One of the stand-out retail successes of recent years is ‘Fulfilment by Amazon’, or FBA. Once upon a time, Amazon supplied and fulfilled all its own orders but since its launch, FBA has quickly become one of the most attractive online business models, enabling many millions of merchants to tap into Amazon’s peerless customer and distribution network. Little wonder it’s become a tempting investment opportunity for savvy business buyers.
If you are fortunate enough to own an FBA business and are considering selling it on, you could be in line for a handsome windfall – FBA's appeal to all kinds of buyers – as long as you take the right strategy.
What’s my FBA worth?
Simply put, the value of your Amazon business is directly related to its ability to deliver a profit. So, if your business turned over £400,000 in its last year and you made net profits of £100,000 (total sales minus cost of goods, minus expenses/owner’s salary), your business would be worth a multiple of your profit figure – which is currently between one and two times this figure.
Even so, there’s a biggish gap between those multiples - £100K using our example. To refine your asking price further, you’ll need to consider the age of your business, its niche, number of line items and growth potential. All buyers will be looking for a business that’s transferable, sustainable and scalable and any factors that impact these variables will have an effect on the multiple.
How can you increase the value of your FBA?
Look to improve your proposition where you can. A business with an established track record will appeal to more buyers, as will one that brings in a largely passive income – a lower requirement for owner input always carry a premium. Factors that might negatively impact your value include an over-reliance on revenue from a single product or supplier, or if you’re operating in a niche that’s especially competitive or has already peaked.
Buyers will be weighing up the balance between return on investment (ROI) and risk: the lower the risk, the higher the price. If you wait till your business is a few years old, you’ll be able to more accurately predict earnings and reduce risk for the buyer. A diversified portfolio will also improve your prospects, as will having your own exclusive or branded products. A steadily improving position in the Amazon Best Sellers Rank will show commitment to great customer service, so make sure you give this some focus.
Where can you sell your Amazon business?
Smaller Amazon business are usually best sold by the owner through an easy-to-use portal like Bizdaq. You’ll get to retain a lot of control and keep selling costs low. If you have a bigger business, you may prefer to sell through a broker who can guide you through the process, help to find motivated buyers and then negotiate and structure the right deal.
Different buyers will be interested in different types of business for a variety of reasons. You might be lucky enough to catch the attention of someone with cash to invest in their first business – perhaps a well-heeled corporate keen to invest for the future. On the other hand, your business might appeal to someone already running a digital business and either looking to trade up or add another string to their bow. Finally, you may attract a more traditional bricks-and-mortar entrepreneur wanting to move into the digital space either to complement or replace their current operation.
It’s worth considering which of these buyers your business might best suit – would it be an ideal bolt-on to an existing business or maybe offer a handy passive income to someone who already has full-time work commitments?
Try to take an objective view of your Amazon business. Appraise its faults as well as its advantages and see if you can find simple ways to boost its appeal before setting out to find your ideal buyer.
Posted on August 24, 2018 | Amazon