How To Sell FBA Business
There are several options when learning how to sell an Amazon FBA business. First, you’ll want to consider where to sell your Amazon FBA business. These options include working with a buyer directly, partnering with a broker, selling on an online marketplace, or entering an auction. Choosing what’s best for your company depends on how quickly you want to sell and how much you’ve calculated your company is worth.
Whatever avenue you choose, you’ll need to match the buyer’s criteria and establish the worth of your Amazon business. Both will help you determine whether it’s a good time for you to sell and will help you understand the value of your Amazon store before entering the buyer market.
In general, buyers look at the history of your financial growth and also future potential. An Amazon FBA business that has been on the decline over the past few years won’t appear as viable in the eyes of a buyer or receive as lucrative of an offer as those that are in a better competitive space.
In order to sell your company at the best time, you should know your company's valuation and be prepared for possible challenges that may arise.
This preparation requires a deep dive into your finances and operational processes. Once you have everything in place and have assessed what your company is worth, you can move forward.
Calculating Your Amazon FBA Business Valuation
Before you negotiate a deal, you’ll want to know how much your business is worth. Once you've researched and assessed the numbers around your ecommerce business, you'll have a better idea of what offer a potential buyer will extend.
A few key factors to consider when learning how to calculate your FBA business valuation include net profit, sustainability, technical barriers, brand recognition, and diversification. The strength of your business in these categories will help you decide if it’s the right time to sell.
Why are third-party sellers winning?
Knowing how much money your business makes is different than how much your business is worth. There are several factors buyers consider to estimate its worth, which you can start to uncover on your own. The first is calculating SDE (net profit). Though your business may generate thousands of dollars in revenue, does it cost nearly the same to maintain it?
Deduct expenses such as Amazon referral fees, FBA fulfillment fees, FBA storage costs, and advertising costs from your total revenue to reach your net profit. Calculate this on a monthly basis and look for ways to improve Amazon sales during slower cycles to boost your annual total. Buyers will look at competitor businesses as a reference to compare revenue and predicted longevity of a brand, which leads to the second valuation factor: sustainability.
Buyers are interested in businesses that demonstrate a history of financial success year after year. When there’s a consistent pattern of growth, it’s more favorable than a company that may have ridden the wave of a product trend but has since died out. Potential buyers will do product research around your Amazon store to assess the potential longevity of your ecommerce business. This kind of research is essential because the success of your FBA account is not only determined by its value in the past and present but also its viability in the future.
For example, an Amazon store with product listings needed for everyday use, such as baby products, home & kitchen, pet products, or sports & outdoors are seen as more sustainable. Simply put, if the majority of consumers require your products as part of their lifestyle, the demand will always be there, making your online business more attractive to buyers.
Being successful right out of the gate isn’t uncommon, but it’s not necessarily a certainty for success in the future. The age of a company adds to its worth because it shows an ability to adapt to changes in the economy and buyer trends. Plus, there’s enough data available that can support consistent success.
Another factor in determining FBA business valuation is the number of channels. Not all Amazon FBA businesses rely on just the Amazon sales to make a profit. Some business owners may have their own unique site or use other third-party platforms as sources of their income. At Forum, for example, we look for businesses that generate 70 percent or more of their revenue from the Amazon FBA platform. But, that doesn't mean the other revenue streams aren't an important factor to consider.
When it comes time to sell your business, buyers want to know how easily these other revenue sources can be transferred to a new owner. Having multiple sources that sell your products takes time and coordination which will be inherited by the buyer. It may also result in technical challenges when maintaining a separate website and tracking parameters to manage and measure the success of the business.
The more complex the business model, the riskier it is to transfer it to a buyer who has to factor in contingencies. For example, a website that’s hard-coded can be difficult to update if new developers are working on the site. Additionally, building a website is not a true one-time cost, ongoing site maintenance like optimization and fixing broken links or widgets is a continual cost and requires full-time monitoring. These technical barriers can be a deterrent for buyers that may not want to assume the risk. So make sure you take this into account and try to create a talk track solution before meeting with a potential buyer.
Finally, as an Amazon FBA seller, you may be wondering how difficult the transition process is for a seller account. Luckily, there are fewer technical barriers to this process since there isn’t any irreversible customization involved on the Amazon platform.
Buyers are drawn to businesses that have built a strong brand and loyal customer following. They’ll want to know your customer’s typical buying cycle, how often they reorder, and the cost to acquire new customers. Engaged customers mean there’s a greater likelihood they’ll automatically buy into product expansion and share their love for the brand with others.
Brand metrics are part of the valuation equation because it’s a predictor of future sales. These metrics may include:
- How many people are actively engaged on your social media?
- Which products sell the best?
- How well is your brand reviewed online?
- Are there areas for new growth opportunities?
Amazon Brand Analytics offer different reports, such as the Search Terms Report, Repeat Purchase Behavior Report, and Market Basket Analysis Report, which allow you to review customer behavior and drive your marketing decisions to better target your audience and provide them the products they want to see. These metrics will be important to potential buyers as they give hard metrics around the brand's long term viability.
Diversification of products creates more certainty in sales versus relying on a single product to generate revenue.
The same theory applies with traffic sources. In addition to improving search traffic to your product pages through optimization, you may have broadened your scope through paid traffic as well. Spreading out and regularly maintaining multiple marketing efforts keeps you competitive.
Evaluating and improving upon these factors are all ways to improve your company’s worth and make it more alluring in the eyes of a buyer. Knowing your place in these areas will help you decide the right time to sell. If you conclude there’s room for improvement, make any necessary changes before taking the next step.
Know Your Valuation Data
Keeping your financial and operational documents organized and reviewing regular reports that demonstrate growth will be crucial when it comes time to sell your FBA business. If your company has a proven track record of financial success and you've reviewed the valuation factors, it may be time to move forward with selling.
Working with a buyer directly is one of many options when getting ready to sell. Alternatives include working with a broker, selling on an online marketplace, or entering an auction. Choosing what’s best for your company depends on how quickly you want to sell and how much you’ve calculated your company is worth.
Finally, it’s best to set expectations before going into selling mode. You’ll have an immeasurable connection to your business that can’t be translated into the hard data of the valuation process. However, the more data you have to show what your company is worth, the better chance you have at receiving an offer that you feel is worthy of what you’ve built.
The Right Time to Sell Your FBA Business
At Forum, the process of how to sell FBA business is straightforward. It starts with learning about the history of your online business and Amazon seller journey in a short consultation. Next, we ask for basic company information. If your business fits our model, we’ll evaluate your company and financial information and prepare an initial offer, typically within 48 hours.
We look for businesses that have achieved the financial success of at least $200K net profit in the last year and have gained 70 percent or more of their sales through Amazon FBA. We also look for sellers who have built a strong and reputable brand with differentiated products that will be in demand for years to come.
Our acquisition process involves a closed deal in 45 days or less and the opportunity to pursue new ventures with the support of our community. Upon acceptance of offer terms, our team moves forward to finalize details and create an integration plan which can be accomplished within a few short weeks.
The final step is the cashout, a reward for all the hard work you've put into your Amazon business. We make the process as timely and efficient as possible with a clear transition plan.
As a business owner, it's important to arm yourself with as much data as possible before entering the selling market. Whether you decide to go with a broker, auction, marketplace, or sell directly, understanding the valuation metrics and the process will help you get the best outcome for all your hard work.