How $100 and a Dare Turned into an $800k FBA Exit
If someone dared you to take $100 and turn it into a profitable Amazon FBA business, would you do it? That’s what one of our marketplace sellers did. That $100 dare turned into an $800k exit within just a few years.
Stories like this highlight why we keep saying we’re in the Season of the Seller. We’re seeing businesses just like this sell faster and for more money than ever before. Investors are hungry for FBA businesses with huge growth potential, and they’re snapping them up as quickly as possible.
You don’t have to take our word for it. Looking through our State of the Industry report and our mid-year wrap-up, you can see that at the end of 2020, the average sales price of Amazon FBA businesses had increased by 80% compared to 2019.
By June 2021, the data showed that the average sales price of these types of businesses had already increased by 39% from 2020.
If you’ve got a successful FBA business, it’s a great time to start thinking about your next steps and create an exit strategy.
As you’ll see, not only did the seller in this story walk away with a high 6-figure exit, but they also managed to secure an offer over their listing price. How did they do it? Let’s take a look.
The Business Built on a Bet
So, what’s involved with an $800k business that started with just $100?
To start, the seller had chosen a highly specialized niche and established a foothold on Amazon before big names in the industry entered the space. After spending a few years solely focused on Amazon, the seller expanded to other marketplaces while taking advantage of Amazon’s Multi-Channel Fulfillment (MCF) service.
The seller set up a Shopify account and began listing on Walmart. To simplify their day-to-day operations, all Shopify sales were redirected to Amazon. For Walmart, orders were processed by the seller as Amazon orders at the end of each day.
The business had strong branding, which could be seen in the high number of excellent product reviews. The seller had also been proactive in protecting their brand by filing a trademark application with Amazon’s IP Accelerator service, which gave them immediate access to Amazon Brand Registry.
For brands to enroll in Brand Registry, they normally need to have been granted a trademark. A trademark in progress usually isn’t enough to gain access to Brand Registry services. To make the process easier, Amazon developed IP Accelerator.
The IP Accelerator service connects sellers with Amazon-partnered law firms for help with applying for trademarks. When a seller goes through an approved law firm, they have instant access to Brand Registry features even before their trademark application is approved.
Having great reviews and trademarks in place is important, because brand strength is one of the factors that can affect the multiple, and ultimately the overall value, of an FBA business.
This business not only had strong branding behind it, but it also had rapid growth. After confirming the average monthly net profit and taking into account other factors, such as market diversity and business age, our vetting team gave the business a final valuation of $726,366.
To List or Not to List Right Away
When the seller approached us with the idea of exiting their business, they were on the fence about listing right away. They had built up a profitable company and knew that the upcoming months would add to their revenue, making their business even more valuable.
They had tried to sell privately a few months before and had been let down by the buyer. While they were ready to move onto other projects, they weren’t sure whether it was a good move to list immediately or wait until the high season sales could be reflected in their profit and loss (P&L) sheet.
This is a dilemma we hear from a lot of sellers. On one hand, listing before an expected busy season can increase the chances of a quick sale. Buyers are looking to get back their return on investment (ROI) as quickly as possible, and buying a business that is expected to have increased profits in just a few months is an attractive option.
On the other hand, an increase in revenue can often lead to an increase in the listing price. While that can be great news to a seller on the surface, a higher listing price might take longer to attract the right buyer.
After speaking with our vetting team, the sellers accepted a valuation of $726,366 and decided to list right away to maximize their chances of a quick sale.
The Offers Roll In
The decision to list their business immediately turned out to be a smart one. Within a day of going live, the seller already had calls scheduled with five interested buyers. High Net Worth Individuals (HNWI) and private equity firms alike were interested in the growth potential of the business.
After one phone call with a private equity firm, the seller received a full-price offer. They were happy with the quality of the offer, but they knew there was considerable interest from other parties and wanted to see what else was on the table.
It may seem like a bit of a gamble to leave a full-price offer waiting, but it was a smart move on the part of the seller. When a business attracts high-quality investors, a single full-price offer can lead to one or more above-price offers.
In this case, another interested private equity firm stepped in and offered $540,000 cash upfront with a $60,000 holdback to be paid after nine months. On top of this $600k, they also added a $200,000 stability payment to be paid at the end of the year as long as the average monthly revenue (AMR) per month for the remainder of the year was greater than the AMR for the year prior to closing.
In other words, as long as the business continued to show year-on-year growth, the seller would walk away with $800k in total.
Clarifying the Offer
The seller was thrilled with the offer. But they did have a few concerns. The first was whether the total amount included inventory. The second was whether the private equity firm was planning to keep the contractors who had been working with the business.
Normally, our listing price for businesses doesn’t include inventory. We even make a note of this on our marketplace listings.
Why is that?
Inventory is constantly fluctuating. The amount of inventory a seller has when listing almost certainly won’t be the same as what they have on hand when the business sells.
To simplify the process, we don’t take inventory into account when coming up with a business valuation.
When the seller got the offer, they thought it might have included the cost of inventory, which would have made it less attractive than the full-price + inventory offer they had received before.
They also wanted to know whether the contractors would be continuing with the new owners. When the business was listed, the seller left it open for the buyer to decide whether they wanted to continue working with the contractors.
After receiving the offer, they wanted to know what the buyer intended to do, because the seller decided they wanted to keep those contractor relationships intact for other businesses.
When it comes to independent contractor relationships, some buyers are willing to let part-time workers continue working with sellers as long as there are no competition concerns. Others would prefer to train their own employees and don’t want to take on the seller’s existing relationships.
The seller reached out to our sales advisors for clarification before they accepted the offer. The buyer confirmed that the offer excluded inventory and that the contractors were free to continue working with the seller.
Once these concerns were ironed out, the seller was happy to accept the offer, and the buyer started their due diligence period.
Getting to Sold
The due diligence period is particularly important to buyers. Our vetting process is thorough and extensive, but the post-offer due diligence period allows buyers to verify all the information and financial records provided by sellers.
During the due diligence period, there was one bump in the road. Earlier, I mentioned that the seller had originally tried to sell privately and had even found a buyer, but the deal fell through.
This private buyer had filed a trademark application for one of the brands before the deal fell through. The seller had no idea until they started the vetting process with us. They immediately tried to fix the situation, filing their own trademark application and sending a cease and desist letter to the former buyer.
The buyer from our marketplace wanted access to all the correspondence between the seller and the former buyer so their legal department could make sure to follow the proper procedures for getting the previous trademark application canceled.
This is one of the reasons we recommend sellers use a full-service brokerage with processes in place to protect both parties. There was nothing nefarious about what the former buyer did, but it caused complications for the seller down the road.
Using dedicated sales and migrations teams helps protect sellers by ensuring certain assets are protected until the deal closes, reducing the risk that buyers will manipulate assets, even accidentally, before everything is signed.
Likewise, these same teams work with sellers to make sure the business runs the same until it is handed over to the buyers. It’s a mutually beneficial system that helps ensure a smooth sale and transfer.
After the seller provided all the information to the buyer, it was time to finalize the deal and move on to migrating the assets.
Helping Both Buyers and Sellers
The seller had solid business experience, but this was the first time they had ever sold a business. It was understandable that they were unsure about certain steps in the process, and given their previous experience with a private buyer, they were anxious to close the deal.
This is another benefit of working with a full-service broker. Instead of just listing a business for sale and calling it a day, we have teams dedicated to making the sales process as smooth as possible for both buyers and sellers.
Our rigorous vetting process is beneficial for buyers, because they know that the businesses listed on our marketplace are high quality and have been checked out by experienced vetting advisors.
For sellers, our vetting team can provide valuable feedback during the valuation process, helping sellers understand why their businesses are worth what they are.
Once a listing goes live, our sales team is on hand for both buyers and sellers, facilitating communication, answering questions on both ends, and offering feedback on buyer-seller calls.
When an offer is made and finalized, our migrations team is ready to step in to help transfer assets, saving the buyer and seller valuable time.
Having all of these processes in place helped the seller in this situation navigate the complicated sales process. When the deal was finalized, they walked away feeling good about the offer they had negotiated and their experience listing through us.
Selling Your Amazon FBA Business
Selling a business can be an emotional process. Although sellers are often ready to move onto other projects, they’ve put a lot of time and energy into building a successful business, and they want to connect with buyers who can appreciate that work.
No two deals are the same, just as no two businesses are the same. Whether you’re a first-time seller or have several successful deals under your belt, working with a broker can ease the process, as the seller in this story found out.
If you’ve got a profitable FBA business and are wondering how much your exit could be worth, you can check out our free valuation tool. We’ve developed an algorithm based on real data to give you a solid starting point for the valuation of your business.
But if you’re ready to take the next steps and start planning your exit, it would be worth it to schedule a call with one of our business analysts. They can give you more information about the listing process and guide you on preparing your business for your big exit.