Home » Business, Headline

Getting the Best Price When Selling Your Amazon Business

16 March 2020 No Comment

FBA (fulfillment by Amazon) is among the ways to make money over the internet. It is labeled as a new borderline in peer-to-peer e-commerce, enabling many merchants to grip distribution networks and customers in Amazon for high profits gain.

A well-developed Amazon business is usually an irresistible online business to own and has become an appealing investment chance for business buyers.

In this post, we shall discuss how to value your business, how to make it more valuable and appealing to the buyers as well as how to market and sell Amazon business.

How to Value an Amazon FBA Business

These businesses are valued in the same way as most online businesses, by using a multiple of seller discretionary earnings(SDE).

SDE is referred to as profit left to the owner of the business after deducting all the cost of goods and critical operating expenses from the gross income.

Business is valued by first calculating its SDE and then devising a multiple to be applied to it.

A multiple is one of the most important pieces of the equation and it is affected by several factors related to the business. The factors include a variety of financial, operational, and traffic aspects but ultimately branch to the scalability, transferability, and sustainability of the business. Any market or operational factor that impacts core drivers either directly or indirectly will affect the multiple.

All the factors are accounted for in the internal valuation scorecard to determine the value of an internet business.

OK…What Is The Actual Value of Your Amazon Business?

In most cases, your business will be worth anywhere between 2.0 times and 3.0 times the SDE (annual profit) of your business.

SDE could be the amount over the last twelve months or the yearly run rate within the last three or six months of trading that depends on the financial standing of your business. In some cases, expert advice should be sought.

For instance, if you are making $50k in profit per annum, the valuation difference stands at $100k vs $150k, which is no small sum of money. How do you know where your business is in that range?

Factors to Help Determine the Value of a Business

Age of the business 

A business with a longer track record has sustainability and it is easier to picture the future profit. For instance, businesses that are 24-30 months old tend to receive more of multiple premia while 18-month-old businesses are preferred entry points.

What about younger business? They are still sellable but have higher risk tolerance.

Trends 

The main key is to sell a consistently trending business. Obviously, very few people, if any, would want to buy a business that is declining. A rapidly growing business will attract many buyers and is likely to fetch a higher price.

What Makes an Amazon Business More Valuable?

Investors interested in purchasing your business will look for points of strength and differentiation of your business. The common area of focus includes:

Suppliers

In supplier dynamics, buyers will be interested to look at trading terms and lead times.

Lead Times 

It is not possible to make any money if you don’t stock. There have been stories of successful Amazon business owners running out of inventory and waiting for 1-2 months to get stock back in.

The buyer will want to be sure there is strong control in places of production and shipping lead times to avoid running into similar difficulties of running out of stock.

Trading terms 

differentiation and prices of products are what maintains an advantage over competitors. Many businesses rely on having either the cheapest price or a truly differentiated product to beat out the competition.

Product Mix

Sales and margins of the split products are an important factor for buyers. For instance, if you sell 5 products but one product accounts for 95% of profit and revenue, then, in reality, you have a single product business. You will not have a defendable business model if that same product can be sourced by anyone else at the same price.

The things buyers are looking for include low concentration (what % of total sales/profit does a product account for) and the consistency of margin.

While a margin of about 30-50 percent is reasonable, it will be the buyer’s concern if items are fluctuating in terms of profitability. Product concentration below 20 percent is desirable but not a major concern if the vendor side is locked in.

Leave your response!

Add your comment below, or trackback from your own site. You can also subscribe to these comments via RSS.

Be nice. Keep it clean. Stay on topic. No spam.

You can use these tags:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

This is a Gravatar-enabled weblog. To get your own globally-recognized-avatar, please register at Gravatar.

*