How to Sell an Amazon FBA Business
February 11, 2022
As an Amazon FBA seller, you may be neck-deep in the day-to-day operations of running your business. After years of focusing on inventory management, customer support, PPC, and product launches, one question commonly surfaces: “What comes next?”
Many entrepreneurs plan to operate their Amazon business indefinitely and live off the cash flow, while others plan to grow their stores to a certain size before selling them. However, there are many sellers running their businesses without a clear end goal. Perhaps some are unaware that they are sitting on a salable and potentially highly lucrative asset, their Amazon FBA store.
In this article, we’ll explore the market for buying and selling Amazon FBA businesses and provide a step-by-step process for selling an Amazon FBA business, including how to maximize your valuation and position your business for a greater chance of a successful sale.
By the end of this article, you’ll better understand how to establish a more organized and profitable foundation for your business, whether you plan to sell your business or not.
The Amazon FBA Market — Can I Sell an Amazon FBA Business?
In 2020, we sold 97 Amazon FBA businesses for a total of $55.5 M, a 24% increase in the number of businesses sold in the year prior.
These Amazon FBA businesses sold for an average of $538,741, marking an 80% jump from the previous year’s average of $279,254.
Each year, we’re seeing an increasing number of Amazon FBA businesses sold in our marketplace for higher valuations, and there’s no indication of this slowing down.
In short, there’s never been a better time to sell an Amazon FBA business.
Who Buys Amazon FBA Businesses?
Over the years, consumer behavior has continued to shift predominantly toward eCommerce, and with Amazon being largely at the forefront of this movement, Amazon FBA stores and the Amazon FBA business model have experienced significant growth.
As such, Amazon FBA businesses are now seen as attractive eCommerce business assets. From investment-backed aggregators who actively seek seven- and eight-figure Amazon FBA businesses to small business portfolio owners to first-time buyers looking to replace job income, we’ve seen a diverse array of buyers interested in different sizes, niches, and types of Amazon FBA businesses.
Why Should I Sell My Amazon FBA Business?
Over the years, we’ve interviewed hundreds of online business sellers, many of them Amazon FBA store owners. When asked why they were selling their businesses, some of the most common answers were:
- “I have another business opportunity that I want to focus my time and capital on.”
- “I enjoyed building and launching the business, but I’m not interested in the day-to-day operations.”
- “With the current supply chain issues, I feel a lack of control of my business and want to sell while things are still going well.”
- “I have a lot of capital tied up in inventory, and I’d like to use this cash to buy a house.”
If any of these sounds familiar and you could potentially see yourself wanting to sell your Amazon FBA business down the road, it is important to understand the steps required to sell successfully and for the highest price possible. This starts with understanding how an Amazon FBA business valuation works.
Step 1: Valuation — How Do I Value My Amazon Business?
After learning that an Amazon business can be sold, the next common question is, “How much is my business worth?”
While different brokerages use slightly different methods to calculate valuations, they are usually calculated according to this general formula:
Average Net Profit * Business Multiple = Valuation
According to this formula, a business that generates $15,000 per month in net profit and is assigned a 40x multiple would be valued at $600,000.
Let’s specifically look at how these two variables are calculated and how you can improve them to increase your valuation.
Average Net Profit
Net profit is typically calculated as a monthly average using the last 12 months of operations. A 12-month timeline is standard, although a shorter time frame may be used for younger businesses or businesses that have experienced a significant change in performance.
Different Accounting Methods Can Mean Different Net Profit Values
The method of calculating net profit can vary depending on the accounting principles used. For example, the seller discretionary earnings (SDE) method, which accounts for the take-home pay of a single business owner, is commonly used for small to medium-sized Amazon FBA businesses.
For larger businesses, a more granular accounting method can be used to calculate net profit, such as looking at earnings before interest, taxes, depreciation, and amortization (EBITDA).
We explain these principles in more detail in our article, which dives deep into valuing an Amazon FBA business.
Monthly vs. Annual Net Profit
We calculate net profit according to a monthly average rather than an annual average to convey a clearer picture of how business performance changes over the course of a year.
With a monthly time frame, buyers can determine if an Amazon FBA business experiences seasonality, if the business has experienced any significant spikes or drops, and if the business is generally increasing or decreasing in performance over the year.
The Business Multiple
Business multiples usually range between 25x and 45x for Amazon FBA businesses and are assigned using several factors that are ultimately indicative of the strength of the business and the quality of the investment.
With other brokerages, you may see multiples of 2x, 3x, or 4x if their valuation method uses a business’s average annual profit rather than its average monthly profit.
How a Business Multiple Is Assigned
For Amazon FBA businesses, some of the factors and metrics that influence a business multiple include the following areas and questions:
Sales Performance
- How many of your top-performing SKUs are you selling per month?
- What is the best-seller rank for these SKUs?
- What are your profit margins?
- What percentage of sales are organic vs. generated from advertising?
Businesses experiencing an overall increase in sales performance and profit are deemed healthier and safer investments.
Owner Involvement
- Are the majority of time-intensive tasks delegated, or do you spend a lot of time on day-to-day operations?
- Is your inventory managed by Amazon fulfillment centers, or do you perform a portion of the fulfillment yourself?
The more you’re able to remove yourself from the business operations, the more your business will look like an investment rather than a job to buyers.
Brand Protection
- Are you selling private-label or your own brand of proprietary products, or are you performing retail arbitrage and selling other company’s brands with a low barrier to entry for competition?
- What types of products are you selling?
- Are you selling within any hard-to-qualify product categories?
- Are you brand registered and trademarked to ensure you’re protected from third-party sellers or resellers?
Competition is one of the biggest concerns for any online business owner. A business that has a competitive advantage due to entry barriers is usually seen as a far more valuable asset than one without.
Amazon Seller Central Account Health
- How old (well-aged) is your account?
- Have you been grandfathered into any now phased-out account permissions, such as higher inventory limits?
- Does your account have strong inventory performance and customer feedback scores?
- Have you incurred any penalties?
Accounts with a long history of performance, strong account scores, and grandfathered features are seen as more valuable than younger accounts or accounts that have a history of being scrutinized for poor performance or violations of Amazon’s terms of service.
Product Reviews and Rating
- Do your product listings have a 4-star rating or higher?
- How many ratings do your top SKUs have?
- How many highly rated SKUs do you have?
As an Amazon seller, you’re well aware of the importance of strong reviews and their impact on sales volume and how much time it can take to build these reviews. A business with highly rated products indicates product-market validation and the business’s likelihood of remaining competitive.
Diversification of Sales and Marketing Channels
- Do you sell on other online or brick-and-mortar sales platforms, such as Walmart or eBay?
- Do you drive traffic from sources other than Amazon, such as social media advertising or an email list?
- Do you sell on only one Amazon marketplace, or do you sell internationally?
Businesses that drive revenue and traffic from sources other than Amazon can be seen as lower-risk investments due to their ability to continue operating in the event that Amazon suspends your account or if your Amazon PPC campaigns become less profitable over time.
Estimating Your Business Multiple
While you won’t know your multiple until you receive an actual valuation of your business, you can review our marketplace of Amazon FBA business listings to see the average business multiples that are currently being assigned to other Amazon FBA businesses.
A faster and easier option is to use our free FBA valuation calculator to get a realistic idea of what you could make if you sold your business. Once you have your estimate, you have a baseline to determine if you’re ready to sell or if you want to work toward increasing your valuation before selling.
How Can I Increase My Business Valuation?
At this point, if you’ve done the rough math or run your business through our valuation tool to estimate your business valuation, you may be wondering, “How can I increase my business valuation?”
Here are just a few levers that our sellers have pulled to increase their net profits and business multiples and, ultimately, the value of their businesses.
Ways to Increase Net Profit
1. Ensuring you’re not running out of inventory: Improving inventory management and avoiding stocking out is one way to increase your net profit while ensuring that your business looks steady when buyers review your monthly sales figures. If your Amazon FBA inventory limit is low, one potential solution is to ship larger quantities of inventory to a domestic 3rd party logistics company (3PL) and have them continuously send small quantities of inventory to Amazon FBA as you sell.
2. Optimizing PPC campaigns: If your PPC campaigns are on autopilot, you may have room to optimize your PPC spend by removing or reducing the budget on underperforming keywords and increasing the budget on high-performing keywords.
3. Monetizing an email list: If you have an email list that you are not actively engaging with, you may have an opportunity to monetize this list through email campaigns and product promotions.
Ways to Increase the Business Multiple
In the previous section, we discussed several factors that may influence a multiple. In general, a multiple is likely to increase when:
- Sales and profit are generally increasing or remaining steady.
- The majority of your operations are outsourced, and a buyer would be able to easily acquire the business and fill your role.
- Your account is in good health and has resolved any penalties.
- You have a protected brand, determined by having trademarks and being part of Amazon Brand Registry.
You can find more detailed explanations and methods for increasing your business multiple and valuation in our article on how to sell an Amazon FBA business for maximum profit.
Should I Sell My Amazon FBA Business Now or Later?
After understanding your valuation and how to improve it, the next common question is, “Should I sell my Amazon FBA business now or hold onto it longer to try to grow it?”
This is a very personal question, and the answer can vary, but here are some questions to ask yourself to guide your decision.
Would my sale value allow me to accomplish a specific life goal?
You likely built this business to achieve a specific goal. Whether that was to achieve financial independence and retire early (FIRE) or buy a house, ask yourself if selling now would allow you to achieve this.
Can I wait and sell for more?
This question is the primary reason for waiting to sell. Timing the sale, however, can be a trap because it can lead to sellers losing deals.
Remember, an Amazon FBA business (like any business) can move up or down in the future. The only certainty you have for receiving capital is the day you sell, and until that day your valuation is only unrealized potential value.
There are, of course, instances where a seller will wait to list their business so that they can grow it for a larger valuation. This might even be a recommendation after you speak with a sales advisor. However, we’ve unfortunately seen this play out the opposite way. Supply chain issues, competitors, or Amazon terms of service violations can cause a business to drop significantly in value or become unsalable altogether.
Is my business at a stage where a new owner would be able to take it to the next level?
This is a common reason for selling. There’s a difference between building an Amazon store and operating/scaling it. Many sellers enjoy the building phase of the business but find that they do not want to operate or grow the business. This is also an ideal scenario for a sale, as there isn’t anything inherently wrong with the business; it’s just that a new owner would be better suited to take over.
Why am I selling?
Ask yourself if selling aligns with your goals or if you’re simply in a state of owner’s fatigue and would otherwise want to continue working on the business after getting through a rough patch.
Preparing for the Sale
Once you’ve calculated or estimated your valuation and have decided to place your business on the market, the next step is to prepare for the sale. This will involve showcasing your business, finding buyers, and negotiating the terms of the deal.
Step 2: Sales and Deal Structure – Who Will Buy My Business and How Do I Find a Buyer?
Now that you have a valuation for your business, you’ve arrived at the moment of truth: testing buyer appetite for the business, negotiating the deal, and ultimately closing the sale.
Here are some questions to answer during this phase.
Who Will Buy My Business?
Earlier in the article, we briefly discussed some common archetypes of Amazon FBA business buyers. Depending on the size and complexity of your business, you are more likely to receive attention from one group over others.
First-Time Buyers
These individuals may be new to Amazon FBA and are looking to purchase a small Amazon FBA business as an alternative investment or to replace a job. These buyers are likely interested in 5- to low 6-figure Amazon FBA businesses.
Portfolio Buyers
These individuals are likely more experienced Amazon sellers with one or multiple Amazon Seller Central accounts, who are looking to add to their portfolio of Amazon FBA businesses. These buyers might be interested in lower-cost Amazon FBA businesses but might also have the capital and confidence to purchase mid-6-figure businesses.
Brand Aggregators
These are investment-backed organizations with teams of Amazon FBA operators, including inventory managers, PPC campaign managers, and product research and optimization specialists. These organizations are often looking for businesses from the mid-6-figure level and up, but they often purchase businesses that are within the 7- to 8-figure valuation.
It’s important to recognize what type of buyer you will likely interact with, as this will help you determine where to find your buyer and their level of competence with online business acquisitions.
Where Do I Find Amazon FBA Business Buyers?
When searching for buyers, your decision comes down to whether you will work through a brokerage or attempt to navigate the deal privately.
Finding Buyers Privately vs. Through a Brokerage
The primary reason sellers choose to sell privately is to avoid brokerage commissions.
However, when selling privately, you are responsible for managing every aspect of the deal, which includes compiling a profit and loss (P&L) statement and calculating a valuation, finding a suitable buyer, negotiating the deal, defining contract terms, finding an escrow service to hold the funds, legally protecting yourself, and transferring the business assets.
Below are a few points to consider when making your decision, starting with the off-market fallacy.
The Off-Market Fallacy – Protecting Yourself From Getting Ripped Off
First-time sellers commonly believe that selling an online business privately will allow them to walk away with more cash than if they paid a commission to a broker.
In many instances, we’ve seen the opposite: particularly savvy brand aggregators experienced in negotiating deals are able to buy businesses for 60% of what they are actually worth.
When working with a brokerage, you are working with a team of experienced sales advisors throughout the sales process who, in some cases, can help negotiate a higher price than the original valuation.
Revealing Your Business to a Qualified Buyer Pool
In the Amazon FBA world, seller niches and product selections are often kept secret and held close to the chest.
When selling privately, you are likely advertising your business on social media forums in front of an unvetted audience. Doing so can leave you vulnerable to those who have no intention of buying a business; they simply want to perform market research and steal product ideas.
When working through a broker, you likely have access to a marketplace of qualified buyers who must verify their identity and liquidity to prove their intent and ability to purchase a business.
Protecting Yourself Legally
When constructing a sales agreement, it’s important to ensure that you’re protecting yourself legally.
For example, what happens if a business drops in performance during the sales period? When do you get paid, specifically? If there is an earnout, what are the terms? What happens if the buyer defaults on anything during this process? What are the terms for reversing the deal?
It will be important to work with a lawyer who specializes in the M&A world, ideally in the online M&A world.
Working through a broker, your legal documents are prepared as part of their service. In many cases, the broker also provides escrow-type services by holding the funds and serving as a 3rd party to mediate contract disputes.
Transferring the Business Safely
After both sides sign the sales agreement, the business assets must usually be transferred prior to releasing the payment. If working privately, more often than not, the buyer does not have significant experience transferring an Amazon FBA business.
Certain brokers, such as Empire Flippers, may come with experience and provide assistance when transferring Amazon FBA businesses. It’s important to note that not all brokers offer this service, so be sure to ask about this if shopping around for brokers.
It Comes Down to Safety
Ultimately, working with a brokerage company means paying for a more seamless and likely safer sales experience. For most sellers, exiting a business is a life-changing event, and with so much at stake, even highly experienced sellers choose to work with a broker rather than sell privately.
If you decide to sell privately, however, be sure to thoroughly understand the entire process, and at the very least, get a 3rd party quote for your business prior to negotiating with a buyer.
How Long Will It Take to Sell My Business?
Amazon FBA businesses on average are sold within two to three months but can be sold as quickly as in a few days.
What are some characteristics of the quickest sellers that you, as a seller, can control?
Selling During an Incline
Selling during an incline might not only improve your multiple, but also stoke buyer confidence. This might look like selling during the holiday season, when performance is high, or selling after a significant spike in performance.
Financing Options
Also known as an earnout, being open to financing options means receiving a portion of the cash for the deal upfront and receiving the remaining amount over an agreed-upon period.
This expands your potential buyer pool to include otherwise great buyers who do not currently have the budget to pay for the business in full. This, of course, requires a degree of trust in the buyer and in your business to continue to produce the revenue necessary to fulfill the financing agreement.
Working With a broker
As mentioned previously, a major advantage of selling through a broker is having access to a qualified buyer pool. Not only is your business more visible, but you may also have multiple buyers competing for your business, which can incentivize a quick purchase.
The Sales Contract is Signed – When Do I Get Paid?
Once the contract is signed, the last hurdle to completing the sale and receiving your funds is successfully transferring all the business assets. This is the last phase, known as the migration phase.
Step 3: Migrating the Assets – How Do I Transfer My Business?
Congratulations, you found a buyer, negotiated a deal, and signed the sales agreement – now what? The final phase completes the deal, and you receive your funds in the migration phase.
The migration phase can be as important as the sale agreement itself, as transferring an Amazon FBA business incorrectly could cause the business to be suspended and the entire deal to be reversed.
It can happen, and it is heartbreaking.
Imagine for a moment that you’ve gone through weeks or potentially months of constructing your P&L, finding a buyer, putting together legal documents, and negotiating and signing a deal all to see everything come crashing down due to an account suspension at the 11th hour of the sale, just before receiving your funds. The deal is canceled, and you quite possibly have a damaged or even inactive business. This is a scenario that proper migration can help avoid.
Below are some important things to consider when transferring an Amazon FBA business.
Transferring a North American Account vs. a UK/EU Account
There is a significant difference in the processes when transferring a North American account and transferring a UK/EU account.
When transferring a business and making any changes to your Seller Central account, you should understand and ensure that you’re abiding by Amazon’s terms of service. This includes knowing what information is required, how to properly change information, and when it is best to do so.
If you’re selling a business with a UK/EU component, we highly recommend reading our article on transferring a UK/EU Amazon FBA business prior to performing the transfer.
The Importance of Selecting a Broker or Buyer With Transfer Experience
This was mentioned earlier, but it’s worth repeating: a major benefit to working with a broker over a private buyer is that brokers often have experience with migrating Amazon FBA businesses.
We have a specific team of migration advisors and specialists who guide buyers and sellers through this stage. If you’ve decided to sell through a broker, it’s important to ask each broker if their service includes migration assistance.
If you’ve decided to sell privately, it’s critical that the buyer you’re working with has experience transferring Amazon FBA businesses. Without the proper experience, it’s possible to trigger a terms-of-service or security violation and have your SKUs paused or account suspended.
How Do I Get Paid?
If you’re working with a brokerage that offers an escrow-type service, they will hold onto the funds until the terms of the deal have been met. We release funds once the business has completed the migration process.
If you’re on an earnout deal structure, the earnout period typically starts from this point unless otherwise stated on the sales agreement.
If you’ve sold privately, you will need to work with a 3rd party escrow company and define the terms of the release of the funds during the negotiation process.
I’m Ready to Sell My Business – What Are the Next Steps?
The first step in preparing your business for sale is to speak with a sales advisor. They will learn about your business and its viability for sale or how it can be improved to become a salable asset.
Even if you aren’t ready to sell right now, having this conversation early can be the difference between selling or not selling, and potentially selling for a much larger valuation.
If you’re not ready to have a conversation with us, we still recommend trying our free valuation calculator to see what your business could be worth and working through the above steps.
Selling a business can take some work but, based on feedback from sellers we’ve worked with, it’s absolutely worth it.
