[Case Study] How We Sold a $1,131,669 Amazon FBA Business in 51 Days
How does making a million dollars in less than two years sound to you?
For many, this might seem impossible. However, for those who jumped on the Amazon FBA train a few years ago and have now decided to make an exit, this is becoming more and more common.
At the start of 2018, a group of three family friends launched a range of beauty products after noticing a gap in the market for natural skincare products. To address this void, the friends decided to start their own FBA business.
This is the story of how they were able to scale their Amazon FBA business in the beauty niche to a $1,131,669 dollar valuation in less than two years after launching their very first ecommerce product.
How the Business Found the Right Market Opportunity
The business was created in December 2018, at the peak of shopping season. Taking a holistic approach to beauty and skin care products, the friends (with the help of their wives) began testing new ideas that were not offered in the market at the time, including products containing high amounts of natural and organic ingredients, on which to build their brand.
Back in 2018, while many FBA sellers were launching products based on trends, these sellers knew that building a brand would set them apart from the competition—so that was exactly what they did. Establishing a brand name, registering a trademark, and building a branded domain site were the fundamental steps they took to reach their rapid success.
During the first few months of the business, the sellers were on the hunt to find suppliers that offered products containing natural ingredients. This was more difficult than they had anticipated, so they found it necessary to source their products from multiple suppliers. Five bottling suppliers—two based in the US and three in China—were used to produce the brand’s 11 SKUs that were sold on Amazon.
Many FBA sellers strive to find suppliers in multiple countries because this mitigates the risk of a single supplier suddenly stopping the production of their products. Having multiple suppliers can also save you a ton of money on shipping costs, depending on where your target market is located. Once the friends had established connections with suppliers able to meet their demands, things really started to take off.
The business grew rapidly month after month, and so the sellers decided to reinvest their profits in further developing their brand’s reputation. They sourced a label supplier, a shrink band supplier, and an insert supplier, among others, to make the brand really stand out. In total, the sellers had grown their supplier list to 17, most being in the US to help with lead times.
Another interesting fact about this business was that all three friends were managing the online asset while still running brick and mortar retail businesses. Soon, the business reached a crossroads—it was growing at an almost uncontrollable rate, and they had to make the difficult decision to make an exit.
By this time, the business was generating an average net profit of $40,417 dollars per month, and most of its product reviews were 4.5 stars and above. Such scores are exactly what FBA sellers are looking to achieve, as they give shoppers evidence that others who have purchased their items think highly of them. Not only were the products gaining traffic organically on Amazon for many of their target keywords, but most of their products had also been awarded Amazon’s choice badges, which helped tremendously with their organic product rankings.
Having made the difficult decision to pass the torch on to the next owner with more capital and experience to scale their business to its full potential, they decided to submit their business to our vetting team to review.
An Amazon FBA Brand That Investors Are Looking For
When our vetting team first reviewed the friends’ business submission, it was obvious that they had built their product line with quality in mind. This was even more obvious when the vetting team uncovered the fact that many of their customers were repeat buyers, some for the eighth time for the same product. Many Amazon FBA investors appreciate the huge opportunity offered by the FBA service to provide them with a large following of brand-loyal customers. Many business investors consider this to be added value, as it limits the market spend necessary to achieve profitable results. A business with high-quality products that people are willing to buy multiple times will also lead to a higher valuation and multiple for the business. FBA sellers should consider these facts when it’s time to exit their businesses, and if this is the case for your FBA business, be sure to let us know about your repeat customer base.
All businesses submitted to our marketplace go through a series of checks to determine their market values. We take into account a number of factors in coming up with final valuations for online businesses submitted to our marketplace, but our general formula is this.
Sales price = monthly net profit × multiple (usually between 20x and 50x)
After our valuation team ran the friends’ business through their checks, they received a listing valuation of $1,061,861 at a 26x listing multiple. Satisfied with the valuation they received, the sellers decided to proceed with listing their business for sale on our marketplace.
The Listing Goes Live and Catches the Eye of Top FBA Acquirers
Amazon FBA acquisition firms are constantly on the lookout for quality brands on our marketplace. The exponential growth in revenue month-on-month was just the first eye-catching feature that many of these acquirers noticed about the friends’ business.
On the first day of going live on our marketplace, eight investors moved to unlock this listing to start their due diligence. Several of these investors were high net worth individuals, while most were from private equity (PE) and FBA investment firms. The reason that more and more investment firms are starting to favor FBA brands is because they offer an incredible return on investment (ROI). Amazon FBA acquirers and PE firms alike have raised huge amounts of capital in just the past few years.
According to a recent article published by Forbes, 10 to 15 groups have raised $1.5 billion for Amazon FBA acquisitions. If that wasn’t driving enough demand, our marketplace has over $1 billion in verified funds, with buyers jumping on every opportunity they see to acquire a quality FBA product or brand.
After the friends’ Amazon FBA business was on our marketplace for 13 days, a nonrefundable deposit was placed on the business to enable further due diligence to be performed. This was done so that interested buyers could perform their own checks without the worry of someone else making an offer before them. After digging deeper into the business’s details, this particular interested buyer, who also happened to be a well-known FBA brand acquirer, made an offer of a $600,000 upfront cash payment and a two-year term for $120,000 dollars. An earnout was also presented to the sellers, whereby they would receive 55 percent of the seller’s discretionary earnings (SDE) over the next 12 months. This was based on the buyers’ baseline projections of $3,000,000 in sales, which meant that the sellers could expect a $412,500 earnout profit share over the next 12 months.
While this offer was great in itself, it was ultimately geared toward protecting the buyer should the business suddenly lose traction in sales revenue.
Not quite satisfied with the offer on the table, the sellers decided to hold off and see if any other attractive offers were made. Another reason for this decision was an upcoming listing price update. As the business first went live on our marketplace toward the end of the month, a new business valuation price update would be factored into the equation at the start of the new month. Knowing that the business was on an upward growth trend, the sellers decided to wait and see what the new price update would present.
With business revenue continuing to rise and the most recent financials added, a new valuation was performed on the business. The business had increased its valuation slightly: it now demanded a 28x listing multiple and an updated listing price of $1,131,669.
Eager to not let this deal get away, the buyer who had placed the non-refundable deposit on the asset moved to increase their upfront cash offer to $720,000, with a shorter earnout period and full listing price offer. This was $120,000 more than their original offer. Wanting the business to go to a buyer who would scale the business to its full potential, the sellers agreed to the offer on the table just 51 days after first going live in our marketplace.
Why FBA Acquirers Loved This Business
This business was a golden opportunity for buyers for many reasons.
It had a solid brand identity that customers loved, and it was in a growing niche area. Not only did the sellers spend time making sure that their beauty products were of high quality, but they also had already planned for five new products to be launched once the buyer had taken over full ownership. This is huge in terms of the growth potential for FBA investors. Having a game plan to launch new products is a boon for interested buyers, as it puts them on track to scale the business once the deal is finished.
When planning your exit, a predefined growth strategy is an excellent asset to include for buyers, as it offers a road map for them to recoup their investment in less time than normal. Another reason that FBA acquirers loved this business is because it had a loyal brand following coupled with a small number of SKUs. Many leading FBA acquirers favor businesses with 30 SKUs or less, as they can focus on scaling the products they already have without worrying about overspending on inventory that can only generate weak profits.
Do you have a quality FBA brand from which you are ready to make a profitable exit?
Do you want to see what it would be like to sell your business? Give us a call. We offer free exit planning to make sure you get the best possible value for your business.
Or maybe you want to buy an established brand of your own? We’re happy to help you find the perfect business—one that is suited to your business and personal goals. All you need to do is schedule a free criteria discovery call.