7 Ways to Increase the Value of Your Small Amazon FBA Business
Before you can even consider selling your online business, you need to prove its value. Here are some ways you can increase the value of your small Amazon FBA business.
The private label business model is very popular for Amazon FBA businesses; it’s what we have done, full-time, for several years.
Online sellers like myself value the control that this particular model affords. Not only can they run the business the way they see fit, but a private label amazon business is much easier to sell at a later stage.
However, it’s not as simple as running an Amazon store for a few months and then selling it off. The value of the business needs to be apparent to potential buyers.
In this guide, I outline how you can increase the value of your small Amazon FBA business to sell it later on.
Tactics for Increasing the Value of Your Small Amazon FBA Business
1. Focus on One Category
Focusing on one niche category helps you build a stronger online business. For example, by only selling hiking or trekking-related products, you can focus on understanding a specific audience—their likes and dislikes and the products they prefer. It is also easier to build up an inventory of related products that customers might appreciate, resulting in repeat sales, larger checkout totals, and, of course, brand equity.
I also suggest using Amazon’s Wish List features to increase sales.
2. See Amazon as One Sales Channel
A mistake that many sellers tend to make is thinking of Amazon as their entire business when it should be seen as just one sales channel among many. When you serve customers both on and off Amazon, your brand has more potential for growth. Making your brand accessible on more than one platform not only instills trust, but it also allows you to gain more insight into customer preferences, resulting in new product ideas, more sales, and a business that is more valuable to potential buyers.
3. Build a Community Outside of Amazon
The more credibility a brand has, the higher its value. This is why it’s crucial to cultivate a community outside of Amazon. Doing so makes it easier to launch new products, generate reviews, and increase trust. Facebook, Instagram, Reddit, and YouTube are just some of the platforms that are ideal for building communities and driving more traffic to your chosen sales channels. Creating a basic website with a blog is another way to do this.
4. Automate and Outsource Operations
A business that runs efficiently is more valuable to potential buyers. Thankfully, there are countless apps and third-party contractors that can help you automate and systemize your processes. One such example is online accounting software. When the software is connected to your seller central account, there is no need to generate revenue and expense reports from scratch. This leaves you with more time to focus on other aspects of your small Amazon FBA business.
Prep warehouses are another example of how you can automate processes. When you have someone checking for damages and faults, and determining whether your packages are in order, your customers are happier and you save on unnecessary costs.
5. Opt for Exclusivity Agreements with Suppliers
Wherever possible, aim to sign exclusivity agreements with your suppliers. Not only do they add value to your brand, but they also help create a barrier to entry for potential competition. If you are unable to secure exclusive access, at least aim for favorable terms, such as good payment terms. Overall, what potential buyers want to see is that inventory can be sourced from the same suppliers with minimal interruptions.
6. Know When to Drop Items
An essential part of running a successful online business is understanding the seasonality of the items you sell. Those who plan to sell a small Amazon FBA business need to get rid of unnecessary expenses. Having old stock that you are struggling to sell can be a major obstacle during the business sales process. Drop these items, and focus on what is making money to increase the value of your business.
If you need to liquidate Amazon stock, here are 14 ways to do it.
7. Optimize Your Amazon Store
The more targeted traffic your store receives, the better it is for your bottom line. Just like Google, Amazon uses an algorithm to show people products that are relevant to their search queries. The good news is Amazon’s algorithm is a lot simpler.
Using the right keywords is one of the best ways to optimize your store. Understanding what customers would potentially search for and using those keywords strategically throughout your copy will attract more targeted traffic. Your product listing titles, descriptions, images, and questions and answers also play a role in how well your store ranks. The better the customer experience is when interacting with your brand and listings, the more sales you can generate.
How Much is My Small Amazon FBA Business Worth?
An online business will only ever be worth what a buyer is willing to pay for it. Once you take steps to increase the value of your business, here are a few methods for valuing it:
- Calculate Net Assets. To value your business, start with a balance sheet. This should highlight net assets, which are calculated by subtracting liabilities from assets. You’ll also want to add goodwill to this calculation. The best way to calculate goodwill is to multiply the average profits by the number of years you have worked on the brand.
- Look at Future Cash Flows. Future income forecasts can also give you an idea of the value of your business. This amount will need to be discounted, however, based on the amount of risk your Amazon FBA business faces. This will indicate the likelihood of these profits being attained.
- Calculate Multiple of Sales Revenue. Another way to determine the value of your business is to calculate a multiple of your sales revenue. This is the selling price of a company divided by 12 months of revenue. I have found that this calculation is more pertinent to service-based businesses though.
- Look at Profit Multiples. To value your FBA business using this method, start by calculating what your profits are on a monthly or annual basis. You will then assign a multiple to this figure based on a number of factors. For an Amazon FBA business, the multiple can be anywhere between 26 x 38 X to monthly net profit amount!
This article explains how we started our Amazon business with a lack of time and investment.
The Next Steps
If you decide to sell your Amazon business at any stage, you are going to need to develop a prospectus, which will contain all the facts and figures about your business.
When we were looking at selling one of our private label businesses, Empire flippers prepared all of this on our behalf, and we were stunned when we found out what our business was really worth.
Once you have collated all the details, you’ll need to find a potential buyer.
Some say that you can easily sell a business yourself if it’s valued at $100k or less. I strongly oppose this advice, however. In our experience, it’s always better to use a broker.
If your business is valued between $100k and $20M, I certainly recommend using a broker. A reputable broker can take care of buyer sourcing, negotiations, and deal structuring, and this can save you a lot of time and hassle, trust me.
If the value is over $20M, you might even need the assistance of an investment bank.
You should understand that it can take time to sell an Amazon FBA business, especially if it is a larger deal. Expect to wait at least 90 days for a deal to close.
There are generally three main types of buyers, including corporations looking to buy their first business, seasoned internet entrepreneurs looking to expand their portfolios, and brick and mortar entrepreneurs looking to make the move into digital.
Once a price is negotiated and terms are laid out, all that is left is for the assets and money to be transferred. In some instances, you may need to train the new buyer, but this would be outlined in the terms of your sales agreement.
I hope this guide has given you some insight into how to increase the value of your business to make it easier to sell.