So, you want to sell your Amazon FBA business successfully? Well, you're in luck because we're here to talk about all you need to know to do just that. So, what are some of the questions you need to answer to sell your FBA business ? We'll look into that in just a moment. However, before we dive right in, let's disclose the fact that you may not always be able to sell your Amazon FBA business.
Looking to Sell Your FBA Business?
While we don't offer any brokering services, we recommend Thrasio. We have heard only good things from people who sold their business to them. They are known to move quick and have closed deals in under 5 days.
Why? Because the success of your Amazon FBA business sale is contingent on a few factors. These factors make it easier or harder to get your dream buyer for your Amazon FBA business for sale. That is why today, we're going to prepare you to score your ideal buyer and have a successful sale of your Fulfillment by Amazon (FBA) business.
Some of the questions we'll be answering include:
- Can I sell my Amazon FBA business?
- What is my business worth?
- How can I increase the worth of my business?
- Should I sell or hold onto my business?
- Who is my buyer?
- How do I find a buyer?
- How long does it take to sell my business?
- How do I make the transfer?
- How do I get paid?
Please note that for you to join the league of people who've successfully found their dream buyer for their Amazon FBA businesses for sale, you'll need to keep one thing in mind. You must always consider the perspective of the buyer. Without putting yourself in their shoes, your Amazon business for sale could sit on the listings for months.
Let's dive right into the good stuff.
Can I Sell My Amazon FBA Business?
Several factors determine the answer to this question, and each plays a vital role when determining saleability. Let's look at them in detail.
1. The Type of Your Business
We're going further to break down this point into three different sub-points. Each sub-point represents the type of business category your business for sale may fall under.
As a reseller, you compete for the buy box. This means that you buy your products wholesale and then sell them on Amazon as retail. When it comes to selling Amazon FBA businesses, this type of business may be hard to impossible to sell although you may be making a great profit. Some of the reasons why this is the case include:
- Highly volatile - The competition in this category is limitless.
- Problem with supply - Although you're buying wholesale, there is no guarantee that the items will always be available on sale.
- Nothing is proprietary - The buyer is actually only buying access to your Seller Central Account on Amazon.
b) Private Label
In this FBA business style, you have your own brand and full control over everything about the product. This Amazon FBA business type is more attractive to buyers than our previous one because supply is consistent and the items have a history. This means that there is a higher chance that the product will continue to sell.
c) Proprietary Products
If there were a gold medal to be won by Amazon DBA businesses for sale, this would take the prize. In this case, only your company sells the product, and therefore, buyers will pay a premium to get it.
The second factor that determines sellability is the age of your Amazon FBA business. The buyer is most concerned about how long it will take to make their investment back, and therefore, they will be looking at the history of your earnings.
3. SDE/EBITDA (Annual net profit)
Finally,, we have the Seller's Discretionary Earnings (SDE) and the earnings before interest, taxes, depreciation, and amortization (EBITDA). As an Amazon seller, before you even look for a buyer, you need to know your numbers in and out and have them organized immaculately. This is because the offer for your Amazon FBA business is directly proportionate to your net profit.
The SDE is used as the basis of a valuation for your Amazon FBA business if the revenue is below 5 million to $10 million. The EBITDA is used when the revenue is higher than $10 million. Let's look at this in a little more detail.
SDE = Revenue - Expenses + Add-backs
In Amazon FBA businesses, expenses constitute the cost of goods, employee fees, Amazon fees, software fees, fulfillment services, shipping services, and company taxes. If you pay yourself a salary, you should add that back. However, please note that personal expenses that aren't related to the business aren't considered expenses in this case.
Buyers are often looking for that one reason not to buy your Amazon business. Therefore, having your books in order eliminates at least one reason for the buyer to turn away. If you are currently not keeping current and accurate records that they can easily sort through, you should start now. This is because savvy buyers will look at trends in your Profit and Loss (P&L) statement.
They will check things like are the sales trending up and down or are they steady? You may also get a buyer who wants to see where your business is trending on Amazon by checking the Amazon Best Sellers Rank.
What Is My Business Worth?
Knowing how much your Amazon FBA business for sale is worth is a question you want to be answered as an Amazon seller. The truth is that it's hard to know the true value of your Amazon FBA business until you sell it. Nonetheless, there are some ways to get an estimate of how much your Amazon FBA can go for.
There are some factors to consider here as well when valuing an Amazon FBA business. However, the rule of thumb is to take your annual net profit and multiply it by two. Most times, the SDE is usually multiplied by two to get an estimate. Keep in mind that the buyer will purchase your inventory at cost. This also includes the cost to get the products into the FBA warehouses.
How Can I Increase the Worth of My Business?
So, you now have an estimate of how much your Amazon FBA business would sell for. The next step is figuring out how to increase the selling price by making your FBA business more valuable to a buyer. There are some ways you can do this, and we'll discuss them below. As we mentioned above, it's important to have the buyer's perspective in mind. As we go through these factors, we'll be doing just that.
1. Type of Business
Although we already looked at this point, we're now looking at it through the buyer's lens. These are the factors a buyer values from most to least.
- The uniqueness of brand and product - The more unique, the higher the value. For example, if you're selling supplements and have a custom formula, this will be worth more than generic supplements.
- Private label - The uniqueness that your brand brings to a product is better than having another label on the same product like the option below.
- Reseller - As we said earlier, these businesses are the riskiest to sell in the listings.
It's no secret: many buyers value older Amazon FBA businesses. This is because the first year is usually centered on discovery and finding what works, the second and third on growth, and the fourth on optimizing net profits for sale.
Nonetheless, there is a hierarchy of value that most buyers use.
- Less than one year old - Not great. You can expect low-ball offers.
- One to two years old - Good
- Over three years old - Great
3. EBITDA (Annual net profit)
Your Amazon business will be considered only if it has turned a profit. A proper P&L statement will help you know exactly how much profit your Amazon business brings in each month. This is why it's important to use accrual accounting to keep track of your profitability each month.
The higher the level of profit, the more attractive your Amazon business will be to buyers.
Here are some levels of diversification that you can pay attention to.
- Having niches and traffic sources within Amazon.
- Having niches, traffic sources, and products outside of Amazon.
- Having just one form of these.
Minimizing risk is always the goal of every buyer. And what is the biggest risk of an Amazon FBA business? Account suspension on Amazon or losing rankings within the Amazon universe. Therefore, if you can prove to your buyer that your business can weather any storm, your business's value will skyrocket.
So, how do you do this? Here are some steps that you can follow.
- List multiple products in multiple niches.
- Create profitable paid traffic within Amazon. You can use pay-per-click or sponsored ads.
- Have traffic sources outside of Amazon. You can use your website, social media, or email marketing to do this
- Avoid having one product or niche bringing in more than 70% of your Amazon business' income.
How secured is your market share? This factor looks at how hard it is for a competitor to join the market and steal away your market share. Oftentimes, this is dependant on how hard it is to source for your product. If it is easy to find, any tom dick and harry with greater ambition can swoop in and start a new listing and have the same product as you.
On the other hand, if you have a patent for your product, your business's value will increase. Here are some ways to increase your defensibility.
- Propriety products
- Strong customer loyalty to your brand
- Higher quality than your competitor's copycat products
If you can lose your rankings overnight, you can lose your income just as fast. Buyers know that being kicked your current position is a high possibility, and they will steer clear of your Amazon business if they sense any danger of this happening.
If your Amazon business is a part of a market with many sophisticated FBA competitors, there is a high chance of your sales dropping overnight. This makes your business very unattractive to buyers. However, diversifying your Amazon business such that only one or two products are in highly competitive markets will remove this risk in the buyers' eyes.
Should I Sell or Hold Onto My Business?
Here are some questions to ask yourself if you're not sure.
- Is managing my Amazon business a chore?
- Am I working on something more exciting?
- Do I simply want the security of more cash in the bank?
- Could I direct the capital from my last sale into a new venture?
If you answered yes one or more times, it might be the right time. However, if you answered no to all of them, holding onto it for a bit longer may be the best option. Nonetheless, ensure that the value of your Amazon business does not decrease with every moment that passes.
Who is my Buyer?
So, you've decided that selling is the best option. The next step is finding out your ideal buyer. The selling price of your Amazon business will determine the type of buyer. Let's have a look.
This category is mostly composed of private investors who want to get a better return on the capital. They have decided on this venture instead of having their money sit in a bank. The main disadvantage of these buyers is that they have a low appetite for risk because they deploy their own capital. Another downside is that this category is the bulk of the listings, making it a buyer's market.
Most of these buyers are new to selling on Amazon and are looking for the best deal available within their price range. This factor will make them zero in more on businesses that have a proprietary product or have their own brand. If your Amazon business is in one of these categories, you have a higher change of getting a buyer.
$500,000 – $1 Million
This price point is usually a black hole in the market because only a few private buyers are willing to put down this amount of cash, and this price is a bit low for private equity groups. Therefore, it may take a bit longer to get a buyer here.
$1 Million – $5 Million
This is where the party is at. There are many cash buyers here who are looking for you if you have the right business that fits their dream. Also, many buyers want to use small business administration (SBA) finance which goes up to $5 Million.
$5 Million and Above
Here you will find private equity buyers, strategic buyers, and family offices.
How Do I Find a Buyer?
You can choose to advertise on common marketplaces and classified sites such as businessforsale.com, flippa.com, or bizbuysell.com. Another option would be to ask other FBA seller if they know an interested buyer. Noetheless, many recommend using a trusted broker for a seamless experience.
How Long Does it Take to Sell my Business?
This depends on the availability of a buyer for your business, and the completion of the selling process. However, there's an average timeline depending on the price of your Amazon FBA business for sale. Take a look.
- Less than 100,000k - 66 days
- $100,000 – $500,000 — 118 days
- $500,000 – $1 million — 151 days
- $1 million – $2 million — 128 days
- $2 million – $5 million — 146 days
- over $5 million — 170 days
How Do I Make The Transfer?
After the sale, the transfer of the business depends on the country you're in. Also, you have to notify Amazon of the change and get their approval of the new owner.
How Do I Get Paid?
This is arguably the most important part for you the seller. The best option is to use an escrow service where the money is held until both parties are happy and then the money is released to your bank account by wire transfer.
Now that you have all the answers you need to make a successful sale of your Amazon FBA business, we wish you the best of luck with no doubt that you will succeed in getting a great buyer.
Let us know if you have any questions and we'll help in any way.
Published by: Jacky Chou in Recent