How and Where to Buy an Amazon FBA Business
FBA businesses are a desirable asset for any entrepreneur or investor, but while some people enjoy building businesses from the ground up, others prefer to jump straight into the profitable phase of the endeavor.
Buying an existing FBA business allows you to skip the grunt work and acquire a brand that’s already established in the market.
If you’ve been itching to buy an Amazon FBA business, but you’re unsure about the next steps, then today’s your lucky day!
I’m going to walk you through exactly how to buy an FBA business, the pitfalls you should avoid, and the golden nuggets of opportunity you should look out for. Let’s dive in!
Why Buying an FBA Business Beats Starting One From Scratch
To understand the benefits of buying over building an FBA business, consider the example of two (fictional) FBA sellers, John and Jane.
John starts an FBA business from scratch. He spends weeks working round the clock to conduct market research, source a functional product, create a brand identity, establish supplier relationships, and organize an efficient supply chain. He does all of this work before he’s made a single sale.
When John eventually gets the ball rolling and starts earning steady profits, he has to invest most of that hard-earned cash back into the business to facilitate growth.
Jane, on the other hand, buys an established FBA business. By purchasing a cash-flowing asset, she starts making an instant return on her investment and can set her sights on scaling and expanding instead of worrying about setting up foundational procedures.
One of the biggest obstacles to building a new business is uncertainty. How will consumers react to your products? Will you actually be able to compete against other brands in your niche?
Pre-existing businesses have already answered these important questions. They’ve established a foothold in the market and have historical sales data that shows which products have the most demand.
Roughly 20% of small businesses fail in their first year, and 70% of them fail by their 10th year. Removing uncertainty by purchasing a business with a proven track record greatly increases your chances of success.
The Benefits of Owning an Amazon FBA Business
Whether you’re looking for high returns or an easy-to-use sales platform, there is a long list of benefits to becoming an Amazon seller.
Excellent Growth Potential
We conducted a study in which we interviewed the buyers of 31 FBA businesses to see what their returns on investment were. The participants had owned their FBA businesses between 6 months and 2 years. Of the participants, 71% maintained or increased their profits, with the most successful business boosting its profits by a whopping 500%!
Jungle Scout’s latest seller report confirms that these numbers aren’t merely a fluke. According to the report, 76% of Amazon sellers have been profitable in 2022 – despite recent setbacks, such as the pandemic and the supply chain crisis.
The report also verifies that profits increase with the age of the business. According to the report, of the FBA sellers who have been in businesses for 2 years or less, only 25% are earning over $100,000 in annual revenue. This figure increases to 60% for sellers who have been in business for 3 or more years.
You’ll have a tough time trying to replicate these growth levels with stocks or real estate!
A Powerhouse Ecommerce Platform
If you want to get into eCommerce, Amazon is the place to do it. As the leading eCommerce platform, Amazon has over 300 million active users, meaning there’s no shortage of traffic coming to the site.
As a household name, Amazon is trusted by consumers around the world. If you choose to sell your products via your own eCommerce store, you have to build trust in your brand all by yourself.
Another huge time and cost-saving feature is that Amazon takes care of customer support and stores, packs, and fulfills orders on your behalf. After spending millions of dollars developing their delivery infrastructure, Amazon now delivers more parcels than FedEx and is close to overtaking UPS.
We’ve Seen FBA Success Stories First-Hand
Having sold over 360 Amazon businesses on our marketplace, we’ve played a part in many FBA sellers’ success stories.
This front-row seat has given us insights into the strategies that FBA owners use to ramp up their sales. It has also made clear the massive advantages involved in buying existing businesses.
Key Things to Know Before Buying an FBA Business
Buying an online business is a big investment, so it’s important to fully understand the ins and outs of your selected business model. Let’s go through the key aspects of an Amazon FBA business.
How the Amazon FBA Business Model Works
The FBA business model is fairly straightforward. As a seller, you list your products for sale on Amazon’s website. Buyers browse the various listings, and if they purchase your product, you make money.
Behind the scenes, you need to arrange for your products to be manufactured, packaged, labeled, and transported to Amazon warehouses. Amazon then oversees the delivery of the products to consumers.
Listing Transfers vs. Account Transfers
When you buy an existing FBA business, you will either take possession of the seller’s entire Amazon Seller Central account or you’ll take ownership of an individual listing.
Most FBA businesses for sale are account transfers, whereby sellers agree to hand over their entire Amazon seller account along with the associated listings.
Listing transfers occur when a seller only wants to sell a portion of their listings while retaining ownership of their Amazon Seller Central account and the remaining products. In this case, you would need to create a new Amazon Seller account and manually enter the ASIN and PPC details for each product you have bought from the seller.
While we’re on the subject of account transfers, it’s also important to note that when it comes to transferring ownership of Amazon UK and EU accounts, you must have a VAT (value-added tax) number for every country where inventory is stored. It’s also recommended that buyers set up an LTD legal entity in the UK as this helps to speed up the verification process.
The most important metric for entrepreneurs to track is their profit. To calculate profit, you need to understand what percentage of each sale will go towards paying Amazon fees.
The two main fee categories FBA sellers should be aware of are as follows:
- Amazon Fulfillment fees – As the name suggests, this is the fee you pay to Amazon for packing, fulfilling, and returning (if applicable) your orders. This fee is calculated per unit.
- Inventory storage fees – Think of this fee as the cost of renting a portion of Amazon’s warehouses/ fulfillment centers to store your inventory. Paid on a monthly basis, the current cost for storage is $10 per cubic foot. However, be aware that each FBA seller is assigned a storage limit. If you exceed this limit, you won’t be allowed to ship any new inventory to Amazon until you fall back below your assigned limit.
How to Value an FBA Business
When hunting for an FBA business to buy, it’s a good idea to have a working knowledge of how businesses are valued so that you know whether you’re getting good value for your money or not.
Valuation formulas differ across the industry but understanding how Empire Flippers go about valuing a business will give you a good idea of what to expect.
To understand this formula, you may need a quick crash course on what a multiple is, and how it’s calculated.
A multiple is a figure that reflects the stability and longevity of a business. It’s calculated by looking at a variety of factors:
- The diversity of your earnings, traffic, and SKUs
- The strength and efficiency of your supply chain
- The level of owner involvement in the business
- The business’s age
- The number and quality of product reviews
The higher your assigned multiple, the higher your valuation.
Most brokers assign an annual multiple that averages between 3x and 6x. Here at Empire Flippers, we prefer to use a monthly multiple to account for seasonality and fluctuations throughout the year. In 2021, the average monthly sales multiple for FBA businesses in our marketplace was 40.5x.
What to Look For in an Amazon FBA Business
As important as net profits may be, there are many other factors that you should consider when analyzing the viability of an FBA business.
Whether you’re buying privately or through a broker, the responsibility of performing due diligence regarding the business in question ultimately rests on your shoulders.
Below are some of the key aspects of an FBA business that you should consider:
Amazon sets certain customer service, product compliance, and fulfillment targets that sellers must meet. If a seller fails to meet these targets by delivering defective orders, amassing copyright complaints, and so on, their account will be suspended. Take a close look at the Performance Over Time report under the Account Health tab to get an overview of the business’s history.
Amazon logs the past 90 days of advertising data for every business. These data reveal important product keywords and can help you determine the profitability of PPC advertising campaigns.
If the business you want to purchase belongs to a highly competitive niche, your cost per click (CPC) may be high. If you’re not well versed in PPC strategies, these costs can easily become exorbitant and eat into your profits.
Study the historic advertising data to see how advertising costs fluctuate over time. This will give you an idea of whether you can afford to maintain or improve ad performance.
Suppliers play a vital role in determining the success of an FBA business. It’s crucial to review supplier contracts to fully understand things like lead times, manufacturing standards, quality control, material costs, and quantity price breaks (a discount for purchasing bulk quantities of inventory).
If the seller doesn’t have a fixed contract in place, it’s worth speaking directly to the manufacturer before purchasing the business to clarify your expectations. Establishing an open line of communication can often save you from nasty surprises later on.
Keep in mind that laws and enforceable agreements differ in foreign countries, and it may be a good idea to seek legal counsel when it comes to supplier contracts.
Product Listings and Reviews
Reviewing the business’s product listing pages and reviews gives you invaluable insight into the public’s perception of the brand.
These sources also indicate the product’s quality and functionality. Low reviews could be a sign of poor product-market fit or misleading listing descriptions. They could also indicate problems further down the supply chain, such as low-quality materials, manufacturer errors, or design flaws in the product.
Some of these problems could be quick fixes that represent easy growth opportunities, while others may be best to steer clear of.
Know the Competition
“If you know the enemy and know yourself, you need not fear the result of a hundred battles.“ – – Sun Tzu, The Art of War.
It’s wise to understand how your competitors operate before you go to war with them. Analyze your competitor’s top-ranking keywords, product reviews, and social media accounts. There are many research tools and apps available that can help you access these data.
You should also keep an eye out for aggregator-backed businesses or private-label brands owned by Amazon. Competing against these businesses can be tough so you need to know what you’re up against before you close the deal.
Is the Business Streamlined?
When you buy a business, there could be a period of reduced productivity if the business is not streamlined. If the core processes have not been well thought out or optimized, it may take you a little longer to sort things out and come to grips with how everything works.
Buying a streamlined business greatly speeds up the transition. The key thing you should look for here is a business that requires low levels of owner involvement. Automated and outsourced processes allow the business to mostly run on autopilot while you acclimatize yourself with the ins and outs of the brand.
This applies to the supply chain too. If the seller is storing, packaging, inspecting, and labeling inventory at their own house, this will become your burden once you take over the business. Look for a business that ships inventory directly to Amazon warehouses, with a 3PL warehouse used for excess or overflow stock.
A low number of SKUs is also an attractive feature, as there are fewer moving parts in the business for you to keep track of.
A business with established standard operating procedures (SOPs) is ideal because the SOPs will guide you through important tasks and help you train new employees with ease.
Align the Business with Your Long-Term Goals
It’s easy to get carried away or over-excited when browsing through FBA businesses for sale. Before purchasing, make sure the business aligns with your entrepreneurial goals and ambitions.
If you’re looking to flip a business to turn a quick profit, try to identify businesses with some quick wins that you could take advantage of. This includes things like poor inventory management, underoptimized SEO, or a lack of Amazon Brand Registry.
Keep your unique strengths in mind. Playing to your strengths is the best way of growing the business once you’ve purchased it.
Where to Buy an FBA Business
If you’re looking to buy an FBA business, your primary options are to purchase it from a broker or through a private sale.
A private sale cuts out the middleman, with negotiations taking place entirely between you and the seller. Many buyers believe this to be the simplest, most cost-effective option, but that is not always the case.
Buying privately means you have to navigate everything yourself, whether you fully understand the sales process or not. This includes tasks like seller outreach, vetting, and negotiations.
If you do go down this route, make sure you have legal contracts in place for proper protection.
The road to successfully acquiring an FBA brand can be paved with unfamiliar jargon and complicated legal processes. That’s why it is useful to have a helping hand in the form of a broker.
A broker is a neutral third party, that helps both buyers and sellers achieve their goals.
The services offered by each broker will differ slightly, but here at Empire Flippers, we’ll help you through every step of the process, from vetting to migration.
How the Empire Flippers Buying Process Works
Here are the various steps and processes you’ll encounter as you work your way through the buying process on our marketplace.
- Register an account on our website
- Verify your liquidity
- Unlock the business you’re interested in. (this allows you to view details like the business’s Amazon listings as well as performance history to help you assess whether you want to proceed with making an offer on the business)
- Schedule a call with the seller to learn more about the business
- Make an offer on the business
- Negotiate with the seller
- Sit back and relax while we migrate the business’s assets over to your name
How to Use Our Marketplace to Find an FBA that’s Right for You
Once you register an account with Empire Flippers, you can subscribe to our weekly email list. Every Monday we will notify you of the new businesses for sale on our marketplace.
When viewing our online marketplace, you can use filters to narrow down your search. You can filter businesses by price range, monetization, niche, monthly net profit, and similar criteria.
If you are unsure of how to analyze businesses or how to interpret listing descriptions, schedule a call with one of our expert sales advisors. They will consider your unique needs and guide you towards the listings that are best suited to you.
In fact, we will assign multiple advisors to you at each step of your buying journey to make sure you are never left in the dark.
Are You Ready to Become an Amazon FBA Business Owner?
Buying an FBA business has never been easier, or more lucrative.
With new listings going live on our marketplace every week, you’re just a few clicks away from becoming the proud new owner of an Amazon business.
We’ve laid out a roadmap on how to acquire an FBA brand. All that’s left is for you to take the first steps.
Head on over to our marketplace, or schedule a call with an expert sales adviser to dive into the next phase of your entrepreneurial journey!