How To Value An Internet Business In 2021
Operating in today’s climate, where e-commerce has reached an all-time high in the marketplace, an online business owner has a greater opportunity to sell their Amazon FBA business for profit. Knowing how much your company is worth goes beyond how much money it makes. Though this is an important marker, learning how to value an internet business is vital if you’re considering selling it.
There are several aspects that come into play that make your online business lucrative to a potential buyer and allow you to outshine your competitors when it comes time to make an e-commerce valuation. At Forum, we look for specific factors when deciding how to value a business. These include:
- An expansive, engaged customer base
- Inventory essential to everyday life
- A majority of sales (70% or more) through Amazon FBA
- Annual net profit of at least $150K
Once these qualifiers are identified and the process moves forward, we offer sellers a closed deal in 45 days or less, a cash out of years’ worth of profits in one day, and entry into the Forum community to help with your next venture.
Understanding the ins and outs of what makes an internet business profitable through the Amazon FBA model and building them into world-class consumer brands is where we excel. Following our model when considering how to value website businesses will help determine if yours is ready to sell.
Acquire an Expansive, Engaged Customer Base
How well do you know your customer base? This includes identifying your target audience and knowing where your products are most popular by region and season. The patterns of your customer base establish you as a stable business and help to better predict cash flow, which adds to the business value.
A key way to strengthen your customer base is through social media. Most Amazon FBA sellers complement their optimization and advertising efforts with social media, often before or instead of building a separate website. Social media is a common and effective way to engage with customers where they are and track their loyalty and interest in your brand and products.
New follower, post engagement, and story engagement insights all provide information that tells you where your customer base is most active, what they engage with most, and their level of satisfaction with your brand and their purchases. Additionally, Amazon FBA sellers that meet the criteria set for Brand Benefit eligibility receive a wide range of reports that will help track, grow, and better understand your customers.
These tools include a demographics report, Amazon search terms report, and repeat purchase behavior report, among others. Using data to drive product growth, advertising, and customer retention allows you to make key decisions about your business. Improving your customer base is one of the best ways to improve your online company’s value.
Offer Products Essential to Everyday Life
A brand that offers products that are universally in demand creates better business value than trendy items that may surge in sales and then drop off over time. While certain categories may have lasting power, individual products may not.
For example, data shows 40 percent of U.S. Amazon shoppers purchased home & kitchen goods in 2020. Other in-demand categories are health & personal care, pet products & accessories, and fitness & wellness . Though there are changing trends within these categories, by and large, these have proven they’re vital to the everyday consumer. What you must determine is how your product offering measures up.
Maintaining a brand that’s focused on selling products in a category that’s useful for the majority of shoppers creates a promising supply and demand long-term. This makes for a more lucrative sale for potential buyers. Sellers must be able to stay current with technology updates, new models, and diversified inventory to sustain customer interest and economic trends. One way to evaluate these changes is to review inventory reports through the seller platform of your Amazon FBA business.
This shows which products have historically sold the best, which have peak seasons, and which may need to be discontinued to make room for more profitable offerings. Keeping your inventory well-stocked and aligned with consumer demand makes for a better operational flow and encourages more sales.
Gain Majority of Sales Through Amazon FBA
Many online brands set up an e-commerce website to sell their products and either shift their business model to an Amazon FBA setup or use a hybrid model that relies on both for sales. Using two platforms to receive sales has its pros and cons, but ultimately it’s best to focus efforts to drive sales to one central place. At Forum, we look for 70 percent or more of sales through Amazon FBA to determine the growth and scalability of your business.
Amazon FBA is already set up to handle logistics, including storing, shipping, and customer service. You also have the ability to set up advertising, branding, and improve optimizations to drive more people to your product pages. There are far fewer technical challenges with Amazon’s tried-and-tested platform than through a customized e-commerce site.
Furthermore, Amazon’s built-in reputation and customer reliance make focusing efforts through the FBA business model strategic for the majority of sales. Plus, you don’t have to maintain a website and calculate revenue and analytics from two places. With multiple reports available through the platform, you can review revenue and customer trends over time. These are helpful when preparing an FBA business valuation of your brand now, in addition to predicting its future potential.
Demonstrate Financial Success Exceeding $150K
When determining how to value a web business, it should come as no surprise that financials are one of the main factors. At Forum, we look for Amazon FBA businesses that demonstrate sales of at least $200K in net profit or SDE in the last year. Having a history of this type of financial success makes your business all the more alluring to potential buyers.
Many require financial records of at least three years to show a trend of profitability rather than a one-time anomaly. However, finances aren’t the only influence when determining the full valuation of a business. It makes a difference, though, if you’re able to show repeated earnings and reduced expenses consistently.
Main Challenges E-Commerce Businesses Face
Putting together an analysis that paints a clear picture of your business’ worth depends on your data's accuracy and context. When either is missing, it can cause you to miss opportunities for business growth and a viable sale.
There are a few challenges to assess if you’re thinking about or learning how to sell FBA business ventures to make sure you’re in the best possible position to receive an offer that’s worth the efforts you’ve put into your business thus far.
High Operational Expenses
The reason why net profit is important is because revenue only tells one part of the story. Understanding your operational expenses is just as important to determine the value of your business. For example, high storage fees, costly marketing efforts with a low return, or a lag in response time to customers can all add up to high operational expenses. These areas can also deter the quality of your products and brands in the eyes of the consumer.
Sellers using the Amazon FBA model can keep track of your metrics all in one place. The platform shows you areas where you’re increasing operational spending, such as storage fees for inventory that’s not selling well, so you can make changes to the business accordingly. Knowing where to cut costs is as beneficial as increasing the number of sales. The more you can do with less overhead, the better valued your company will be.
Unknown Traffic Sources
If analytics are not set up properly through your e-commerce site, unknown traffic sources can make it challenging to determine growth and budget options. Regularly review metrics and/or use the reports available for Amazon FBA sellers to learn how, when, and where your customers are interacting with your brand. Differentiating between direct and advertised traffic sources is part of strategizing your spending and calculating your return on investment.
Lack of Engagement with Audience
Another area that proves challenging for e-commerce businesses is engaging with the target audience. How often do you address customer reviews, complaints, and social media comments? These all make a difference in how fast you’re able to build a stable, reputable brand.
Amazon FBA sellers benefit from the built-in customer service component offered through its portal, which lifts a huge burden off businesses focused on other areas of engagement and growth. Delegation and automation are crucial to scale and reach profits that make it viable to sell.
Is It Time to Sell Your Amazon FBA Business?
When learning how to value an internet business, a business owner must be able to show the growth of their customer base, sustainability of products, and demonstrated financial success. Our team of investors have advised global CPG brands and executed over 30 M&A transactions, as well as managed nine-figure Amazon P&Ls. Together, we can determine if this is the right time to sell your business and what steps you need to take to make it rewarding.
Sources:https://sellercentral.amazon.com/gp/help/external/H2Z5B4HMF5ZXCG2?ref_=sdus_soa_brands_data_lrn&ld=SDUSSOADirect https://www.statista.com/statistics/639155/popular-amazoncom-sales-by-category/ https://www.junglescout.com/blog/amazon-product-categories/