work?
The selling process is straightforward, but it can be quite complex and may take more time depending on the business size. However, in general, most sales will have a selling process like this:
1. You decide to sell your Amazon business
2. You get a valuation for your business
3. Develop prospects, and this is all the figures and facts of your Amazon business
4. Find potential buyers for your Amazon business, whether you are selling yourself or using a broker
5. Negotiate a price with potential buyers. This will be the total price and also the terms of your deal
6. Transfer the assets to the buyer and conversely money to FBA sellers
7. Train the new buyer on how to run the business successfully
Should I Sell or Hold Onto My Business?
This is a perfect question. If you are unsure on whether to sell or hold on to your business, there are some questions you can ask yourself:
- Is managing the Amazon business becoming difficult?
- Do you have something more exciting you are working on?
- Are you looking for the security of more cash in your bank account?
- Would you direct the capital from your previous sale into a new venture?
If you answer yes to more than one question, it might be time to sell your Amazon FBA business. However, if you answered no to all the questions, you should try holding on to your business a bit longer. Nevertheless, ensure your business doesn't decrease its value with every moment.
If you feel your business's profit has dropped, you will need to wait for a while and implement some steps to maximize your sales. In short, to get the best deal for your business, ensure your fix any issues.
Who are my Potential Buyers?
Once you have decided that selling is your best choice, the next step is finding an ideal buyer. The type of buyer you get will depend on your selling price. There are several types of buyers, including:
a). Under $500,000
This price point is mostly composed of private investors who want a better return on their capital and have decided to buy instead of having money sitting in a bank. Their main disadvantage is having a low-risk appetite because they use their own capital. Another disadvantage is the bulk of the product listings getting to a buyer's market.
Most of these buyers are new to Amazon FBA business and want the best price possible in their price range, and this will make them focus more on Amazon businesses with a proprietary product or the ones with their own brand.
b). $500,000 – $1 Million
The price point is a dark hole in the seller's market since very few private buyers are willing to put down this amount of cash, and the price is too low for the private equity groups. That said, it might take a while before one gets a buyer in this price range.
c). $1 Million – $5 Million
This is where the juice is at, as there are plenty of cash buyers here who are searching for you if you have the right business to fit their dreams. In addition, many buyers will want to use the small business administration (SBA) finance which usually goes up to $5 million.
d). $5 Million and Above
Here you will get private equity buyers, family offices and strategic buyers, and these are corporate buyers who want to take on businesses that have proven their models. This means that the brand has identified a problem in the marketplace, created a product to solve the problem, and built products around the demographic.
Where Do I Find a Buyer?
It can be quite exciting to see an audience for your Amazon FBA business, but you will be wondering how you will be able to bag your dream buyer. There are several options to achieve this, and they include:
- Ask other FBA sellers who may be interested in buying
- Advertise with online marketplaces and classified sites like businessforsale.com, Flippa.com or bizbuysell.com
All in all, ensure you use a trusted broker to get a seamless experience.
How Long Will It Take to Sell Your Amazon FBA Business?
The time it wil take to sell your Amazon FBA business will depend on the specific business and the terms of the deal. Generally, for the large deals of over $1M, they will take longer to sell than the smaller deal under $300K because of how complex the business is and the high risk of the buyer.
In addition, it's important to note that if you use a website broker, they will charge 10-15% of the gross sale price to sell your Amazon business depending on the business size. There's an average timeline of how long it will take your Amazon FBA business to sell:
- Less than $100,000 K- 66 days
- Between $100,000 – $500,000- 118 days
- Between $500,000 – $1 million- 151 days
- Between $1 million – $2 million — 128 days
- Between $2 million – $5 million — 146 days
- Over $5 million — 170 days
How Will I Make The Transfer?
After the sale of your Amazon business, the business will depend on the country you are in, but you will also have to notify Amazon of the change and get their approval from the new owner. There are two ways to transfer a reseller account where. One is to transfer the account where Amazon will give the buyer the necessary steps. The other way is to transfer the brand to another Seller Central account as the acquirer may have another large Seller Central account for their Amazon businesses.
How Will I Get Paid?
This is among the most vital parts of FBA sellers, and the best way would be to use an escrow service where money is held until both parties are satisfied with the purchase. Then the money is released to the seller's bank account via a wire transfer.
Selling Your Amazon Business
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