[Case Study] The $1.7 Million FBA Acquisition that Paid Itself Off in a Single Year
March 23, 2020
Ever wonder what building a 7-figure Amazon FBA business looks like?
When people first hear about an Amazon FBA business that is worth more than a million dollars, most assume that it must be sourcing products from out of the country or dealing with more than a handful of product SKUs.
However, this is not always the case. With an increase in suppliers and manufacturers stateside filling in the gaps when long shipping times become an issue for your competition, now is as good a time as ever to optimize your FBA business by having diversified supplier sources.
With your target audience now more than ever choosing to shop online from the comfort of their home, it’s a great opportunity to structure an Amazon FBA business around fast shipping times and above-average customer service to stand out from the rest.
That is exactly what the seller of this Amazon FBA business set out to accomplish when he first built the business back in October 2014.
The seller, having grown the business from when he was physically handling the inventory and shipping, decided, after about a year of managing the day to day tasks, to outsource the work.
Only four years later, his business was now generating an average net profit of $56,002 per month in the pet care niche.
Optimizing this business model is a great opportunity for those looking to eventually exit the business down the road to gain a large amount of capital to reinvest. The seller, having optimized the bottling and packaging of the product to a third-party logistics (3PL) service, knew that having a unique product and low shipping times would offer a great opportunity for investors looking for something passive.
So how did this FBA business generate so much revenue with only 3 SKUs?
How could you cash out on a 7-figure exit from your FBA business?
Let’s dive in to find out.
Planning a Profitable Exit
The business was to an extent was quite passive at the time the seller decided to list the asset for sale on our marketplace. The business used a 3PL service provider to handle the packaging and shipping; however, they also helped manufacture the product.
Having a product line within the pet niche, which needed to be bottled and sealed, meant that the business would also have to be hazmat certified, according to Amazon’s terms of service for this particular product.
This is quite a unique feature when it comes to Amazon FBA businesses, as there are plenty of companies that take the easy route in selling private label products.
In this case, the seller was having their 3PL service provider help manufacture the product by simply bottling and sealing the inventory before shipping to Amazon’s fulfillment warehouses.
This was also something that had been performed while in the U.S., which made for shipping and lead times to be much lower than that for products sourced overseas when shipping by freight. This also kept product margins low, which is the goal for most successful FBA owners.
Coupled with the fact that the business had a trademark and was a part of Amazon’s Brand Registry 2.0 (learn more about how to set this up here), the business was in a great position to offer a large amount of capital for the seller’s exit.
While at this point the business was fairly hands-off, the seller had another opportunity present itself, and gaining capital from this asset would help jump-start that investment.
The Listing Goes Live on Our Marketplace
After our vetting team investigated the details of this business, the potential of this business was evident right from the start, especially what it offered to those looking to capitalize on acquiring this asset.
Given that this business was in a market with little-to-no competition, controlled the manufacturing and shipping process, and now had a trademark and exact match domain (EMD) included with the sale, we knew it wouldn’t be on our marketplace for very long.
These are all very important assets to have in place prior to listing any business on our marketplace.
After completing the vetting process for the business (learn about our vetting process here), the seller agreed to list his asset with us at a 31x multiple and a listing price of $1,736,061.00.
This is slightly above the industry average (which you can find on our state of the industry cheat sheet here).
While this multiple is slightly above the industry average, it is also important to note that this business was not only optimized with a trademark and systems to minimize the required workload, it was also within a sub-niche that offered untapped potential due to lack of competitors entering the space at this time.
The digital assets set up by the seller had also created a larger entry barrier, which also makes this business more desirable to investors, thus driving up the multiple and listing price.
Within the first day of going live on our marketplace, 17 new deposits came in, showing the scale of interest from potential buyers.
Another seven depositors on the following day, eager to start their due diligence on this listing, proved just how sought after this business model can become when optimized to such a level.
With a total of 44 deposits made within the first two weeks of going live on our marketplace, it became a hot listing for buyers looking to cash in on this great opportunity.
The buyer who walked away with this asset did so by starting their due diligence when the listing went live on day one.
The Seven-Figure Offer that Closed the Deal
Often, when we see a business of this size go live on our marketplace, plenty of potential buyers will look for easy wins while conducting their due diligence on the business.
Not to be confused with the vetting process we offer, performing due diligence is completely the buyer’s responsibility when it comes to researching the possible return on investment (ROI) opportunities the asset provides.
With a large number of depositors looking for these easy wins, many of these potential buyers were eager to learn more about the business, having plenty of questions for the seller.
Given that the seller’s primary focus is transitioning to his other projects, he decided to explain the asset details in full, via video, including how
- the 3PL service bottles, packages, and ships the products to Amazon
- to grow the product line by launching a new formula
- optimizing ad spending would benefit new products
- Focusing on Pinterest would offer an increase in social traffic
- outsourced freelancers are used to manage the day-to-day operations
- the trademarked brand itself started to become a household name
Having a dedicated team of business analysts truly benefited the seller as now he didn’t have to worry about addressing each depositor’s questions individually and could allow our team to negotiate deal structuring on their behalf.
Not only did this allow the seller to focus on his other business during the negotiation, but it also gave him less stress in terms of dealing with potentially 44 different buyers all at the same time.
The buyer, who raised a fund to acquire this business, offered the seller $1.7M at a 30x multiple with $1.2M upfront and a $300K earn-out after our commission was factored out.
This is a huge opportunity for the seller, having spent the last four years managing and optimizing this asset, to reinvest this capital into his other business ventures.
With the buyer seeing a huge growth opportunity in expanding the product line, they offered the seller a bonus if the latter agreed to assist them with a new formula launch soon after the acquisition.
All this sounds great for the seller who received a seven-figure offer with additional compensation for helping with the launch of a new product formula, but one thing we don’t often discuss in great detail within these case studies is the opportunity that awaits the buyer.
The Buyer’s Opportunity to Scale the Business
The buyer, who as mentioned above had raised a capital fund to acquire this asset, saw huge potential with this business by simply launching a new product line and focusing on optimizing the marketing strategy. They also had a team in place to help optimize the required VA operations that the seller already had in place.
Now was the perfect time for the buyer to invest in optimizing the logistics chain and prepare to launch the new product that the seller was already working on.
After the launch of the new product, running ad campaigns outside of Amazon, and the forming of a dedicated team monthly net revenue increased exponentially.
In just 12 months, the buyer had recouped a full ROI and now, at the time of writing this article, has a business worth over $4.5M.
Not only does this ROI show the true scale of what FBA and eCommerce offer business investors, but it also gives you an idea of the potential your business could reach with the right effort placed into optimizing your asset.
It is also important to note that this business was not something that reached a seven-figure payoff for the seller overnight. However, taking the necessary steps one day at a time to optimize both the logistics of where and how your inventory is being shipped from and having great customer service and a quality brand name that people will return to will help you get there sooner.
Should You Keep Your Cash Flowing Business?
This is something that will often worry business owners who are torn between keeping a passive revenue stream and being more liquid so they can reinvest that capital elsewhere.
For many, the decision comes down to whether you still have the drive and determination to continue growing what is often a seller’s first online business. Or, a new challenge, aligned with your passion, presents itself as an opportunity.
The buyer, as well as the seller of this Amazon FBA business, got the opportunity to explore both routes.
The seller walked away with a seven-figure exit to help jump-start another business, while still having a small part within the launch of a new product for this asset. The buyer saw a huge opportunity to scale the business, whereby they were able to more than double their net profits and gain a full ROI in only 12 months.
Whether you are looking to sell your Amazon FBA business after a few minor adjustments or planning for the best possible exit, if you are looking for a smaller FBA business you can optimize and flip in one year, implementing diversified supplier sources and optimized logistics partners, as well as having systems in place to offer the best chance at scaling the business, now is the best time to gain a profitable exit.
If you are looking to gain a huge exit from your Amazon FBA business, schedule a call with one of our business analysts today.
We can help you make the best decisions for your business based on other sellers, whom we have helped to do the same.
Not ready to make an exit at this time but still curious about what your Amazon FBA business is worth compared to similar assets we have sold? Fill out our Valuation tool and find out based on data, not opinions.
If you are looking to purchase an FBA business already generating steady cash flow, schedule a criteria call with our business analysts who will match you with the perfect business based on your investment goals.
