Okay, so you’ve decided that now is the time to sell your Amazon FBA business.
First of all – congrats for getting to this point!
Secondly, you’re probably wondering whether or not your Amazon FBA business is even saleable. And if it is, how much can you get for it?
More importantly, if it isn’t saleable – how can you make it saleable?
We’ll take a look at all of these things, but the primary focus of this article is on how to make your Amazon FBA business saleable.
Because – yes – your business can be sold. But only if it’s attractive to the right buyers. Let’s find out how you make this happen.
First things first, let’s consider what type of Amazon FBA business you have.
This is important because there are, of course, different types. And while some are really appealing to buyers and have high values, others are quite the opposite. This is simply because some types have more marketplace advantages,
In the main, there are 3 types of Amazon FBA businesses:
Resellers are everywhere on Amazon. Why? Because it’s pretty damn easy to be one!
You buy products wholesale and resell them on Amazon, trying as best you can to a) create a profit margin and b) outmuscle the competition.
The reason resellers aren’t very attractive to buyers is because, well, anyone can be one! This means the competition is practically infinite while supply can be an issue. And when supply is an issue, resellers sometimes find themselves reselling anything they can manage to get their hands on.
Private labels on Amazon FBA are more attractive to potential buyers than resellers because they have more control over their business. They sell existing products created by others, but they sell them under their own brand name. This allows them to build an actual brand and make a proper, lasting connection with their customers.
Not just that, but private label FBA businesses can also develop a relationship with their suppliers, which gives their business more solidity.
Amazon FBA businesses that sell proprietary products are the most attractive type of business of all!
Because they’re the only ones who are selling a specific product. This means there is no competition.
The reason they are the only ones selling a specific product is because it’s theirs. It cannot be sold anywhere else. This means they tend to have a dedicated, loyal customer base.
Proprietary businesses will fetch more value and thus sell for a bigger price than any other type of FBA business. However, they’re harder to start simply because they’re suited predominantly to those who have the creativity and skill to create their own products.
Once you’ve determined what kind of Amazon FBA business you’ve got, the next step is to take a look at the factors that directly influence its valuation.
It goes without saying that ‘young pups’ sell a lot less than businesses that have been around for a few years already.
The reasons for this are simple. If a business is a few years old, it will already demonstrate clear evidence of success. It will also have more data and details that can be shared with potential buyers, and the potential buyers will be able to see its growth potential.
If, on the other hand, your Amazon FBA business is less than a year old, it will have none of these things. Thus, any potential buyers will be less inclined to buy it.
“Okay, my business is a year old. Now, what do I do?”
If your business is just a year old, now is not the right time to sell it. The best thing to do would be to give it at least another year, during which time you can bump up its sales volume, increase its revenue and demonstrate growth potential.
On the other hand, if you’ve been running your FBA business successful for the last two years already, now might be a good time to sell.
And if you’ve been running your business for more than three years, that’s even better. As long as it’s raking in a consistent flow of sales and has growth potential (and good revenue), your business should be very attractive in the eyes of potential buyers.
If you’re planning to sell your FBA business, you must have already kept records of your annual net profit.
This is your EBITDA, and it comes after multiple business expenses.
EBITDA (earnings before interest, tax, depreciation and amortisation) are taken away from your gross total income to give you your FBA’s net profit.
However, EBITDA is only used if your revenue is over $10,000,000+. If it’s below that, you should work out your annual net profit using the SDE formula.
SDE (or Seller Discretionary Earnings) can be determined by subtracting operating expenses/costs of goods sold + owner compensation from your revenue.
What businesses expenses might you have to include in your calculations? The most common ones include:
As long as you keep track of your yearly expenses, you’ll be able to accurately gauge your annual net profit. This will help to make your Amazon FBA business more saleable.
Once you’ve calculated your SDE, you can then devise a multiple. This will go a long way to determining how much your business is worth. The multiple is determined by taking into account factors that relate to your businesses potential for growth, its transferability, and its sustainability.
Then, you apply the multiple to your annual net profit.
Most FBA businesses find that their multiple is somewhere between 2-3x. Older businesses typically have higher multiples than younger ones, and they even have multiples higher than 3x. If, on the other hand, your business has been around for less than a year, you might find that your multiple is 2x – or less.
Okay, so let’s imagine that your Amazon FBA business has been ticking over nicely – but that there’s still work to be done in order to make it saleable. As we’ve already seen, not every FBA business is saleable as things stand. There is often work to be done, and what you need to do is prove to potential buyers that your business is both strong and sustainable.
Here are some things you can do to make your Amazon FBA business more saleable:
One of the reasons an FBA business could be classed as sustainable is because they’re selling a variety of products.
Of course, it’s not as simple as just selling more products. If you sell a variety of products but rely on just one of them for 90% of your revenue, you’re not really a multiple-product seller.
Instead, what you want to do is take advantage of different niches and good-selling products. As much as you can, you also want to find trends and gaps in the market.
Diversifying your product offerings will also ensure you’re not at the mercy of other sellers coming along and grabbing the lion share of the market for the sole product you’re selling.
It’s also worth mentioning that, when you do search for new products to sell, you don’t get tied down by those that fluctuate in price often. This will only make potential buyers nervous. Ideally, you want to find and sell products that sell consistently throughout the year (as opposed to being a seasonal product). Moreover, you also want to avoid products that experience regular extreme price changes.
The way to do all this is via diligent product research.
Another thing that makes your business infinitely more attractive (and therefore saleable) in the eyes of potential buyers is if you’re already working with good suppliers with whom you’ve formed strong, stable relationships. This is attractive to buyers because it shows them that your stock inventory and flow is stable, and they won’t have to spend time and resources overhauling it.
On the flip side, if you’re working with multiple suppliers, this can reflect badly on you. A potential buyer doesn’t want to be overwhelmed by the hassle caused by negotiating various contracts and distribution schemes.
Moreover, working with dozens of suppliers automatically suggests that some of them will be less reliable than others.
Another thing that will instantly make your business more saleable is automation.
Automation is when you leverage technology to put in place systems that essentially reduce your involvement in the day to day running of your business. You’re still the owner, but you’re no longer needed as much.
This is super attractive to buyers because it means that they can just take over your business and – to all extents and purposes – continue to let it run itself. As an already well-oiled machine, it won’t demand too much work from them. And this is exactly what potential buyers want. After all, they’re not looking for a full-time job here.
If you haven’t automated your business processes yet, there are all kinds of tasks that can (and should) be automated. These include your website traffic, inventory management, customer support, social media marketing campaigns and more.
In a nutshell, defensibility is when you make moves to protect your brand from rivals muscling in on your patch (selling products on your listing).
When you protect your brand, you defend it. You put a moat around it – and this 100% makes your FBA business more saleable than a business that’s vulnerable to market forces.
See, it’s really important that you do all you can to protect your brand as much as possible. Remember, there are lots of competitors out there on Amazon and not enough products to go around.
To further enhance the defensibility of your Amazon FBA business, you could level up your customer service and – if possible – sell proprietary products (see above).
How do we raise awareness of our online FBA business?
Most of us raise awareness of it via advertising and marketing.
If you’ve put in place a strong advertising and marketing strategy that’s clearly driving traffic and therefore results, you will be able to demonstrate to potential buyers that your business is saleable.
What’s really important here, though, is that you’re able to show through data and analytics that your campaigns are actually working. This means that the money you’re putting in is directly leading to conversions that are giving you more bang for your buck.
If you can do this, it shows any potential buyer that you’ve got a surefire pathway to more sales. Moreover, good marketing also demonstrates that you’ve been able to build a strong and consistent relationship with your audience/customers.
Lots of Amazon merchants are the same as you: They’ve launched an FBA business, tried to make it profitable – and then they want to sell it.
To sum up, not every single business will be saleable. But if you use the advice in this article and do what is needed to not only make your business more attractive to buyers, but to also make it more valuable, you’ll be able to sell it – and you’ll also be able to sell it at a price that you’re happy with.
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