Are you looking for ways to grow your Amazon FBA business in hopes of selling it for a huge financial gain? Well, we help Amazon FBA sellers achieve that goal every day, and we wanted to give you some tips on how you can do the same.
As the Amazon FBA industry continues to grow, we are seeing more people build high-quality businesses using this platform. The industry has reached a new level of maturity and stability, and as a result, buyers are more interested in these types of investment opportunities now than ever before.
FBA businesses offer amazing, strategic buys for investors. They are also incredible stand-alone businesses that typically have minimal maintenance once things are up and running, making them even more lucrative. Just a few years ago, there wasn’t much buzz about this business model because there just weren’t many people who were building these types of assets. Today, however, with the vast network of tutorials, SaaS, and tools that have helped entrepreneurs branch out into this business model, more opportunities are presenting themselves, as these businesses have now started to mature.
For those interested in selling their Amazon FBA business for six figures or more, pay attention to this post for some tips on how to sell for the maximum value possible.
How do Amazon FBA Valuations Work?
Obtaining a business valuation is just the starting point of the sales process for Amazon FBA owners looking to make a profitable exit. Even if you are not ready to list your FBA business for sale anytime soon, you should at least consider getting a valuation done to give you an idea of how far your business currently is from your exit goals.
We recommend that all Amazon FBA owners determine the value of their business once they have built up a year of profitability, and at regular intervals thereafter. This will help you keep an impartial valuation of where your business is now in relation to similar assets currently on the market.
Understanding how valuations are calculated will also help you improve your business. The general valuation formula we use is as follows:
sales price = monthly net profit × multiple + discounted assets (if any) + wholesale inventory (if any).
Net profits are determined by taking the revenue from a period of six to 12 months and subtracting any costs (costs of goods, marketing spend, trademarks, hosting, etc.). If your business is seasonal, we’ll try to use a 12-month average to account for this. If your business is showing signs of recent growth or decline, we will use a shorter pricing period to reflect this more accurately.
What Determines Your Multiple?
Your Amazon FBA multiple will be dependent on a few different factors. These include your FBA business’s 1) age, 2) social media following, 3) number of email subscribers, and 4) traffic diversity.
Your multiple is what the net profit will be multiplied against to determine the actual price of your business. Some brokers will use yearly multiples, like a 2x or a 3x, with the same multiple in monthly terms being 24x or 36x.
Because some Amazon FBA businesses have not been around long enough to accurately reflect their average earnings over a year, they will often use a monthly multiple. The longer your FBA business has been around, the better your multiple will be. The reason for this is that older businesses can use averages calculated over a longer period (usually a 12-month average) and have more data to support their stability, which is a huge factor in increasing their multiples.
Clearly, the time your business has been around and the amount of net profits you earn are vital to increasing your valuation, but what else can you do to increase your multiple?
1. Use a Third Party for Quality Control
When you are planning to sell your FBA business, the first thing you should be looking at is how to minimize the workload the new owner will have to take over. Many Amazon FBA sellers actually have their products sent to them personally to be packed before they are sent off to their desired fulfillment warehouse.
This is a huge red flag for someone who wants to get that six-figure exit.
Sure, having someone else do quality control for you is an added expense, but someone looking to buy an Amazon FBA business is not interested in sitting in their garage all day packaging products. FBA buyers are looking for an asset they can grow—one that typically requires minimal sweat equity on their part.
As the workforce continues to become more remote, a potential buyer might not even have a home to work out of, let alone a dedicated garage to store product inventory. These buyers might be digital nomads working from a coworking space in a new country every other month. In this case, packaging all their own products for a newly acquired Amazon FBA business is definitely out of the question. If you are doing this task on your own, consider sourcing help from a 3PL service provider to ease the transition to the new owner. Having a service, like a fulfilment center, setup prior to listing your business for sale not only gives you added quality control over trusting Amazon alone, but it will also help you demand a higher multiple and therefore ensure that systems are in place for a new owner no matter where they might be in the world.
2. Diversify your Products
If you’ve been selling on Amazon for some time now and only have one product, SKU, you may want to consider adding more to your product line. Having only one product with one main supplier that only sells in one market is not exactly something investors are going to be gunning for. Instead, try to diversify your product line with multiple SKUs, each of them with multiple suppliers. These suppliers should be used to help manage your growth and allow you to expand into markets outside of the US.
Setting up multiple products and selling in different markets will ensure that the business will be stable and that your asset will remain steady should an issue arise. Amazon FBA buyers are usually looking for a business with multiple products—products that can be diversified with variations in size and color. Having this product diversification will not only keep you from placing all of your eggs in one basket, but it will also be a huge selling point in getting you closer to that six-figure exit when the time comes to list the business.
3. Create a Brand
Well, yes and no. Building a brand for a group of related SKUs isn’t a bad idea, and many FBA owners have had great success in doing so. The benefit of establishing a brand for your products is that you can create your own website, build an email list that you can then monetize, and so much more. Creating a brand for your products will also help you set yourself apart from other vendors who might be selling a similar product within your niche.
One thing you should pay close attention to is how much effort will be needed to establish a trademark and brand for your products. For instance, if your products happen to be in the medical field, you may have a much harder time establishing a brand; therefore, your brainpower might be better spent on researching new SKUs to add to your growing list of products.
Sure, the extra safety gained through creating an umbrella brand for your products does make your business more valuable, but remember: This will be a more long-term goal for most. When you branch out into other channels away from Amazon’s platform, you should be prepared to take on more marketing, advertising, and general business tasks doing so. For immediate results, focus on researching more products to add to your Amazon listings. When looking to make that six-figure exit down the road, establishing a business brand will set you apart from the competition and give buyers something more than just an easy-to-duplicate list of products.
4. Document your SOPs and Train your Team Members
This is one of the biggest factors that can help you reach your business goals and acquire the most from your Amazon FBA asset when you exit. Aside from the obvious figures of revenue and business age, SOPs and trained team members should document every task required to manage your FBA business. You should document these processes to the point that if you were to hire someone with zero experience, they could easily come in and perform the same operations with little supervision. Think of this process as building an engine with a series of cogs and belts that need to be in full working order to make the engine run.
Documenting all your standard operating procedures is your way of creating the manual for how your engine should run. Once created, anyone can come in and make the engine run smoothly and efficiently.
Another factor to getting closer to the six-figure exit goal is having one—or a team—of employees or contractors who can work on your business to keep your time spent on the asset to a minimum. Like using a 3PL service to handle packaging and shipping operations, your trained team of VAs or outsourced help is an added bonus to a buyer who knows they will not be the one physically managing and running every aspect of the business.
Buyers will usually want to keep any trained VAs or employees you have to expand the business further. This is much more difficult when you as the seller perform these tasks all on your own. A trained VA or employee is very valuable to a buyer, especially one who wants to offload business operations to focus more on scaling the business.
So When is the Selling Season?
You may now be wondering about seasonality, because let’s face it—almost every Amazon FBA business has a large boost in sales during the holiday season. This fact might have you undecided as to whether you should sell your Amazon FBA business now or wait until after the holiday season to gain all that positive revenue data.
Well, the answer you are seeking really depends on your business goals.
For seasonal businesses, the earnings will need to be documented over a longer period to gain a better perspective on the overall revenue both before and during the holiday season. As a result, you may not impact your multiple much waiting it out and selling after the busy holiday season. On one hand, if your business is still relatively new, you may want to wait until after the holidays to show potential buyers what your income numbers are capable of. On the other hand, selling before the busy season can be used as a negotiation strategy from a sales perspective.
The new buyers will want to make the deal happen sooner rather than later, knowing that they can benefit from the holiday uptick in revenue right out of the gate without having to wait around during the “normal” months for this season to come around. Listing your Amazon FBA business for sale before the holiday can lead to a deal being made more quickly due to the time pressure on the buyer.
There are plenty of reasons why someone would want to sell their Amazon FBA business (for example, one couple sold their business on our marketplace to fund their retirement). The reasons detailed in the post are motivating most sellers to find a profitable exit for themselves.
Selling your Amazon FBA business can be a rewarding payday—in fact, for most, it will be the largest capital gain they ever receive in their lifetime.
Whether this is your first digital asset or you happen to be a sequential entrepreneur with a portfolio full of online assets already, you can see what your business is worth today compared to similar businesses in our marketplace. Having an idea where your FBA business stands on the market using our valuation tool will give you the insight you need to improve one aspect of your business or another. Updating your FBA business model using the tips we have covered in this post will not only help you increase your net profits, but it will also give you the upper hand in optimizing your business to reach that six-figure exit goal faster.