[Case Study] A Millionaire in 40 Days Through FBA
In just over a month’s time, you could achieve a lot of things. You might develop a habit or read that book you’ve been meaning to finish.
Now, imagine this: what if, in the space of 40 days, you could become a millionaire?
Acquiring that much wealth in such a short space of time is unheard-of to many of us. But recently, one seller received $1.7 million up-front in cash for their Amazon FBA business after just 42 days of listing it for sale.
With this much capital at your disposal, your time and resources would be freed up to achieve your lifelong goals, whether that means buying a house, wiping out debt, or starting new businesses. You may not have thought that selling your brands for a profitable exit was in the cards for you. You might not even know how much your business is worth.
So, what was the secret sauce behind this particular FBA business? Why did prospective buyers see the acquisition of this business as an incredible opportunity?
To answer these questions, we are going to take a look at how this seller grew their business and how you can do the same.
The Anatomy of a Million Dollar Business
Turnkey solutions are attractive to different types of buyers, and a turnkey solution is exactly what this seller achieved in their FBA business.
First, it’s important to note that an efficient business revolves around standard operating procedures (SOPs). Having the right SOPs in place also allowed this seller only to spend just five hours per week managing the business. The few remaining tasks of running the business included monitoring stock levels and managing a virtual assistant (VA) for pay-per-click (PPC) campaigns.
Second, it was easy for buyers to see that the business held potential for expansion. Most of this online business’s sales came from the US, Mexico, and Canada. The business sold 99% of its goods through Amazon. A Shopify store was set up, but it was under-utilized, making the potential for expansion a huge attraction to potential buyers.
When you’re building your FBA business, you should consider multichannel selling to create a diversity of revenue streams. Having income that flows from different options means you aren’t completely dependent on Amazon. In turn, this helps your business model become more sustainable. It also increases the actual valuation amount because you have much more control over, for example, Shopify’s e-commerce store than you do over Amazon.
In this case, the FBA business model was solid, there were effective SOPs in place, and there was a healthy revenue stream flowing in. Of course, this didn’t happen overnight for the seller.
The business was launched in 2016 and didn’t begin making a profit until a year later. Most people would have given up within that first year. It can be demotivating to work so hard and see so little growth over what feels like a long period of time. But these kinds of setbacks are common in entrepreneurship, and the seller knew he had to push through. Eventually, the tides did turn in the seller’s favor, and he watched the company’s ledger go from red to black. In particular, Christmas saw the biggest revenue spike for the business.
So, what can you learn from this story as you strive to build your own $1.7 million business?
A successful online business starts with creating a strong defense.
The Depth of Your Moat Is Linked to the Value of Your Business
Putting your company up for sale for the first time is a stomach-churning experience. It’s normal to ask yourself questions like, “How long will it take?” or “What if no one wants to buy it?”
You can take the edge off those nerves by making sure your business offers something unique. One way to do this is by building your “moat” through the company’s brand.
The case of the FBA business described above showcased an excellent example of how to do this.
The company’s moat was built from being part of the Amazon Brand Registry 2.0, registering the brand as a trademark, and holding an outstanding average review rating of 4.75 out of 5.
Signing up to Amazon Brand Registry 2.0 gives you greater account protection and more control over your sales. It also helps significantly to increase brand trust.
One attractive perk of signing up is being eligible for Amazon Prime. Prime delivery converts customers pretty well. After all, competitor products might have good reviews, but given the choice, customers will order the option that arrives the next day.
In addition to being part of the Amazon Brand Registry 2.0, securing a trademark strengthens your brand’s defense. A trademarked brand helps to create a “moat” around your business. This means that it’s much harder to produce a carbon copy of the product and business model. Trademarks keep your business afloat in a sea of counterfeit products.
The average rating of 4.75 out of 5 across all the company’s products helped this business stand out. The most popular stock-keeping unit (SKU) received over 550 reviews and made up 40% of the overall sales.
In fact, this popular product might have had too high of a share of total revenue. We have found that products with 50% or higher of the total share of revenue can be dangerous. In fact, even 40% is verging towards the high side.
In an ideal world, sales would come in evenly across several products. An equal spread of revenue lowers the risk of a single product falling out of favor. As the age-old investment advice goes, diversity is the name of the game.
To sum up, to succeed, you need to create a unique brand to increase its value in the buyer’s eyes.
Another attractive feature of successful businesses is their ability to scale.
Positive growth might need many small changes or a few larger ones. Usually it’s a combination of both. Another key point in the above-mentioned case is that the seller optimized their business to stimulate growth. Below, we will share some tips to do the same with your own FBA business to experience growth and an increased valuation price.
How to Optimize Your Business for a Quick Sale
You might think your business is doing well when it starts making a profit. But then, after working hard to get your company off the ground, complacency can creep in.
This leads to stagnation, and you end up missing the chance to drive growth. As soon as you figure out how to improve your product or service, you can start optimizing. A refined jewel is more attractive than a diamond in the rough. Push yourself to go through these growing pains when the initial stresses wear off in order to make your business as valuable as possible.
Amazon FBA businesses can be easier to scale once you have identified proven product winners. A money-making brand is easier to scale than a newly introduced brand. And once a product has started generating steady income, you can focus on improving the operations or marketing.
In this case, the seller’s critical decisions saw profits grow to new heights.
Here is an example. At the time of sale, the seller removed a product from the store’s page based on its poor sales performance and the observation that it was not cohesive with the brand. This example illustrates the valuable lesson of how you often need to cut from your business if you want growth.
When gardeners maintain their plants, it’s necessary to prune them. This involves removing weak branches so the plant can grow optimally.
Consider the same approach when you measure your products’ performance. Sometimes, a feature doesn’t do a good job of representing your brand. When this is the case, you need to be ruthless and remove it for a leaner and more efficient business. It’s better to cut your losses sooner rather than later. You will be able to let go of attachment more easily if you recognize that you can always reintroduce the product later or save it for another project.
It’s no coincidence that huge growth happened after this company removed the offending product. Besides this key change, they also made a few other improvements. Specifically, the seller updated images on the website and the Amazon store while introducing two new SKUs. From there, sales tripled in value compared to the previous year.
Updating images doesn’t seem to be a cutting-edge measure to improve your business, but it plays a big role in creating an enjoyable customer experience. You’re more likely to return to a site that’s easy to use and easy on the eyes.
In fact, buyers often check if you use free or paid stock images. The latter contains much higher image quality than free resources. Making this simple choice of paying for better quality images can help you avoid lost revenue.
Standing out in a Crowded Amazon Marketplace
It’s important to remember best practices for your site’s UX design and interface. In addition, here are some other ways you can streamline your business.
First, work to improve your site’s SEO so Amazon’s A9 algorithm can find your products better. Your products’ Amazon rankings are determined by these factors:
- Sales History: How long it has been selling on Amazon
- Sales Velocity: How many sales does it get on a specific keyword
- Conversions: How many people convert to buyers on a specific keyword
Optimize your listing so your products appear higher on the search page. Experiment with your chosen keywords to see which ones convert more customers.
A successful Amazon FBA business is also dependent on your supplier relationships. This seller had a long-standing relationship with each of their suppliers. It’s also worth mentioning that you should have multiple avenues to source your products. Doing so backs up your business against the risks of having one major supplier. If you only have one major manufacturer and a time comes when they cannot fulfil your orders, your entire operation could be at risk.
On top of these critical improvements, it’s important to update your profit and loss (P&L) statements. The buyer wants to see the company’s finances clearly and transparently. Many entrepreneurs stumble at this point since they aren’t familiar with standard accounting practices. That is exactly why we do this for you for free when you decide to sell on our marketplace to facilitate a frictionless sale.
So far, we’ve seen two major themes of creating a profitable company: building a strong brand and optimizing your business for streamlined operations.
In the case described in this article, the seller ticked all of the above boxes. Taken together, this work generated a high degree of buyer interest.
The Buyers Start Lining Up
It wasn’t a surprise to see the reaction when this listing went live. The business garnered a lot of interest quickly. This was due to its incredible growth potential, the rock-solid infrastructure it was built on, and the minimal time required to run the business.
Not even six hours passed before someone booked a call with the seller.
And the interest didn’t stop there.
Within a week, the listing had 14 active potential buyers and was viewed over 1000 times.
Getting an Offer You Just Can’t Refuse
One person didn’t need much convincing.
The buyer placed a full-cash offer of $1.7 million. Bear in mind, this business wasn’t making a single cent in profit 2 years prior.
Our State of the Industry Report revealed that full cash offers for businesses in this price range are rare. Earn-outs are usually included in the makeup of the deal.
Earn-outs give the buyer a chance to get a handle on the business with the support of the seller. Agreeing to earn-outs develops trust on the buyers’ side. A seller wouldn’t agree to meeting the financial goals if the business wouldn’t develop. However, some sellers decline this option if they are looking for a quick sale.
The Migrations X-Factor: Efficiency and Transparency
Once the sales price was agreed on, all that was left was the migrations process. Both parties were told it will take 3–5 weeks before completion.
This is standard for Amazon FBA businesses, since the process involves a lot of checks. Firstly, we need to speak with Amazon to crosscheck all the details. We also inform them that the ownership of the business is changing hands.
If sellers and buyers do not inform Amazon ahead of time, the account falls at risk of being shut down. This is because Amazon’s security measures are strict. When they’re not informed of these kinds of major strategic changes, they assume that fraudulent activity is happening.
The migration process started with the transfer of the Amazon Seller Central Account. This is normally done by an Amazon Seller Account transfer or a product listing transfer.
The inspection period began after all necessary documentation was signed. A request for the account transfer was then signaled. Both parties were told it would take about two weeks.
It’s worth noting that the buyer can end the 14-day Inspection Period at any time. Experienced buyers often choose to end the inspection period earlier if all the financials are in order.
Both parties agreed on the profit share owed during the deal. And with that, the transfer was finalized.
What Can You Achieve in 40 Days? Find Out with an Exit Planning Call
In just 42 days, this seller made a cool $1.7 million off their FBA business. They achieved their goal of raising capital to work on their other Amazon businesses and invest in real estate.
Most people won’t earn this much in their lifetime while working a 9-5 job. How about earning more while working less? Remember, the seller only spent around 5 hours per week maintaining this business.
The company’s strong brand and SOPs contributed to the quick sale. Having clear P & L statements also allowed buyers to see the business’s potential based on the past six months of data.
Selling your business is a platform to achieve your dreams. Many entrepreneurs start their businesses from the ground up. Although it took a year before seeing its first profitable month, this business experienced exponential growth.
When you’ve got your business in order, you just need to find someone to take it off your hands. However, experienced buyers can take advantage of new sellers’ inexperience. This can end up in you selling for less than what your brand is worth.
In this case, an online business broker may be more suitable for you.
From vetting and advertising to facilitating the migrations process, we make sure that your journey is as smooth as possible. If anything crops up that might hinder the process, we work with you to find simple solutions.
And once you’ve sold your online business, you can start planning for your future. For some, that might mean financial independence. For others, the sale enables them to continue growing their business empire.
To find out what lies in store for your future, schedule an exit planning call with our team to get a free valuation. We’ll give you a breakdown of how much your business is worth based on our experience of successfully brokering over 1,180 businesses.
Don’t take our word for it—check out our scoreboard that contains raw figures of how many people we’ve helped and what sets us apart from the rest. Then, we can explore how we might just be able to help you set yourself apart from the rest too.