Have you built a successful Amazon FBA business and are looking to make a colossal exit?
Amazon FBA has become a flagship for online entrepreneurs around the world to make a great income while maintaining an excellent work-to-life ratio.
These businesses are fantastic investment opportunities for buyers and sellers because the demand for these types of assets has continued to grow.
By the end of this article, you are going to know everything you need to know about scaling an Amazon FBA business.
These assets are not only great additions to any investment portfolio, but they also do amazing stand-alone businesses with low maintenance, once things have been set up on the backend.
Buyers are looking for profitable Amazon FBA businesses to add to their portfolio based on how easily the business model can be integrated with other assets.
Whether a buyer has an assortment of content sites and is looking to add their own products to the mix, or is an affiliate site owner looking to gain better margins with FBA product listings.
Well optimized FBA businesses are always in high demand because of how simple they can be to manage and integrate into almost any other online monetization.
If you’ve been growing an Amazon FBA business and are interested in learning how you can get the best possible offer when you’re ready to exit, this article is for you.
Because many online entrepreneurs in this space are still very new to the fact that they could sell their FBA business for a huge capital gain, we’ll first cover how FBA businesses are valued.
How to Determine the Value of Your Amazon FBA Business
When it comes to growing an Amazon FBA business from the ground up, you may be unaware that investors would be willing to buy your business.
If this is a new concept to you, and you’re interested in learning how much your business is worth, this simple formula will give you a basic idea:
Sales Price = 6–12 Months’ Average Net Profit x Multiple (Typically 20–60+)
Net monthly profit is usually determined by looking at the average of 6 to 12 months’ revenue and subtracting any costs (cost of goods, marketing/advertising, hosting, virtual assistants, content, etc.).
Here are some of the factors that determine what your listing multiple will be:
- How long the business, site, or platform has been around
- The amount of new and existing traffic you receive
- Conversion rates
- The size of your email list (if you have one)
- The margins for your most profitable products or services
- Any graphic designs or downloadable and printable assets included with the business
In some instances, such as if your Amazon FBA business is seasonal or has been around for more than a couple of years, we’ll use a 12-month average to reflect seasonality.
Businesses that haven’t been around long enough to accumulate average earnings over one year will use a monthly multiple instead.
That’s why a $2,000-a-month Amazon FBA business that is five-years-old could demand a larger multiple than an eight-month-old FBA business earning $2,000 per month in net profit.
This is because an older business can use averages calculated over a longer period (a 12-month average, for example), and will have more data to support its ability to continue earning.
Obviously, how old the business is and the amount of profit it earns are extremely important for a final valuation.
But, if you’re looking to gain the best possible outcome from your exit, there are other things that you can improve to make your FBA business more valuable.
In the image below, you can see just how valuable some of these Amazon FBA businesses can become.
It’s a powerful business model.
Let’s move onto some tips to help you build up your Amazon FBA business.
Our Top 3 Tips for Building an FBA Business that Buyers Want
Because so many FBA owners start with some experience in traditional commerce, we wanted to highlight a few tips on how you can earn more from your FBA exit.
As mentioned above, the biggest factor when determining your valuation is the business age and its average monthly net profits.
In addition to these numbers, we wanted to give you a few tips on other ways you can move the multiple needles in your favor.
Tip #1: Use Third-Party Services for Quality Control
Using a third-party logistics service (3PL) to handle packaging, labelling, and quality control before your items ship to Amazon’s warehouse will give buyers peace of mind.
If your goal is to one-day exit your business for a huge capital gain, buyers are not going to be knocking on your door with listing price offers if you handle these tasks out of your garage.
This would be a huge red flag for potential investors as these types of buyers are often looking for a more passive asset, not a full-time job.
When it comes to demanding a higher multiple, the phrase, ‘less is more,’ is a valuable trait to have within your exit strategy.
The more automated systems you have in place that make the migration of your business easy, the more buyers would be willing to offer.
When your operations are less hands-on, you present an opportunity that buyers are willing to start bidding wars over.
Setting up a quality control check through sources outside of Amazon will provide a safety net, many FBA owners look past when preparing for an exit.
Having these services running on the backend will give you more time to focus on building a real brand for the quality products you provide.
Tip #2: Don’t Just Sell Products, Build a Brand
Building a brand name for a group of products you’re already selling is a great way to increase the value of your FBA business.
Establishing a brand voice and something that your traffic can relate to builds trust and ultimately the confidence to purchase your future products.
By establishing a brand, you also open many doors you otherwise would have no access to.
Marketing tools, such as the ability to build a website and grow an email list, strengthen your brand and broaden your network.
Establishing a niche presence outside of Amazon’s platform is a great way to gain more traffic you would otherwise have missed out on.
Tip #3: Keep Your Documents in Order
Make sure that you have accurate profit and loss (P&L) statements and that all of your business documentation is in order.
This is the first step in our vetting process, and it’ll be used to determine if your business qualifies for our marketplace.
Having your business details ready to present to potential buyers will be required whether you decide to sell the asset privately or through a brokerage, so it’s important to have this information logged right from the start.
Oftentimes, many high net-worth investors will look for acquisitions with clear details and steady growth metrics that fit within their return on investment (ROI) goals.
If your documents are not well organized, you could lose out on huge money from buyers looking to acquire exactly what you’ve been working on for the past year.
When you take the private acquisition route, you’ll need to be even more diligent in how you present your FBA details to potential buyers.
One bonus of using a broker to handle this process is you’ll have a dedicated marketing team to promote your offer to active buyers in a professional manner.
So, When Should You Sell Your FBA Business?
With the holiday season quickly approaching and 2020 almost over in the blink of an eye, you might be wondering if now is the best time to sell your Amazon FBA business.
Usually, Amazon FBA businesses experience an uptick in sales during the holiday season, and this can be a great chance to log some profitable months.
If that’s the case, you might be wondering why anyone would bother selling their cash flowing asset when holiday sales are so great.
The short answer: It all depends on what your business goals are.
Buyers looking at your offer will be highly motivated to acquire the business prior to this influx of sales to reap the benefits.
As the seller, you can demand a higher multiple and present the growth opportunity with proof from the previous season’s numbers.
Listing an Amazon FBA business for sale before the holidays, in return, can lead to a faster deal being made that benefits both parties.
While there may be plenty of reasons that could influence your decision to sell your business (like one couple who used an FBA exit to help build their retirement fund), following the tips in this guide will ensure that you gear your business model towards something buyers want.
Selling your FBA business can give you a huge payout and jumpstart to your future business goals.
For some people, building these assets and selling them once they start making consistent income represents a complete career change.
Whether you happen to be building a small portfolio of Amazon FBA products, or have a couple of brands under one company umbrella, you’ll be sure to find a buyer on our marketplace who is interested in purchasing your profitable FBA business.
Author: Branden Schmidt (Content Specialist @ Empire Flippers)
Branden is part of the marketing team at Empire Flippers. Originally from Los Angeles, California, he’s spent the last decade travelling around the West Coast and different parts of Asia. After his service in the US Navy, he started his online career listening to the Empire Flippers podcast and has taken the skills he learned over the years to build a foundation in his digital journey.