[Case Study] Building an Amazon FBA Brand Worth $1,040,000
Updated on May 4, 2020
Building a business is one thing.
Building a brand is another.
Having a recognizable brand is like a stamp of authority. Trust is one of the most important factors in the customer–seller relationship.
Creating a recognizable brand is highly desired but not achieved by many.
It’s something that the owner of this Amazon FBA business put a lot of effort into. The reward was a sale price of $1,040,000.
Creating a brand is no small task, but once established, it allowed the owner of this business to successfully release 14 SKUs across the UK and European marketplaces. The main product would go on to sell thousands of units each month, and most of the other products would sell hundreds each month.
This is what makes a seven-figure business.
But how did the business get to this point? We’ll take a look at the steps the seller took to establish the branding and how expanding the business into European marketplaces took it to the next level.
Building a Brand
Great care was taken to design distinctive packaging for the products, and the design remained consistent throughout subsequent product releases. Easily identifiable branding helped the products stand out in Amazon’s search results.
To boost the products’ reach, the owner invested in pay per click (PPC) advertising. Amazon PPC and sponsored brands were used on the launch of new products. We see this strategy used regularly by owners selling FBA businesses, and when done right, it pushes the products higher up in Amazon’s search ranking.
The seller used outreach as a marketing strategy to make a name for the brand. He said, “we invested lots of time building relationships with customers, industry-related businesses, charities, and online influencers.”
In a niche where customers are passionate, this outreach got the products in front of an active audience. It grew their Facebook profile to 6,700 followers and their Instagram to 4,200 followers at the point of the business’s sale. While this following wasn’t important in terms of driving traffic, it helped build brand recognition.
The business received a high number of branded search impressions, which means that people were entering the brand name into Amazon’s search bar. Not only does this tell Amazon that a brand is a trustworthy source, but it also displays the brand’s other products. With this brand’s extensive product line, it was essentially free advertising.
In addition to the Amazon store, the business had a domain that was initially used as a Shopify store. In April 2019, the custom-built site moved from the Shopify platform to a self-standing website, and its product pages now linked directly to the Amazon store.
A massive advantage of using Amazon is people’s trust in the company. This seller found that, as they invested more time into the FBA store, they saw more conversions.
Even though the product pages now linked to Amazon, designing a website wasn’t a wasted task. Although it wasn’t responsible for much traffic, it did help the business build an email list of 13,000. Potential buyers see a monetized email list as an opportunity because it can increase the multiple at which a business is valued. The seller used this email list as a promotional tool, sending out mass emails when a new product was released.
This business received a 40x multiple because it had diversified its income across several well-performing SKUs. Not relying on a single product gave it a more stable business model, one that was appealing to buyers.
Launching in the UK Market
When it was created in March 2016, the store sold exclusively in the UK market. It’s often tempting for budding FBA entrepreneurs to go straight for the American market because it’s the most lucrative—but it’s also the most competitive. Entering a smaller market can help a business establish itself before expanding.
It’s common for FBA businesses to source products from overseas, but this seller made a connection with a UK-based supplier. This meant the seller didn’t have to import anything and the supplier spoke the same language and worked in the same time zone, making it easier to address any problems that might arise. The lead times were also shorter, which made inventory management easier.
In the first month of sales, July 2016, 476 units were sold, generating £3,682.12 in revenue and £3,446.92 in net profit. Two new SKUs were quickly released in August and November. Seeing out 2016 with three products selling on the Amazon UK marketplace.
The business’s profit grew steadily over the first six months, with a net profit of £12,697.40 in December 2016. This showed that the product line was not likely to be seasonal. Christmas can often create a jump in sales for FBA businesses and, while a sales boost is always nice for a seller, many buyers like to see consistency. Selling products that are successful year-round is a valuable business model.
Expanding the Brand into New Marketplaces
The figures from the UK market made it clear this owner was on to a winning product. With sales starting to gain traction, he wasted little time moving toward expansion. A smaller market often means sales reach a plateau more quickly. Having a plan of action for expansion kept the store’s growth continuous, and by the business’s point of sale, the products were selling well across five countries.
Europe’s proximity to UK-based suppliers and positive trade deals with countries in the European Union made this market an obvious next step. The seller targeted Germany first and prepared to make the expansion as smooth as possible. Listings were translated and products were checked against German regulations. With a strong brand name and design, minimal alterations had to be made in terms of appearance.
After two months of sales in the UK, the business entered the German market with one SKU in October 2016.
The product picked up a single sale in the first month but would see 102 sales in December. Things continued to improve in 2017: the product would turn over €104,197.62, which resulted in a €48,803.61 net profit for the year.
Sourcing a good supplier meant that the business’s margins were very high. The cost of goods sold made up just 16% of overall gross margins.
When working toward selling an FBA, it’s important to inform the supplier so they’re aware the ownership may change. There will be a lot going on in the sale of a business, so a buyer will want to make sure that things run smoothly during the takeover.
This was especially true for this business, with its margins running at a good rate. All supplier relationships were included in the sale of this business, as with most Amazon FBA sales.
The business entered the French, Italian, and Spanish markets in 2018 and started releasing already-acquired SKUs across these marketplaces under their branded storefront.
It took their net annual profit for 2018 to $321,244.99 across all five countries. That was up 33.65% over the previous year.
Deciding to List the Business for Sale
Deciding to list a successful business is not an easy choice to make. This seller contacted us in early July 2019 by submitting his business through the Sell Your Site page.
On a personal level, the seller was looking for capital to put toward his other business ventures. The Amazon FBA store had reached a sizable valuation, one that would dramatically boost his other projects.
On the business side, the store had grown to become an appealing asset.
The store had been trading for three years and had shown steady year-on-year growth. In 2019, the annual net profit was set to be 40.23% higher than the previous year. Little to no seasonality in the number of sales tells buyers that the products’ success isn’t a fad, and the business will be sustainable.
These factors increase the valuation of an Amazon FBA business. The seller had built from scratch a store that grew consistently up until the point of sale.
Buyers will also want to see how the business can keep growing.
Included in this business’s sale was a roadmap for growth. The seller outlined a plan that would take the business from one million to two million dollars in revenue.
The driving force of this plan was product expansion. The seller used the UK market to test the waters with products. Once a product achieved success there, it would then be rolled out to the European marketplaces. The new buyer would benefit from the results of newly released SKUs as well as information on the products to release next.
When the Listing Goes Live
The business’s listing went live on our marketplace at the end of July 2019.
The owner had decided to sell the business, so now all the work to sell it was down to us, right?
You’d be right and wrong. After listing the business is not the time to take your foot off the gas. Interested buyers will want to see updated figures during their due diligence process.
As a seller, it’s important to keep your business looking as attractive as possible. This shows buyers that you know what you’re doing and will be easy to deal with.
As Empire Flippers is a brokerage service, we’ll act as the go-between for buyers and sellers. Several buyers were interested in this Amazon FBA business, and our sales team began discussions on behalf of the seller. This meant he could continue to focus on running this business, as well as his other ventures.
Three potential buyers showed serious interest in purchasing the business. We informed the seller and set up calls between him and the buyers so that any final questions could be answered.
As a first-time seller, he had some trepidation about what he should and shouldn’t reveal about the business. To alleviate this worry, one of our business analysts spoke with the seller to advise him on what could be safely discussed. Everything went well, and a sale was agreed upon shortly after the seller’s call with one of the buyers.
Just two months and nine days after being listed on our marketplace, the business sold for $1,040,000.
Selling with Empire Flippers
This is far from the only seven-figure business we’ve sold. Empire Flippers is the number one curated marketplace for online businesses, so we’ve seen our fair share of sales.
We’ve sold over 80 Amazon FBA businesses last year alone, as detailed in our State of the Industry Report.
Will yours be next?
To see what your business is worth, you can use our free valuation tool. It uses data from sales like these to take the guesswork out of valuations. Even if you’re not quite at seven-figures yet, an accurate valuation is still waiting for you.
If this case study has gotten you thinking about selling your business, setting up an exit plan call with our sales team is the first step.
You might be sitting on a brand that someone is willing to pay a lot of money for!
