How to Maximize Your Amazon FBA Business for Sale
Updated on September 8, 2020
Ever wondered how much your Amazon FBA business could go for?
Well, we just did a webinar with Greg Mercer over at Jungle Scout that talks about exactly that. It is an interesting topic, as Amazon FBA businesses are currently reaching a high level of maturity and stability, which is making buyers very interested in them.
Amazon FBA businesses make great strategic buys for investors. They’re also fantastic stand-alone businesses that tend to have low maintenance needs once they are up and running. Two years ago, you would have been hard-pressed to find a good Amazon FBA business available to buy. Today, however, there are plenty of opportunities emerging as some of these businesses mature and stabilize.
For those looking to sell their Amazon FBA business, pay attention to this post (or watch the video below) for some good pointers on how to sell for maximum value.
How Does the Valuation for Amazon FBA Businesses Work?
Valuations for businesses are always based off several factors, but the basic formula for Amazon FBA businesses looks like this:
Monthly Net Profit x Multiple = Valuation
*Inventory is not normally included in the list price, further details are provided to depositors.
If you’re unfamiliar with what a multiple means, check out our definitive guide to broker terminology here.
You can learn more about how valuations for online businesses work by checking out our free Youtube video below:
How to Determine Profit
Profit is determined by subtracting expenses from the gross revenue. Not all expenses should be counted, though, and these kinds of expenses are called addbacks. These are something you should understand before you put your business up for sale.
An addback is basically when you have an expense that is not integral to your business (click here to check out other broker terminology). An example of this would be going to an Empire’s Retreat to help you expand your business acumen. You might charge it as a business expense, but for the purposes of selling your business, it’s not a “real” expense. So whatever that event cost you would go right back into the net profits.
An example of something that wouldn’t be an addback is going to an event like the Canton Fair as a way to research new product manufacturers and product lines. This could well be an integral expense as it is directly related to your business, and the new owner would likely have to go to the Canton Fair as well if they want to continue this form of product research and networking.
The only expenses that should count against your monthly net profit are the absolute essential expenses to keep your business running.
How to Get a Larger Multiple
A multiple is something a broker (such as ourselves) determines based off a number of factors. This is what the net profit will be multiplied by to find an actual price for the website. Some brokers use only yearly multiples, while others use monthly multiples. A yearly multiple might be a 2x or a 3x, and the same multiple in monthly terms would be 24x or 36x.
Because some businesses have not been around long enough to give an accurate reflection of average earnings over a year, they will often use the monthly multiple. The longer a business has been around, the better a multiple they will get. That is why a $1,000-a-month FBA business that is five years old could warrant a much larger multiple than an eight-month-old FBA business earning $1,000 a month. The reason is that the older business can use averages calculated over a longer period (a 12-month average for example), and will have a lot more data to support its ability to continue earning.
Obviously, the time the business has been around and the amount of profit it earns are extremely important for a final valuation, but what else i should you look out for?
Use a Third Party for Quality Control
The first thing you should be looking at is how to minimize the work the new owner will have to do. Many Amazon FBA and e-commerce sellers actually have their products sent to them personally to be packaged, and only then sent off to their fulfillment warehouse.
This is a big no-no for someone looking to sell their business.
Yes, having someone else do quality control for you is an added expense.
At the same time, someone looking to buy a business, especially an online business, is not looking to sit in their garage all day putting their products in the right packaging. They are looking for an asset they can grow, typically with as minimal an amount of their time as possible.
Frequently, the buyer might not even HAVE a garage. They might be a digital nomad sipping top-shelf spirits out of a coconut on the beaches of Bali. If this is the case, packaging all of their own products for a newly acquired Amazon FBA business will look less than attractive to them.
Get Your Numbers Straight!
Make sure the Amazon FBA business you want to sell is its own company. That means making sure it’s not tied up with all your other businesses, if you have them. You need to make sure you have the accounting books straight for just this ONE business.
The best way to go about this is to use QuickBooks and an actual accountant. You could save money by learning how to do it all yourself, but your time is probably better spent making the business bigger rather than counting the beans.
Have Diversity
Having only one product with only one supplier that sells in only one market is not the greatest idea. Instead, you should have multiple SKUs, each of which have multiple suppliers. They should be effective suppliers who are able to manage your growth and allow you to expand into markets other than just the USA.
When it comes to Amazon FBA, we have seen some good markets in the UK, France, and Germany.
Multiple products and markets make the business much more stable by ensuring all its eggs aren’t in one basket.
Except, of course, you are still relying on Amazon’s FBA service which brings us to whether or not you should expand an Amazon FBA business into a full-blown e-commerce brand. Not too long ago we did a business model showdown comparing the dropshipping model to the Amazon FBA model. While dropshipping isn’t a full-on e-commerce business (since you’re not sourcing and storing the products yourself), it has enough similarities to be worth learning about, should you be thinking of expanding into a full e-commerce brand outside of just Amazon’s market.
Create a Brand? Yes and No.
Creating a brand for a group of related SKUs isn’t a bad idea. You can create a mailing list, your own website — the whole nine yards. However, we have found that often this brainpower can be better spent just researching new SKUs to add to your growing list of products.
So yes, while the extra safety gained through creating a fully fledged brand does make your business more valuable, it is often a very long-term play. It also takes a lot more marketing and business know-how than it does to just research new SKUs to add to your store.
For short-term big gains, focus on researching more products to add to your Amazon listings.
Again, the answer to this question depends on what your long term plans are with these products and what your vision is for the business you are creating.
Documented SOPs and Trained Team Members
You should document every task you do. Document it to the point that someone with absolutely zero experience could come in and do what you are doing. Think of yourself as someone who is building a machine with a series of buttons that need to be pressed for it to function.
Writing out all of your standard operating procedures is you building the machine. Once built, anyone can come along and press the buttons.
That brings us to the next point here, which is how to handle trained team members.
Trained employees or contractors who work for your business are a bonus for most buyers.
Most buyers will want to keep that contractor around and use them to expand the business faster than they would otherwise be able to. A trained employee is valuable if the buyer wants to offload duties onto the employee or expand their role in some other fashion.
What’s the Next Step?
Once you have done all the work to maximize the multiple of your business, it’s time to list it for sale.
You’ve got a couple options here:
- Sell it privately
- Sell it using an established broker like Empire Flippers
Obviously we are a bit biased, so we recommend option #2.
However, if you DO go with option #2, and you don’t use us, make sure to read our post on how to tell if your business broker is screwing you.
Some quick benefits of using an established broker are:
- A much larger buyer reach: Our email list, for example, reaches over 35,000 people.
- Deal structuring: Brokers do these kinds of deals every day. We have a ton of experience understanding how negotiations work, and we have a good grasp of what a business is actually worth because we will have sold similar businesses in the past.
- More money: Sure, by selling the deal privately, you can save yourself the commission fee we charge. However, we have seen many people end up selling their businesses for far less than what they are worth because they didn’t have all the advantages a business broker enables. They could have sold it with us and even after the fee, have come out ahead with more profit.
When Is the Right Time to Sell?
Selling a business can be stressful and exciting all at once, and it’s certainly not a decision most people make lightly. This is especially true if you are selling your very first business. After all, you spent a lot of sweat and time equity building the thing in the first place!
We always stress never to get too attached to your business, as it could cause you to overvalue what the business is actually worth. Instead, focus on the fact you did build one from scratch and realize you have the core competencies to go out there and do it again.
Outside of attachment issues, when is the actual right time to go through the process and list your Amazon FBA site for sale?
Time
Do you find your business is taking up too much time? Maybe you can’t focus on other projects, or find you not focusing enough time on this project because you are busy working on other projects or things in life? This is usually a good sign you should sell the business. Sell it while it is riding high, before your neglect could cause the cashflow, and ultimately the value of the business, to decrease.
No More Passion
If your business doesn’t excite you anymore, if you don’t have any more pep in your step, then it might be a good time to go ahead and sell it. No one wants to do a daily grind. Feeling like your business has become a daily grind is usually a good sign that your interests have shifted away from the business. This mentality could have a negative effect on your profits, too, so this is something to seriously consider.
Don’t let your lack of passion negatively impact the value of your business. Instead sell it and collect a nice payday for the work you put in back when you were excited by the business.
Capital Raising
Probably the most common reason to sell a profitable online business is capital raising. When people start new or more ambitious projects, they often need more capital to ramp up the business as quickly as possible. That is where selling a business comes in.
If someone can get a $100k upfront sum of money to invest into the new business or project they are growing, it can make sense for them to sell their previous business.
We have seen people use this method to grow new businesses super quick, as well as to invest into real estate properties that can become cashflow investments in and of themselves.
When Is the Selling Season?
Some of you might be wondering about seasonality; after all, almost every Amazon FBA business has a large uptick in the holiday season. You may think you want to wait till after the holiday season to sell it.
The real answer to this question is: it depends.
For super seasonal businesses, the earnings need to be looked at over a longer average to take into account all of the normal months leading up to the one or two busy months. As a result, you may not be able to impact your multiple that much by waiting to sell after the busy season. Unless your business is still relatively new, then you might want to wait till after the busy season to show what that will look like for your business.
On the flipside, selling before the busy season can be a good strategy from a sales and negotiation perspective.
The new buyer will want to make the deal quicker and get the deal done, so they can benefit from the high season as quickly as possible without having to wait around during the slow months. Listing an Amazon FBA business before the holidays can lead to a deal being done faster due to this inherent time pressure on the buyer.
While there are plenty of other reasons influencing when to sell your business (for instance, one couple sold their business on our marketplace to raise money to adopt a child), the reasons above are the main reasons motivating most sellers to find an exit for themselves.
Selling an online business can be a fruitful payday. For some people,building out these business and selling them represents an entire career.
Whether it is your first time or you’re a serial entrepreneur with a dozen business sales under your belt already, you can find more information on how our process works on our website.
Photo Credit: Belchonock
Discussion
This is such as great post! thank you so much for sharing information about how to maximize Amazon FBA business for sale . I was really looking for information like this..Thank you.
Glad you liked it Nina!