Definitive Negotiations Guide for Selling an FBA Business
May 12, 2021
As exciting as selling your FBA business sounds, getting a deal across the finish line isn’t quite so simple.
Most entrepreneurs are great at building businesses, but not necessarily at negotiating. When an Amazon FBA business owner decides to sell, it’s normal they would have these concerns:
- What if I can’t sell my business?
- If I sell my FBA business, I’m worried I won’t come out of it with the best deal possible…
- Is this the best time to sell?
The great news is that we’ve helped hundreds of FBA sellers make a profitable exit while passing their baby on to someone who can keep growing it. With that said, we’re here to help you reach your goals by providing you with some tips on negotiating a better deal with potential buyers.
Who Will Buy my Business?
If you own an Amazon FBA business, there’s demonstrated market demand for your business. In case you haven’t read our latest State of the Industry, the amount of FBA businesses sold on our marketplace has been increasing year-on-year over the past three years.
But that’s not all. The average sales price of an FBA business in 2020 was 98% higher when compared to the average sales price in 2018! It’s crucial to understand how much your business is worth. That will give you an advantage with certain types of buyers.
Different buyers will have specific criteria they’re looking for in an investment, and they can be categorized according to the size of the FBA businesses they’re looking for.
Here’s a breakdown of the pricing tiers. It will give you a better understanding of what certain types of buyers are looking for:
$50,000-$150,000
These businesses are the most affordable FBA businesses a person can acquire, and they’re suitable for a solopreneur or someone looking to get their feet wet, interested in running their own online business for the first time.
The SKU range may be very small as a seller is still scaling the business or there are lots of SKUs as a result of lack of optimization as well as variants of the most popular products. The business will have built up a solid reputation, with the products receiving dozens of reviews, and the best-selling product having earned hundreds of positive reviews.
We consider businesses in this price range most suited for Newbie Norms or DIY Daves, as the operations are relatively straightforward, and just need some elbow grease to keep the wheels turning.
Deals in this price range often receive all-cash offers, but seller financing isn’t out of the question.
$150,000-$750,000
FBA businesses in this range will receive a larger buyer pool than the lower tier because there’s so much variety among the brands of each business.
Buyers will need some level of expertise in running these types of digital assets and may have experience with expanding FBA businesses this size.
Deal structuring is more common at this level, as the sales prices are approaching the 7-figure range.
$750,000+ and beyond
Businesses commanding these types of prices attract high net-worth individuals and PE firms. This is because when compared to the other tiers the brand will be much stronger, and the business might make a great addition to an existing portfolio of FBA businesses as well as offer powerful ROI with the right capital investment.
Buyers will be looking for a manageable SKU range (usually around 30 SKUs or less), and a market leader in their sub-category.
Products have usually earned the “Amazon Choice” badge or even the “Best Seller” label, and the business is poised to expand to other Amazon marketplaces or e-commerce storefronts like Walmart and Shopify.
These are some basic pricing tiers of FBA businesses we’ve seen on our marketplace based on their characteristics and what types of things buyers are looking for when running an FBA business. If you’re unsure which tier your business fits in, try our free valuation tool.
Let’s look at what happens during the negotiations process
What Happens During Negotiations?
If and when you decide to sell your business and it is listed on our marketplace, your business will be open to the public to view. However, we protect your business by keeping the intimate details hidden unless an interested buyer verifies their proof of funds so they can view the rest of the details, such as the P&L statement, the FBA storefront, and traffic numbers.
If a buyer who’s gone through this process wants to take things further, they’ll book a time to talk with you to discuss your business in more detail.
Before hopping on the call, an experienced business analyst will join a 1-on-1 call to provide coaching for you prior to the buyer-seller call. They’ll run through common questions buyers ask and the types of answers you should prepare that are specific to your business.
Outside of these buyer-seller calls, our team of business analysts are there to ensure that the right buyers are booking calls. For larger deals, they’ll check that buyers understand what the seller’s terms are before making further inquiries.
This is also a chance to negotiate a deal after you help to clarify some questions and concerns from the buyer. It’s during this time that you and the buyer can draft up some deal terms that work for all parties involved.
5 Tips to Negotiating a Better Deal
This is usually where first-time sellers get extremely sweaty palms and start worrying about blowing their one shot at making a deal happen, a la Eminem in 8-Mile.
But this is where the magic happens.
You have a great opportunity to come up with a deal structure so good that the buyer just can’t walk away from it.
First, take a deep breath and calm your nerves before deciding on any terms. Even experienced sellers can find this to be a nerve-wracking experience. The same goes for buyers, as they’ll be putting up a lot of cash in this deal and nobody wants to make a bad investment.
When you’re a bit more collected, you’ll need to decide on what your goals are from the sale. A few things that you’ll need to figure out include what your ideal sales price is, are you willing to accept an earnout, and how detached from the business after the sale do you want to be.
Even with a price range in mind, certain deal structures might need you to play an active role in supporting the buyer. If you want to be divorced from the business completely, you might need to be prepared to take a lower offer than what you hoped for.
Alternatively, if you can offer some support after the sale, you might consider agreeing to seller-retained equity so you can still receive profits from the business without needing to manage the entire operations.
With that in mind, decide how low you can go before you walk away. You’ll have a range you can bargain within where you’ve determined what your threshold is while you have a goal price to aim for.
Remember that negotiations take two to tango. The first step to successful negotiations is finding out what the buyer really wants.
Understanding the Goals of the Buyer
As a former hostage negotiator for the FBI, Chris Voss knows a thing or two about working out a deal that isn’t a zero-sum game. In his classic book about negotiations, “Never Split the Difference”, , he offers up this gem, a quote that applies to both buyers and sellers:
“Negotiation is not an act of battle; it’s a process of discovery. The goal is to uncover as much information as possible.”
It’s a common misconception to see negotiations as a battleground, where only one can walk away with the spoils. The reality is that both parties have goals, and both parties can achieve them as long as there’s a willingness to compromise.
So how can you work compromise into the fabric of your deal structure?
Ask the buyer why they’re looking to buy your Amazon FBA business. Perhaps they’re looking to generate some side income with a hands-off business, or they are looking for something that has lots of room for growth.
Ask the buyer why they’re looking to buy your Amazon FBA business. Perhaps they’re looking to create some side income with a hands-off business, or they are looking for something that has lots of room for growth.
The great thing about FBA as a business model is that it can achieve both of these goals, so any insight into the buyer’s long-term goal will help you figure out which deal structure works best for them.
To prepare for a suitable deal structure, you can find out how much experience the buyer has with running FBA businesses in the same niche.
Take advantage of the initial call to learn as much as you can about the buyer. Conducting your own due diligence on each buyer will help you tailor each deal structure to specific buyers. For FBA businesses in the 7-figure range, sellers are in a stronger position as they don’t need to be concerned about working to accommodate the buyer because of stiff competition.
Institutional buyers will likely have their own team of experts who are experienced in scaling businesses. They’ll also have their own methods of coming up with their own deal structure.
It’s certainly worth understanding how deal structuring works so you can counter-propose, or at the very least understand what someone is offering.
Deal Structuring
Earnouts are commonly seen as a buyer’s tool for leverage, but they can be a powerful negotiating tool for savvy sellers, if you know how to use them.
Earnouts are when a buyer pays some of the offer in cash upfront, while paying the balance according to time-based or performance-based measures. Many deals in our industry involve earnouts because traditional financing, like SBA loans, isn’t easy to secure for online businesses.
If your FBA business is valued under $350,000, there’s a good chance you’ll receive an all-cash offer.
Keep in mind that you can request more money in the earnout as a compromise for agreeing to a delayed payment.
Knowing how to use deal structuring could net you a higher overall sales price compared to the original list price of your business.
As the sales price increases, deal structures tend to become more complex. Let’s look at different types of earnouts commonly used and how you can work the right one into a deal structure that satisfies both you and the buyer.
Using a Performance-Based Earnout
A performance-based earnout is usually introduced when a business is doing well so that the seller can participate in the upside of the business.
Buyers might propose an earnout payment based on whether the business hits a certain revenue or profit target over a period of time, which PE firms often work into a deal and is otherwise known as a “holdback” amount.
Using a Time-Based Earnout
Sometimes, a buyer will offer to pay the balance of an earnout after a number of weeks or months.
This usually means that the buyer is interested in acquiring the asset and is spreading out the payments over time in order to mitigate risk.
If your business is growing quickly and it looks like that will continue, this might work to your advantage, as faster profits for the buyer means faster money back to you.
Highlighting Growth Potential
Many buyers want to invest in something that has the potential to scale up even further. Growth potential doesn’t always lie the strengths of the business, but in the missing pieces that can fall into place later.
By looking at these missing components, you can start discovering what you have of value to offer buyers who are looking for growth opportunities.
For example, your FBA business may have strong-performing PPC campaigns and built up a large following on social media as traffic drivers, but no email list. Building and monetizing an email list is a great way to nurture a high-quality audience that exists outside of search engines or Amazon’s marketplace and could be a way to create another revenue stream for the business.
Does your FBA business only sell in one country? There could be a tremendous growth opportunity in expanding to international Amazon marketplaces where your niche is popular and your products are in demand. In the same vein, selling on other ecommerce platforms is another avenue to explore.
Neglected social media accounts could be valuable traffic drivers, especially if the products present as highly visual content which is best distributed on platforms like Pinterest or Instagram.
We recently launched The Opportunity Podcast where we interview buyers and dive into their buying journey. To get into the mindset of a buyer you can check out an episode or two to get an idea of the types of opportunities that buyers are looking for.
Know the Market
Negotiations always involve back-and-forth correspondence until the buyer and seller reach an agreement on a price that satisfies both parties. Some sellers who go down the private route often accept bad deals out of fear of missing out (FOMO) because they don’t know the market value of their brand, and also because they receive fewer offers than they hoped for.
When they don’t receive many offers, the fear of missing out on selling the business at all kicks in, and they accept the first offer that comes along with little negotiation, even when it’s much lower than what they wanted.
This would be especially tragic considering the market leans in the seller’s favor. There’s been an increase in the number of institutional buyers with significant buying power entering the market. Such is the strong demand that several buyers will actually compete with each other to acquire your business.
Knowing the market gives you a competitive advantage during negotiations so you know how much you can ask for and turn down offers that are veering towards lowball territory.
Using a curated marketplace like Empire Flippers gives you an advantage because you’ll have more buyers competing for your business.
Providing Ample Seller Support to New Buyers
As mentioned above, negotiations are means of working out a way to satisfy the needs of both parties. First-time buyers will be especially anxious about whether they can keep the business profitable when it’s in their hands.
Like buying a new car, we’re all cautious when driving it off the dealer’s lot. Once we get used to how it handles and what its limits are, we feel much more comfortable behind the wheel, just like in our old car.
With FBA businesses, it always helps to have the previous owner walk through the details, guiding the buyer in operating the business as smoothly as before.
This might involve creating SOPs, providing written and verbal support to talk through any concerns, or providing contacts to previous hired help who can manage certain areas of the business.
Take the time to learn how much experience the buyer has and what operations they’ll put in place once they take over. That helps in determining how much support they might need.
If there’s no need to turn a quick sale, you could partner with the buyer to support them and help grow the business. This benefits both parties, especially in the case of an earnout, since the buyer has the expertise of the previous owner on board and you can enhance the chances of meeting whatever goals were set for the deal.
Just make sure to outline what your exact involvement is so you’re not a hired employee in effect.
Why Empire Flippers Gives You an Advantage
Those are some overarching negotiation tactics you can use when negotiating a deal for your FBA business.
Keeping all of these tips in mind and using them in combination, you’ll soon be a seasoned negotiator.
It takes practice and a few lessons from the school of hard knocks tell a good deal from one that’s going south and should be left behind.
When you sell with Empire Flippers, you save all the energy and effort spent going it alone so you can focus on choosing the right deal for you. Several of the points we listed above are part of our process and we can help you work them into negotiations when you’re forming a deal structure.
When you’re going through the vetting process, we’ll help you compile a profit and loss statement so you’ve got a solid financial footing in the deal process.
Our dedicated sales team will act as an advocate for you in the negotiations process so you’ll never have to worry about being alone during what will likely be the biggest windfall of your life. On top of all that, your listing will be circulated to hundreds of qualified buyers who have over $3 billion in verified proof-of-funds ready to be deployed to buy assets like yours.
The great news for FBA businesses in the higher pricing tier is that more and more PE firms and institutional buyers are coming to our marketplace looking for FBA businesses of that size.
Our processes and the quality of the businesses listed on the Empire Flippers marketplace have established trust with institutional buyers who want to acquire high-quality brands and can afford them.
Choosing the Right Time to Sell
There’s never been a better time to sell than now. The demand for high-quality FBA brands is now outstripping the supply. If you’re unsure of how much your business is worth, try our valuation tool to get a rough estimate.
Once you have a ballpark figure, you can start preparing to sell immediately by optimizing your FBA business for the future. Instead of waiting to sell by default in the event that underperformance forces you to salvage what you can, sell when your business is performing at its best.
You’ll have a strong track record of growth in revenue and traffic, and you’ll have identified the growth opportunities to keep expanding your business.
Now is your chance to generate a huge windfall to fund the start of new adventures, or even start your own flipping journey of buying, optimizing, and selling for profit. Register on our marketplace to give your exit planning a running start.
