While we often discuss sellers starting on Amazon, what about multi-million-dollar Amazon businesses ready to cash out?
It is not uncommon for entrepreneurs to consider selling their business as they grow.
Buying a third-party Amazon business makes you wonder why anyone would start selling on Amazon? Achieving financial freedom or becoming your own boss is a reasonable goal for third-party sellers.
It’s a win-win situation if you can build a business that benefits both you and your family. And a profit on the way out is a bonus.
If you own a profitable Amazon company and consider selling, keep reading to learn why, how, and where to find buyers.
Building a brand, cultivating positive reviews, and achieving consistent daily sales will take years while maintaining a profitable margin. You have made something valuable.
Even on Amazon, launching a new business is challenging. But many sellers handle all aspects of starting a business on their own, from product research to logistics and seller support.
You may consider selling your business to retire early, invest in another company, or make big financial decisions like buying real estate and removing the stress of meeting customer expectations on Amazon. Selling your brand can provide freedom from daily tasks and allow you to enjoy the fruits of your labour.
Then there’s the money. A buyer will pay 2 to 5 times your annual profit for an Amazon business over a year.
Assume your company makes $350,000 net profit per year (before taxes.) If you sell at 2.5x EBITDA, your company may be worth $875,000 or more! Keeping your business would take at least 2.5 years to make the same amount.
Overall, a good payday. A variety of factors determines your company’s value.
Before selling your company, you should assess its marketability using a few reliable metrics:
A lot of money doesn’t mean a lot of sales. Before making an offer on your home, buyers will consider other factors.
To a potential buyer, a company’s longevity makes it more appealing. If you’ve only been selling for a year, you may appear riskier to a buyer. Buyers want to know that customers trust your brand and that your products will perform well on Amazon. It takes time for positive reviews and Amazon rankings to build up.
When can a buyer make a profit on their investment? They can better forecast future earnings when they have years of sales data.
For example, a five-month-old Amazon business with a $1 million revenue may not be valued as highly as one with two years. Both are considered long-term assets by buyers, but the former is too young to make reliable projections.
Investors want to buy a well-oiled machine that can run with or without you. A business runs profitably by existing employees, or virtual assistants are more valuable than one run solely by the owner. (i.e., a company that requires only 5 hours of maintenance per week versus 40 hours per week.)
When selling on Amazon, you have options like private label, wholesale, retail arbitrage, and drop shipping.
Prospective buyers find private labels the most appealing third-party business. This business model is superior to reselling because you own the brand and its assets.
You are a reseller if you buy products from other brands and resell them for a profit. These businesses are valuable to a buyer but not as appealing. You don’t own the brand, manage product development, or control the supply chain, so the buyer has control.
Because you can’t always control the competition on Amazon, reselling can be risky. Without an exclusive resale agreement, your business’s performance can be unpredictable.
This one should be obvious. An increase in monthly revenue increases a company’s value to a buyer. Buyers want year-round sales. Your company isn’t worth buying if your best month is December but your other 11 months are flat.
The next step is to value your Amazon business. The most important factors are 12 months of net profit, and the multiple applied to it.
As stated previously, the average multiple is 2.5-4.5 times annual net profit. The higher your company’s profit margin, the higher your multiple. The multiple depends on your product categories, SKU count, supply chain, and business age.
Ecom Brokers can help you estimate your business’s value based on factors like revenue, monthly profit, age, and labour hours. We’ve built, scaled, and sold businesses.
They are knowledgeable and experienced brokers who will get you the best deals at a fair price.
We’ve all heard how profitable Amazon can be, and investors want in. Many large companies are looking to buy profitable Amazon businesses. One of those companies, Thrasio, has raised over $1 billion to buy Amazon businesses.
Ecom Brokers can ensure the security of your business for sale. They can connect you with potential Amazon buyers or investment firms.
For potential buyers of your company, sales and profits are not the deciding factors. Having the right processes in place will increase your company’s appeal.
Keep accurate and organised books to present your company’s actual image to potential buyers. You want proof that the business is running smoothly and that it is worth spending your money.
A company’s profitability depends on keeping track of its expenses. Buyers will ask for monthly revenue, cost of goods sold, price of products, and advertising and storage costs.
Examine your product listings for errors. Reviews are an essential part of a product’s marketing strategy.
In the event of a supplier failure or low-quality product delivery, your company is effectively dead. It’s critical to build trust with a supplier who can deliver on time and consistently produce high-quality products.
Having more products makes you more appealing to buyers. Because all risks are concentrated in one or two products, brands with only one or two products may not appeal to buyers. If you sell multiple SKUs, the risk is spread across your entire brand.
Selling on Amazon or other marketplaces? Selling on additional marketplaces such as Shopify, Walmart, eBay, your ecommerce storefront, or even international Amazon marketplaces may increase the value of your Amazon business.
Outsourcing is a great way to free up time and run a hands-off Amazon business. Hiring virtual assistants or freelancers to help you run your business will make you more appealing to buyers.
Building a profitable Amazon business isn’t easy. Entrepreneurship requires a lot of hard work, dedication, and guts. Perhaps you’ve worked hard for years to build your Amazon business to its full potential. But maybe it’s time to think about an exit?