Selling your FBA Business for a Million Dollars and Beyond: Timelines, Deal Structures, and Everything Else
July 16, 2021
The online business buying and selling market as a whole has never been in a better place.
There are huge cash injections coming from brand aggregators backed by family offices and private equity firms, and high net worth individuals.
Amazon FBA businesses are becoming a recognized investment asset. This is why the value of FBA businesses increased 2.8X last year alone, which means that if you had a business earning $50,000 in net profits each month at the start of 2020, you would expect a baseline valuation of $1,285,000. By the end of 2020, for the same business earning the same profits, you would expect a valuation of $1,425,000.
We’ve seen this growth continue into 2021. In the first six months alone, the average sale multiple of FBA businesses increased by 49%.
As a brokerage, we’ve been in the fortunate position to be able to help these FBA sellers receive a substantial cash reward for their business. This rush has helped push our total number of Amazon FBA businesses that we’ve sold to over 100.
Using our custom-built marketplace, we’ve tracked the data from all of these deals to provide you with some solid metrics to give you a realistic idea of what it’s like to sell your FBA business.
We’ve focused the following data on businesses that are valued at seven figures and above, which, realistically, is a business that earns at least $36,000 a month in net profit.
Let’s walk in the footsteps of other seven-figure FBA owners who sold their business with us to see what their experiences were like.
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What It’s Like on Our Marketplace
We have a thorough vetting process we follow when calculating the value of your business.
Because of this comprehensive process, when we compare the sale price of businesses to the initial list price we set on our marketplace, on average, there’s only a 1% difference.
This is due to our vetting process, but also because we know our buyers and how to most accurately assess what buyers will pay for a business.
It’s important to note at this point that we do everything we can to protect your business while it is live on our marketplace.
One of the systems we have in place to protect your business is our listing unlock system.
When your business listing page is created, we hide any information that could allow someone to identify your business, including your brand name and links to your Amazon storefront.
To unlock a listing to reveal this information, a buyer has to verify their identity and provide proof of funds, i.e., provide proof that they can actually afford to buy your business. This weeds out any uninterested or untrustworthy buyers.
While on our marketplace, Amazon FBA business listings receive, on average, 34.7 unlocks until they are sold. That’s almost 35 interested buyers with verified liquidity checking out your business as a potential investment.
This is further proof that we are in a seller’s market. We’re even starting to see an evolution in terms of the negotiations of these deals. The demand for businesses is so high that we have some sellers in a position where they’re interviewing the buyer to make sure they are the right fit for their business; sellers can pick from multiple strong deal options that often offer them the potential to earn more from the business even after it’s sold.
The buyers who want to go to the next stage of their due diligence after unlocking a listing can then set up a buyer-seller call.
These calls usually consist of the buyer asking for further details about the business. For example, they might want to know more about any inactive SKUs you have or how you launch your products.
When the buyer is ready to make an offer, the calls will be centered around discussions about acquisition options.
On average, there are 7.6 calls until the sale is made. Less than eight calls to make a million dollars ain’t bad, right?
As for the acquisition options, most deals at this price range sell with an earnout.
Earnouts: What They Are and How They Work
In a nutshell, an earnout is a deal structure in which a buyer pays a certain percentage of the full sale price upfront and pays the rest over a period of months or years.
The first type of earnout is a fixed-payment earnout.
Take this example of a fixed payment earnout: a $5,000,000 business receives a fixed payment earnout offer from a buyer. The offer is 60% of the $5,000,000 paid upfront, with the other 40% being paid quarterly over the next 24 months. One of the key terms of this type of deal is that if the business dramatically drops in earnings, then the payment amounts will have to be renegotiated.
It’s important to note, however, that fixed payment earnouts are somewhat uncommon for FBA businesses valued in the seven-figure plus range.
The second type of earnout is a performance-based earnout. This is where the terms of payout through the earnout are based on the performance of the business post sale.
As an example of a performance-based earnout, a purchase price for a business is set based on a multiple (e.g. 4.1x) of the business’ trailing twelve month seller’s discretionary earnings (TTM SDE). In other words, the buyer will offer a multiple of the TTM SDE upfront.
The buyer may also want to purchase the inventory and offer a stability payment if the revenue in year one is equal to or greater than the business’ current baseline TTM revenue.
If the business exceeds the revenue earnings in year one, the buyer will offer a percentage of that revenue increase as performance payments. They will offer the same again in year two if the revenue exceeds the revenue made in year one.
In this example, there is an opportunity for the seller to make more on the sale if the business performs well post sale.
The motivation for buyers with these types of deals is twofold: one, they are able to get financing for the deal; and two, they help add an extra layer of security to their investment, as under the condition that the business doesn’t perform as well as projected, they don’t lose too much on the investment. Another reason why buyers like these deals is because if a seller is keen to accept a performance-based earnout, it tells the buyer that the seller has real confidence in their brand, which makes the buyer feel more comfortable with the investment.
The motivation for sellers is that it gives them an opportunity to earn more on the sale if they opt for a performance-based earnout.
Furthermore, 77.78% of FBA businesses in the seven-figure plus price range sell with an earnout, so you should expect to receive this type of offer. If you’d like to learn what type of offers you should expect to receive for your business, then schedule a call with one of our expert Seller Advisors.
Overall, the time it takes, on average, to initiate serious conversations about deal structures is 20 days, as this is the average time it takes for a seven-figure plus FBA business to get an offer that is accepted by the seller.
It’s our team of 80+ employees that allows us to make our marketplace an environment where quality deals can be executed in such a short time period. As a brokerage, we’re able to offer services that most others can’t, and our data reflects that.
What FBA Owners Get Access to with Us
As previously mentioned, the sales multiple we set for your business is based on a number of factors, including the growth or decline of your business profits and your business’ age. Looking at the anatomy and performance history of your business, we set a figure: the multiple.
The average sales multiple for FBA businesses at the start of 2021 was 26.2x. That’s 26.2 times the monthly net profit of the business to arrive at the sale price. Now, six months into 2021, that average sales multiple has increased to 39x.
The highest multiple we’ve ever sold an FBA business for is 66x its monthly net profit.
As you can see, this isn’t the norm, but it’s something we’ve been able to achieve because of our experience selling FBA businesses as a team, but also because of the giant buyer pool we have connections with.
Currently, we have a buyer pool that has collectively verified with us over $4,000,000,000 in funds ready to be invested into online businesses.
In this buyer pool are brand aggregators and high net worth individuals who are investing heavily in Amazon FBA businesses. The pool is growing and competition between buyers is becoming fiercer. As a result, we sometimes see buyers preparing strong counter offers as soon as other buyers start to bid on premium assets.
The Next Steps
Hopefully this article helped provide you with some clarity regarding what to expect when selling your Amazon FBA business.
If you’d like to learn more about what it could be like to sell your business with us, then call one of our expert Seller Advisors who can break down, in plain English, what you can realistically expect.
Starting the process of listing your business for sale is quick and simple.
All you have to do is provide some basic information about your business, including your business model, age, monthly net profits, etc., and we’ll take it from there. It takes just 5–10 minutes.
It’s free to list your business for sale, and you can continue to run it as normal and keep earning from your business while it’s listed. There’s no risk on your part, and you only pay a commission when we make the sale.
Start the process of listing your FBA business for sale today.
