How To Sell An FBA Business
Starting a retail business has never been easier with the use of Amazon’s marketplace and infrastructure. If you’ve grown your Fulfillment By Amazon (FBA) business as much as you can, or are simply ready for a new chapter in life, this is what you need to know about how to sell an FBA business.
Table Of Contents
- Types of Amazon FBA Businesses
- How To Increase The Value of Your Amazon FBA Business
- How Much is My Amazon FBA Business Worth?
- How Do Buyers Value Businesses?
- Who Will Buy My FBA Business?
- How Do I Find A Buyer For My Amazon FBA Business?
- How Do I Transfer My FBA Business?
Types of Amazon FBA Businesses
Selling your FBA business depends on the kind of business you have. There are three basic types of FBA businesses and you likely know which one you have based on the way it functions.
Resellers or Retail Arbitrage
This kind of FBA is one of the easiest to set up and operate, but it can also be the hardest to sell because of the low barriers to entry and high levels of competition. A reseller is a business that buys stock from a wholesaler or warehouse at a discounted price and sells them for full price on the Amazon marketplace.
These businesses are the least attractive to buyers because they come with the most risk. Resellers can be highly volatile due to the level of competition and high reliance on suppliers. In addition, resellers are often entirely reliant on the Amazon Marketplace. This means that losing your Amazon account or losing ranking in the marketplace could completely cripple the business and that’s a level of risk few buyers are willing to take.
Private label FBA Business
Private label businesses are more attractive to potential buyers because they offer something resellers do not: your own brand. Private label FBAs rely on something called “white label” products, which are standard unbranded products that a seller can bring to market under their own brand name. While these products are available for anyone to brand and competing businesses may sell the same products, there is a higher barrier to entry with private label businesses because of the considerable amount of work it takes to build a trusted brand.
Proprietary FBA Business
This is the most sellable type of FBA business. That’s because these businesses offer a unique brand and product that is exclusive to that business. These FBA businesses have identified an unmet need in the market and have created a product to meet that need. As these companies often hold patents, trademarks and copyrights they have the highest barrier to entry and therefore less competition making them the most attractive to potential buyers. Proprietary businesses also have loyal customer bases as they provide something that is difficult to find anywhere else. They may also have their own website and several alternative channels through which they can market and sell their product outside of the Amazon Marketplace.
How To Increase The Value Of Your Amazon FBA Business
A major factor in determining and increasing your FBA business’s value comes from assessing how vulnerable your business is to competition. When considering a business's vulnerability, buyers will often look for a brand that offers proprietary products. If you are one of the only or the only business that offers a product, buyers can be sure that purchasing your business is a solid investment.
Of course, if you don't have a proprietary product, building a brand name that is trusted and favored by its customers is the next best option to add value to your business. Brands take a long time to build and develop, but if selling your business is the goal, then it’s worth the time and effort to build a name and reputation that will keep customers coming back. Registering your brand with Amazon is also a good way to build credibility and ensure that your brand is secure and safe from counterfeiters.
If branding and proprietary products are out of the question, the best thing to do is to ensure that you are always offering quality products. Take some time to research your suppliers and ensure that what you are offering is of better quality than the competition.
Once you’ve found a quality supplier and established a working relationship, you may even be able to set up exclusivity deals that will narrow the competition and give you the next best thing to a proprietary business. Exclusivity deals are a great way to sweeten the pot for buyers as they’ll know the business they’re buying has something its competitors do not.
In addition to this, ensuring that your products are not seasonal is a good way to attract buyers. If your products are seasonal, like pool floats and accessories for example, you could branch out into other outdoor products that can be sold in the fall and winter months. Perhaps consider branching out and diversifying into other markets where the weather is warm year round.
Diversifying your business in this way will be attractive to buyers because it will show that your FBA business is less vulnerable to market shifts and can adjust to ensure that it's always profitable. Expand your horizons, but don’t take on so much that you can’t handle the changes.
Another thing to consider would be launching a search engine optimization (SEO) campaign. SEO campaigns can ensure that your business ranks in online searches and that customers are seeing your products when they’re browsing. Buyers love to see a business that has a wide reach for potential customers and expanding beyond Amazon, building your own website, creating a significant social media presence, launching email marketing campaigns and becoming a member of the Amazon Associates program are all ways to increase the traffic, boost sales and attract buyers to your business.
Finally, organizing and streamlining your business is a great way to get a little extra value out of your sale. Whoever buys your business will likely be looking for a reliably profitable acquisition, not a full time gig. Keeping your finances in order is a solid first step as a buyer who sees clean books can assume that the rest of the company is also run cleanly. Ridding yourself of any unnecessary expenses is also a good way to increase the chances of a sale. Purging products that aren't selling, reducing operating costs, establishing standards and practices and automating wherever you can will allow you to offer buyers a business with minimal hassle.
How Much Is My Amazon FBA Business Worth?
When selling your FBA business the value will likely depend on something called Seller Discretionary Earnings (SDA). This is basically a calculation of your net profit which will then be added to the cost of inventory and the cost of getting that inventory into Amazon’s fulfillment centres. This will offer a baseline for your company’s valuation.
SDE is calculated by taking the revenue of your company, subtracting expenses and adding something called add-backs.
Add-backs are expenses that are incurred while operating the business, but aren’t necessarily integral to operating the business. They include things like an owner’s salary, interest on loans, non-business-related travel expenses, non-business-related rent, patent and trademark costs, any costs related to web design, insurance and other non-business related expenses that have an impact on sales.
These expenses should not be included in the SDE calculation as the SDE is a calculation of the money the business brings in.
If you’re unsure of the value of your business, it could be a good idea to get a professional appraisal. In any case, the final valuation of your business is likely to be 1 to 2 times that of your SDE, but it’s recommended that you look at market trends and similar businesses for sale to get an idea of how much your business could sell for.
How Do Buyers Value Businesses?
The age of your FBA business is one of the main things buyers will be concerned with. That’s because the older your business is, the more data will be available to the buyer to help them determine what can be expected.
If your business is less than a year old, it’s a good idea to wait before selling. While SDE figures can be determined on a month by month basis, most of the time they are annual and this will be what buyers are looking for. Essentially, a business that has proven it can last two or three years is a more reliable investment for buyers than a business which has had initial success upon launch, but may not be able to sustain that momentum. Businesses that are able to provide those annual numbers will likely get a higher valuation than a newer business.
A general rule, businesses that are in their first year are still exploring their possibilities. They are trying to identify their best selling products, build a customer base, find reliable suppliers, all of which are risks that could scare potential buyers away. Companies that are a couple years old are usually looking to grow, which involves seeking out investors and streamlining the business to optimize what works best. These businesses will also require work on the part of the buyer. As a result, it’s best to wait a few years before selling your FBA business and work on creating an infrastructure that is proven to provide returns for a buyer.
Buyers will also look at current cash flow, revenues, expenses and the level of competition within the industry or niche that your business is operating.Thorough investors will also look at your Amazon Best Sellers Rank to gauge your business’ success.
Risk is a buyer's central concern and minimizing risk is the best way to keep a buyer interested in your FBA business. So, proving that your business is a sound and safe investment is essential.
Who Will Buy My FBA Business?
Most buyers are likely to be investors or entrepreneurs who are looking to add another income stream to their portfolio. Your buyer might even be a competitor taking the opportunity to solidify their place in the market. Either way, most buyers won’t be looking for a full time commitment to take on, but a successful business that is likely to make them money. For this reason it’s a good idea to ensure your FBA business has a proven sales record, established standards and practices to make training new employees easier and a solid set of records for everything from inventory to finances. It also wouldn’t hurt to automate wherever possible and overhead without compromising the businesses operations. Try to make just enough changes to make the transition as smooth as possible without compromising your profitability, after all, no one wants to inherit a well oiled machine that isn’t making money.
If you're not looking to go for a private buyer or list your business in a conventional marketplace, Moonshot Brands are a unique and easy way to sell your business and ensure its continued success.
How Do I Find A Buyer For My Amazon FBA Business?
Most sellers will hire a broker to sell their business. Brokers have ready access to buyers and will put in the work to make sure your business sells, but they also take a commission for their work. Much like a realtor, they will stage your business to sell like a home and are a safer choice than selling privately.
Private sales will require a lot of leg work that would otherwise be done by a broker. While sites like Flippa exist to give you access to a marketplace of buyers, determining the price point and negotiating the deal as well as vetting buyers will be on your shoulders.
Multi-brand platforms like Moonshot Brands offer sellers a more streamlined option. Moonshot Brands buys e-commerce brands and grows them long-term. Moonshot Brands offers founders fast, lucrative exits, and also allows them to share in the long-term growth of the brands they built via equity, earn-outs or other upside. Many sellers even have the opportunity to stay on and continue to grow their brand inside Moonshot with access to resources, growth capital and the greatest minds in marketing, supply-chain management, operations and more. Contact Moonshot Brands today for an official valuation. We’ll get back to you in 48 hours, make an offer within 2 weeks and close the deal within 45 days.
How Do I Transfer My FBA Business?
Transferring an FBA business is a relatively simple process. As the business is based on your Amazon Seller Central account, it is essentially as easy as transferring the ownership of the account. You should note however that selling the account itself is forbidden by Amazon, so the transfer will have to be a part of the sale of the company itself.
So long as the sale follows Amazon’s guidelines, Amazon Seller Support should be able to help you transfer the account to another name. The process is as straightforward as changing a billing address on an Amazon account. Banking information, credit card info, account name, email and tax info will all have to be changed to match the new owner’s information on Seller Central and the business is transferred.
If the buyer already has a Seller Central account, you could also transfer your brand to that account. Amazon Seller Support can help you with this as well and will likely recommend that the transfer be done this way.
In addition you should remember that any social media accounts or websites connected to the business will also need to be transferred. You should remember to change any passwords and unlink these accounts from personal accounts you have and to remove any personal information stored on these accounts.