[Case Study] How this FBA Business Commanded a $1,367,300 Exit
Updated on April 21, 2020
Are you trying to determine which Amazon FBA niche is right for you?
Even with software tools and services such as Jungle Scout and Helium 10 making it easier than ever to perform product research before investing, choosing the right niche is often a challenge when planning for an asset’s longevity.
While most aspiring online FBA entrepreneurs wish to gain an upper hand with a unique evergreen product, many owners are now realizing the benefit of diversifying their product line and niche expansion opportunities right from the start.
Diversifying your revenue streams is important for protecting your investment. Spreading risk across multiple products, storage facilities, and marketplaces give you enough breathing room if things don’t pan out.
Daniel, the seller of this Amazon FBA business, saw a great opportunity to gain a nice 7-figure exit after building a group of four brand names whose products were selling in two separate markets: beauty and health and fitness.
Having started these sites back in 2016, Daniel first began his online journey selling products on eBay. He moved to private label products later on and, soon after selling his first business, realized the potential Amazon FBA offers, with less effort required to maintain backend profits.
While some FBA owners try to handle every aspect of the business, Daniel had a business partner who primarily helped track financials.
Daniel knew that the opportunity to scale this business model far surpassed the gains acquired on other platforms, so he diversified his investments with multiple brands, selling in two separate niches, and expanded to multiple parts of the European and US markets.
Two brands offered products in the health and fitness niche: affordable muscle braces and quality fitness accessories. The other two brands were related to women’s beauty products and doing very well in the US market, but failed to be a success while testing the EU marketplace.
Daniel not only spread the risk across multiple niches by offering unique products on the backend of his business model, but he also chose to monetize his blog content as well.
By providing written content for the blogs found on each brand’s domain, he was able to “double dip” monetized conversions by integrating his Amazon Associates links within context. Taking a commission cut from Amazon on his Associates commission but was able to track conversions from various sources using the data gathered, and still make some on the backend if that traffic converted on Amazon with other products not his own.
While this might seem counterproductive given that the primary goal is to obtain low-cost conversions, it does offer a last-ditch effort to convert organic traffic if visitors don’t go to the online shop before bouncing.
And now they have an Amazon pixel for all product purchases moving forward.
One notable feature was that only one beauty product between the two beauty brands was sold in the US. This may lead you to believe that the eight health and fitness products sold in the European market brought in a majority of the revenue for the asset. However, that one beauty product sold consistently week after week, bringing the revenue split to almost 50/50.
After diversifying his UK trademarked brands to include four branded WordPress sites, nine SKUs (selling primarily in the European marketplace), and one well-established product in the US market, Daniel decided it was a good time to gain the capital needed to invest in an Amazon SaaS business.
What We Discovered During our Vetting Process
Our dedicated vetting team and business analysts do their best to provide you with the most up-to-date valuation based on similar assets being sold in the market.
By addressing all issues before listing an asset on our newly designed marketplace, not only do we save buyers time who are not interested in reviewing profit and loss statements, but we also ensure that the business metrics are, in fact, accurate.
Having already set up Cash Cow Pro and Jungle scout on the backend, Daniel had the metrics needed to help paint the bigger picture once potential buyers started asking questions about each brand’s importance to the business overall.
By hiring two VAs to help with daily operations, Daniel and his business partner were able to work less than five hours per week.
These VAs not only helped with managing the brands’ customer service inquiries, but also with outsourcing product designs, photography, and any other operations necessary to maintain and gradually grow the brands’ over time.
Another great feature was that 94% of the traffic was coming from search and buy sources. In other words, organic traffic made up the majority of the traffic share as Amazon PPC was only used when launching new products.
We see a lot of FBA owners using a one key strategy to rank their products organically because, once paid traffic has helped increase page views, Amazon takes these metrics into consideration.
While the Amazon Seller central account was only running small PPC campaigns for new product launches, these were optimized even further through additional ad campaign options. By setting up an Amazon Web Services account, Daniel was able to display ads within the search menu bar, as well as on other competitors’ listings, if the traffic had previously viewed his brands’ listings first.
Having these options within your targeted PPC campaigns helps ensure that your advertising spend is being spent on warm leads with the highest intent to purchase your products.
To top it all off, to generate traffic to each individually-branded domain, Daniel also spent about $10 a week promoting specific landing pages through targeted Facebook ads prior to sending traffic to Amazon.
While this may seem like an extra step in the conversion process, it provides an opportunity to build a rapport and create excitement for your product before sending this traffic over to Amazon to complete the transaction.
Each landing page corresponded to a specific brand and target keywords, offering Daniel a chance to perform conversion rate optimization (CRO) during the initial testing stage to determine the most effective content and web copy.
By providing the systems in place like a dedicated team of VAs, a 3PL service, automated email campaigns, backend software tracking key growth metrics and inventory numbers, and a vetted average monthly net profit ($54,692), our vetting team had all the information needed to give their report.
Daniel and his business partner were given a listing multiple of 28x with a listing price of $1,531,387 dollars. Having spent roughly the last two years growing these brands and preparing them to be moved into the Amazon SaaS business model, they were both ready to see what capital gains this asset could provide.
The Listing Goes Live and 14 Buyers Want In
On the day this Amazon FBA business went live on our marketplace, 14 potential buyers immediately moved in to unlock it and began their due diligence processes.
A business this size will often have multiple buyers with a team or co-investors performing detailed checks on any given property at the same time. It’s effectively a digital feeding frenzy: these buyers are looking for easy wins to gain timely and profitable returns on investment (ROI).
As new and existing buyers began their due diligence processes over the following weeks, some asked about the assets’ value added tax numbers and what it meant for the European market.
In the UK, the corporation tax is 19% of the net profit each year. Dividends are then distributed after tax. Let’s say, for example, that the company made £100,000 in net profit in a year. Instead of paying tax on this large sum, the owners could decide to pay out salaries or management fees for £50,000, leaving £50,000 net profit which would then be taxed accordingly.
In the UK, salaries and management fees are paid out before tax, and thus reduce corporate tax liability. Once these numbers had all been sorted out, more potential buyers started rolling in.
The 7-figure Offer that Closed the Deal
After a handful of calls from potential buyers, a few concerns were brought up that led to a slower tick in the needle moving forward.
A few potential buyers questioned market share numbers for the beauty product being sold in the US. Daniel explained that the beauty product was generating profits similar to those of the eight health and fitness products selling in the EU market, and that adding new products to the beauty line would surely increase the US market share with minimal effort.
The buyer who ultimately purchased this business viewed pre-established products in multiple markets as one of many growth opportunities that others may have overlooked.
The buyer’s initial offer in US dollars was
Sale multiple: 25x
Sale price: $1,367,300
Upfront amount: $820,380
Earn-out amount: $546,920 (made in two separate installments)
While most sellers on our marketplace would love a full cash offer (and yes, it does happen for listings this size), you will often see some form of earn-out period incorporated within the deal structure.
Sellers tend to hate this type of deal structure while buyers, on the other hand, love it.
Not only does the buyer gain an interest-free loan on a newly acquired property, but some deal structures also benefit buyers when earn-out payments are performance-driven. In general, the higher the profits generated after the new owner takes over the asset, the faster you as the seller get paid from the earnout settlement.
However, this was not necessary for the acquisition of this asset as the metrics had shown steady year-on-year growth in both revenue and traffic, which is often a good sign in the potential ROI for structuring a normal earn-out agreement.
The buyer agreed to a total upfront amount of $820,380, and two separate payments of $273,460 over the course of an 8-month earn-out period. Once you factor out our commission, the seller was able to walk away with a 7-figure gain for his next project.
Daniel and his partner walked away with $1,203,224 in their pockets after growing these brands in just over two years’ time.
That is quite the exit when you consider the amount of work required now to maintain steady profits. Now that Daniel and his partner were able to focus on other projects, the buyer was able to gain a huge advantage with their established product line and really start to scale their US market share to its full potential.
The buyer who acquired this sought-after asset gained the optimized backend of this business, making product expansion effortless. In addition, with the data gathered from link tracking, CRO, and keyword research, they could focus on launching new products and scaling their investment even further.
Do You Have an Amazon FBA Business for Sale?
No matter if you are selling products within one niche or multiple, optimized FBA businesses will always be in high demand in the digital properties marketplace.
When it comes to gaining the best possible ROI from your exit, knowing what buyers are looking for is the first step to achieving your goals.
Understanding the different types of buyer personas in the market today will give you the upper hand in addressing any issues you might have overlooked. When you diversify the risks associated with your business—by, for example, expanding into other marketplaces, growing the product line, and branching out into other niches—you give buyers a better sense of security when making such a huge investment decision.
By hiring VAs to handle daily operations, such as customer service and inventory management, a buyer can now scale the asset without being tied down to these micro-processes. This is a huge deciding factor for many as the goal of purchasing any online business is to gain an investment opportunity, not an unorganized time-intensive job.
Be sure to optimize your inventory management, improve products based on customer feedback, and build a recognized brand within your market as it gives potential buyers a turnkey business opportunity and increases demand.
Curious what your Amazon FBA business is worth? Fill out our valuation tool and discover the answer based on real data from similar businesses being sold on our marketplace today.
Already have an idea of what your FBA business is worth and are looking to gain the best possible exit just like Daniel and his partner were able to achieve?
Set up a call with one of our business analysts today and we can help you plan for a profitable ROI. We can connect you with the right buyer for your business as we offer the largest curated marketplace for buying and selling online businesses today, with the most buyer contacts eager to acquire your business.
Not sure if now is the best time to exit?
We have you covered. When you set up an exit planning call with one of our business analysts, we can help walk you through the process of planning and improving your asset to gain the best exit possible. With the ever-increasing demand for growing FBA assets, we are here to help you every step of the way.
