Should You Buy an Amazon FBA Business or Start One From Scratch?
Do it yourself or just buy? It’s an age old question that most people face when they are choosing to either invest money into something or save a bit by making it themselves.
While many forums are available to discuss this question for subjects like furniture or computers, little information was available for ambitious online business entrepreneurs facing the same difficult question: Should I buy a business or start one myself?
This question is particularly relevant to online entrepreneurs who have the unique opportunity to buy or build. That’s why we decided to jump in and change things. If you’ve been wanting to get into the world of e-commerce, and more specifically Amazon FBA as your online business model, in this guide we’ll go over who is fit to buy an established FBA business, in what scenarios you should start your own, and how to buy an FBA business.
So let’s explore the question: Should you buy an Amazon FBA business or should you start one from scratch?
When to Start an Amazon FBA from Scratch
Starting your own Amazon FBA business is an exciting leap into online entrepreneurship. Most Amazon sellers dream of building a hands-off business where the orders just roll in thanks to Amazon’s amazing built-in traffic. But creating an FBA business that does that isn’t that easy. To get started, make sure you’ve met these three criteria:
You feel ready to commit to starting a business yourself
Some people really want to do the grunt work of getting a business off the ground. That takes a real commitment and large reserves of perseverance when things inevitably go wrong.
If you are serious about starting an FBA business from scratch, make sure you are willing to commit time and energy to get the business running. Be realistic about the challenges you will face, and give yourself enough padding financially and timewise to face them. With this in mind, you’ll have a solid foundation.
You’ve demonstrated product demand
This can’t be stressed enough. The Amazon marketplace is not the place to throw just any products out there and hope they sell. Nowadays, there needs to be real data behind what you want to sell and a value proposition you can fill.
Tools like Jungle Scout can help you research your product ideas and validate demand. If you see the opportunity to add an in-demand product to the marketplace, and you know you can deliver it, go for it! You should proactively pursue whitespace, a business term related to finding a product with low competition or unique value proposition that could help an underserved market. Whether you’re going with a private label or third-party seller approach, when you’ve found adequate whitespace with your product, you’ve found a special opportunity on the Amazon marketplace.
You have money reserves for launching the business
An FBA business simply isn’t free to start like other low cost online monetizations.
According to Jungle Scout’s research, new sellers spend around $3,836 on inventory, fees, and start up costs. Costs depend on your products and initial orders, so you’ll need to have reserves of money on hand for emergencies. Plan inventory levels carefully and aim to have about 3 months worth of inventory on hand before you start selling. If you have only enough to deploy a bit of cash to get started, then starting from scratch would be a more likely fit for you.
Things to Consider When Getting Started
With these three criteria checked off, you can move on to other important details to ensure you’re set for a confident launch.
Consider Your Experience Level
Are you completely new to Amazon FBA? Make sure not to fall for gurus promising wild growth with no realistic perception of the difficulties of starting a successful FBA business. You’ll need to research real FBA sellers and dig deep on their FBA journey. Learn a little bit from trustworthy sources like The Selling Family, Jungle Scout, or directly from Amazon so that you can avoid pricey mistakes when you first start out.
Understanding the competitive landscape of your niche goes hand in hand with product research. While investigating the competitive landscape, look around to see how saturated your niche is. Identify top Amazon sellers and compare their price range, product quality, and the number of high quality reviews. If your product idea could fall short of what they’re already selling you may want to steer clear and find a new product.
If you see other sellers have limited product reviews and are still making sales, that’s a good sign. If your competition has a flow of five-star reviews coming through daily, it may be a sign that you’ll have trouble competing with them. Reviews also highlight what consumers love and hate about products you’ll be competing against, making it a necessary part of your product research.
Ready to start building your own FBA business? Get going with our step-by-step guide to build your FBA business.
Why You Should Start Your Own Amazon FBA Business
One of the most helpful things you can do when starting your business is to plan on selling it from the very beginning. It sounds counterintuitive, but it’s true. If you begin a business with the intent to sell it, you will have a roadmap and growth milestones in place to make a profitable exit. You’re more likely to build a business that is easy to pass over to a new owner, with streamlined operations and clear SOP’s (Standard Operating Procedures). With this foundation in place, you’re more likely to catch the eye of potential buyers.
Why You Should Buy an Amazon FBA Business
Most people who start businesses fail. The same goes for FBA entrepreneurs who set out thinking creating a successful, passive FBA business will be easy, only to find out that it’s difficult to overcome competition on Amazon. Many who try to build an FBA business from scratch don’t make it, but there are other ways to get started in FBA.
The hardest part of making it in Amazon FBA is getting the business off the ground, which is why buying an established FBA business makes a lot of sense. By buying, you skip over the risky initial growth phases and have the choice to hold on to the business and let it earn while you sleep, or you can choose to scale and grow the brand.
Once an Amazon FBA has passed the tough early days and the business has established solid cash flow, it can provide passive, lucrative income for years to come. Additionally, when you own the business, you can turn around and sell it again for greater profit.
What to Look for When Buying an Amazon FBA Business
When you buy an FBA business you should leave no stone unturned in your due diligence. Due diligence is the process of reviewing every element of the business to understand if the business is trustworthy and profitable. Let’s dig into the starting points of what to review when you’re making an FBA acquisition.
Profit and Loss (P&L)
The P&L is the financial overview of the business. It should be the first thing you examine when looking to buy any business so you can validate net profit and look for any red flags. Since the P&L will have all the financial records for the past years of the business and a breakdown of the SKUs, it will be a good indicator of any seasonality the business experiences and if it has had positive or negative trends in its history.
Your Seller Central account is the home base of your entire Amazon FBA business. Within the seller account you can find out if the business’s history and if it has had continued to hit Amazon’s metrics or had any penalties. Look over all the details of the existing Amazon seller account you’d look to take over and check out the Amazon account health page to ensure you know how to access that the FBA account has always been in good standing.
Solid PPC is pivotal for maintaining and growing sales, but this is an area where so many sellers struggle and lose money. Analyze current running campaigns and ask the seller if they’ve had any loss in profit from past campaigns. For those who really understand PPC, this is an area where you as a buyer can come in and implement changes that can have a dramatic impact on sales. So whether PPC on the business is good or could be improved, know what the seller is running and have a plan for what kind of PPC you could run once you buy the business.
You should understand what kind of relationship the seller has with their supplier. A good relationship can often lead to special deals or lead to more products being produced by the supplier for your brand. When reviewing the business for acquisition, make sure the supplier relationship and any terms and prices that had been agreed upon would continue under new ownership.
Know the competition
It’s important to dig deep on the competition in the FBA space. Look at the competition for the business you’d like to acquire and make it won’t be too fierce for your newly acquired business. Access your own expertise here, if you have subject matter expertise in the niche or on the product, you may be able to gain competitive advantage when you add new listings.
Solid reviews in place tell you that the business has gained coveted consumer trust. Do some research and make sure that the reviews are all real and that the current owner didn’t have to offer major incentives to get reviews that you couldn’t keep up after buying the business. If the business has gained very high quality reviews and been labeled as a best seller or brand, you know you’ve found a great business to invest in.
Branded Professional Listings
The FBA business you’re acquiring should have a strong brand – one that feels like its own online store. The listings should be written for conversion, and the video and photos should look professionally done. All elements should tie back to the brand name and the brand should be one that you can continue to scale under your ownership. If these things are in place you’ll have a strong foundation to build off of.
Any business you acquire should leave room for growth. This allows you to add new earning opportunities and scale the business beyond where it is today. When looking for FBA-specific growth opportunities, ask yourself:
- Could the product be sourced for cheaper for better profit margin?
- Are there inefficiencies in operations that could be improved for cost efficiencies?
- Could a VA help with running operations so you can focus on implementing new growth measures?
- Is there room to grow within the niche and add related products?
- Could adding social media accounts or an email list help boost sales?
- Would adding an additional e-commerce presence on Shopify or Walmart create more revenue and a stronger presence on Google?
When you’ve looked through all these criteria and you have come across a business you love, all that’s left is to take the leap and buy the business. Whether you go through it on your own or with a broker will influence the process, which we’ll get into next.
How to Buy an Amazon FBA Business
There are two ways of going about buying an FBA business: on your own or with a business broker.
If you want to acquire an Amazon FBA business on your own, you’ll need to source the business yourself and do personal outreach to current FBA owners to see if they would like to sell their business. It may take some networking among other owners and plenty of time to find a deal that would work for you. This work is removed for you when you come to a broker as they already have an established deal flow and businesses to choose from. We sell more Amazon FBA businesses than any other broker, so if you are looking to buy an Amazon FBA business, looking through our marketplace is a great place to start.
To do your own due diligence without the help of a broker, you need to ensure that you dig deep and ask thorough questions of the business owner. It’s easy for things to go undiscovered or be hidden from you that could greatly impact the business once you own it. The entire process of due diligence, negotiation, and migrating the business will be on you to navigate. If you do go this route, make sure you have legal contracts in place for proper protection.
Due diligence is a strong driver for buyers to work with brokers because the broker mitigates that risk. In the case of our marketplace, we send all of our listed businesses through a rigorous vetting process to ensure that the revenue is verified and that you get a business that will be a solid investment. That means the numbers have already been checked and the business being listed is a safe, profitable option. You can perform your own due diligence from there to see if it fits your criteria and speak to the seller on a buyer-seller call.
To get started buying an Amazon FBA business through our marketplace, all you have to do is find a listing you’re interested in and a sale price you’re happy with. You can even set up filters to narrow down your search to just minutes and receive emails when a business that fits your criteria is listed. On the listing you have the choice to “buy now” or “unlock the listing”.
When you unlock a listing, you send in proof of funds; once verified you can see the full details of the business to begin your own due diligence. You can also set up a call with our sales team to talk about individual listings or discuss the kind of business you’re looking for. Our team helps with negotiations and ensuring everyone’s walking away with their best offer. When you feel ready to step into business ownership, you can send in the money for the business and it’s yours. Front there, we start with migrating the business to your ownership right away.