[Case Study] Why Sell an Amazon FBA Business Making $32,629.64 a Month?
Updated on April 27, 2020
What does financial freedom mean to you?
Think about it for a second.
Does it mean being able to travel the world while you work? Does the idea of being your own boss appeal to you? Whatever your dream might be, owning an online business can be the reality that gets you there. That’s exactly what happened to the seller of this Amazon FBA business.
In late 2016, the seller set-up a business that would go on to change his life.
The business made its first sale in January 2017 and would proceed to earn an average of $32,629.64 in monthly net profit throughout 2019. I don’t think anyone would argue that this level of income isn’t life-changing. Monthly profits like these beg the question—why would anyone want to sell?
Well, what if I told you the business sold in December 2019 for $1,165,250? Would that make you reconsider?
How would your life be different with an extra million dollars in the bank?
With the imminent birth of his first child, the seller decided that money in the bank was better than relying on a monthly payout. It meant that his attention could be dedicated to the new arrival in his family, and that factor alone was enough for him to list his business on our marketplace. Once listed, it took only 35 days for a sale to be agreed upon, and the seller gained the financial freedom he had desired three years earlier.
We thought it would be a good idea to take a look at how this Amazon FBA business grew into the giant it is now. To do so, we’ll discuss the steps that established the brand and examine how it was scaled up into a seven-figure business.
Establishing the Business
While it’s obvious to see the growth, it’s not so obvious to see the work that it took to get to that point. Before the product launch and long before the profits started rolling in, the seller spent months conducting market research. Selecting one SKU to start with allowed him to dedicate his time to create a detailed strategy.
Does your product stand out?
Here are the minimum factors that should be considered when releasing a product:
- Niche
- Competition
- Marketability
- Growth opportunities
Investing time into researching these factors meant that, when it came to the release date, his business was already set up for success.
The product checked all the boxes for marketability, so it was time to start forming deals with suppliers.
Ensuring a good relationship with the supplier is what keeps profit margins high. The product was sourced from a different country to the seller’s location, which is common among Amazon FBA stores. The fluctuating exchange rate caused slight changes in the margins, but because this variable was accounted for, it didn’t harm the success of the product.
Establishing trust with your customers is another important part of sales and something that Amazon rewards. Getting trademarked allowed the seller to apply for Amazon’s Brand Registry 2.0. This gave the seller an arsenal of tools not only to protect the brand but also to increase sales. As the product became more successful, copycat sellers started to appear. Being the owner of the trademark meant the seller could use Amazon’s Brand Registry to close any imitators down.
From month one, investment in Amazon pay-per-click (PPC) advertising was made. The launch of a product is arguably the most important time. Having done diligent product research, the seller was confident in the appeal of the product, but he still needed to attract eyes to his listing.
With the millions of products available on Amazon, a listing can easily get lost. Advertising can help to boost the reach of the product. It also helps to improve the organic search ranking.
With product research completed, the brand registered, and advertising prepared, the blueprint for success was thus laid out. It was time to see if it worked.
In month one, the business made $11,026.54 in total revenue, taking $4,339.48 in net profit—a healthy first month for any business. For six months, this Amazon FBA store saw growth that took it up to $65,346.78 in revenue and $29,655.57 in monthly net profit for July. From month one to six, the units sold had more than quadrupled.
This was the makings of a seven-figure Amazon FBA business.
Not content with sitting back and watching the profit come in, the seller decided to reinvest some of the profits for growth.
Scaling the Business
Having worked alone on launching the business, the seller now spent just two hours a week working. His time was spent replying to customer questions and monitoring the stock levels. This allowed him to work on plans to scale the brand.
In month seven and nine, money was spent on creating graphics and product videos. Designers and photographers were hired to better promote the product. This improved the professional look of the storefront. Their services would be used again on new product releases further down the line.
The year finished out with a successful Christmas period. Sales through November and December skyrocketed to bring in $74,099.84 and $185,047.90 in net profit, respectively. The first year of business ended with $922,885.05 in total revenue and $453,515.45 in net profit. Even with sales that good, only selling a single product still ran the risk of profit tailing off.
Although the product was selling well, it represented only one source of income. This can be a critical point of failure for a business. If the product turns out to be a fad or a strong competitor emerges, then there is nothing to fall back on. Having multiple well-performing SKUs can minimize this risk and make the business more sustainable.
To mitigate risk, the seller began to research new SKUs within the same niche. These could be added to the store and leverage the brand name that had already been established. The first of these new products started making sales in February 2018. Sales of the new product started slower compared with the main SKU, with only 21 units sold, but closed out the year with 119 units sold in December.
Diversifying the income stream ultimately increased the multiple, leading to a higher valuation. Even if the seller wasn’t considering an exit at this point, implementing these plans early would make the business more appealing when it came to the point of sale.
The third SKU started selling in August 2018. Throughout the year, the main product still sold well and provided the vast majority of the revenue. The net profit for 2018 was $370,441, which, although down from the previous year, was still sizable and represented a great return for the time invested.
At this point, the business was running like a well-oiled machine. The manufacturer in China created the product, and it would be packaged before being sent directly to Amazon. The seller would never handle stock directly. A well-established Amazon FBA business can be the definition of hands-off work when operated with solid standard operating procedures (SOPs) in place. The time and effort that the seller spent getting everything off the ground meant he was now reaping the rewards.
Listing on the Marketplace for Sale
Remaining highly profitable throughout 2019, the business earned an average of $32,629.64 in monthly net profit. As the third quarter closed, the seller moved towards the point of exit.
He contacted us in late September by submitting his business through our sell your site page.
This allowed us to get into contact with him and begin the vetting process. It was immediately clear that this was a well-run business. It had a fourth SKU waiting to be released, a clear list of SOPs, and the main product was a #1 bestseller within its niche and had over 1500 4.5-star reviews.
While it’s important to make a business as appealing as possible to buyers, which this seller had already done well, it’s also important to make the sale work for you.
Previous years had shown that the business was seasonal. In November, net profits would be at least double the monthly average, and December had seen six times the average monthly profit. Understandably, the seller wanted to hold off on listing until after he saw some of the profit from these months.
With the vetting procedure completed, an agreement was reached to list the business on 25 November 2019. While a business is live, the profits from sales are still completely owned by the seller.
Just 35 days after going live, a $1,165,250 offer was accepted. In all, it took less than a month and a half to sell the business for more than a million dollars.
Three years after making its first sale, the Amazon FBA store had a seven-figure exit. In addition to the sale price, it made a total of $1,078,104.97 in net profit over the course of three years up to November 2019.
Looking at the numbers might be a good enough reason to sell for most people, but it is often about a lot more than that.
When’s the Right Time to Sell?
The decision to list a business for sale will often come down to what’s going on in someone’s personal life. The right time for you might not be the right time for someone else.
For this business, when it came to exiting, the seller saw a chance to secure the future for his child. Some matters are more important than business. If you’re at a similar point in your life or you want to cash in on an asset, submit your business on our sell your site page.
We can guide you through an exit plan, using our experience of selling many million-dollar Amazon FBA businesses.
If you’re still in the building stage, then why not try our valuation tool?
Take out the guesswork and get a valuation that’s backed by hard data. Knowing where you’re business stands now can help you see what steps need to be taken next to get to where you want to go.
A business doesn’t have to be built from scratch, of course. If you want to get your hands on an Amazon FBA business that’s already generating profit, then take a look at our marketplace.
It will be filled with investment opportunities that might be your ticket to financial freedom.
