It might have escaped your notice that you possess one of the most sought-after investment opportunities for internet companies. In ...
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It might
have escaped your notice that you possess one of the most sought-after
investment opportunities for internet companies.
In 2021
alone, the average sales price for Amazon FBA brands on our marketplace was
$1,246,759.04, at a 40X multiple. In comparison, the average Amazon business
sold for $538,741.62 at a 28.5X multiple in 2020, a 231% increase.
The
significant increase in deal size can be ascribed to the emergence of brand
aggregators, which are including FBA companies into their wider portfolios.
When these wealthy institutional purchasers notice a high-quality FBA brand,
they start to compete with one another.
In order to
complete the sale, they occasionally even pay more than the asking price.
We're
posting this since we've found that a lot of Amazon FBA sellers, including
yourself, are unaware that selling your company can be a successful long-term
objective. Like most business owners, you're presumably too busy building and
managing your brand to have thought through an exit strategy.
You have two
options if you don't have an ultimate goal: either close down the company or
leave it at a lot lower price than you would have liked.
How about
making a six-figure or even seven-figure exit?
You may get
the best price for your next move by getting your firm ready for sale. We will
explain the process of valuations so that you are prepared for the time when
you intend to sell.
First, let's
discuss the value formula.
The
Fundamental Formula for Valuation
Here is our
straightforward valuation formula:
Valuation
= 12-Month Average Net Profit x Monthly Multiple
To determine
the initial listing price, we compare the average monthly net profit to a
monthly multiple. Other brokers may apply this calculation to EBITDA, or annual
profit, which yields smaller multiples between x2 and x5.
We prefer to
utilize monthly profit values to produce valuations since they offer a more
detailed insight of a company's financial performance, even though there isn't
much of a difference between them.
A 12-month
price period is utilized to account for seasonality and any changes that may
occur throughout the year. It is advisable for novice sellers to adhere to a
12-month pricing period, since a shorter pricing window might not provide
prospective buyers with sufficient information for conducting due diligence.
The monthly
net profit is quite easy to calculate. Less so is calculating the monthly
multiple.
In addition
to average profit, other factors can affect the multiple. For instance, the
valuations of two FBA brands that make $10,000 a month can fluctuate
significantly.
The
following are some elements that influence the monthly multiple:
· The caliber of product ratings and
reviews
· The age of an FBA brand
· Multichannel marketing (diversity of
traffic)
· The quantity of SKUs
Try using a
free valuation tool if you'd want an idea of the value of your company.
Remember that the amount is only an approximation and not what it might be
worth after additional examination.
Having said
that, let's examine how each of these elements affects the monthly multiple.
The
Quality of Reviews and Product Ratings
Good shop
ratings and product reviews are the best indicators of demand and market fit,
and they have a big impact on the monthly multiple. One of the first things
customers see about an FBA brand is its overall reputation as revealed by
customer feedback.
Since we
take reputation into account when listing companies, FBA merchants in our
marketplace typically have a minimum of 100 product reviews and an average star
rating of 4.0 for their hero SKU. A company that enjoys positive feedback from
its target market will inspire greater trust in its buyers.
It is
worthwhile to work toward obtaining these honors for your storefront because
they indicate strong product demand, as does an Amazon's Choice badge or a high
Best Sellers Rank.
If you're
just getting started, set up a mechanism to regularly collect reviews. Joining
the Amazon Vine program to get objective reviews and using Amazon's Seller
Message Service for proactive outreach are two ways you can benefit yourself.
The Age
of Your FBA Company
Age affects
the monthly multiple due to the seller's time constraints rather than because
older companies are inherently eligible for higher sales prices.
Of course,
the generalization is not always true. Although seven-figure FBA brands that
are just over a year old have been sold, most companies are at least two years
old when a seller decides to market them for sale.
Older FBA
companies sell for more money, according to our research, for two reasons.
First off,
an established company has had more time to build a recognizable brand for the
seller. It takes time, as you know, to build your brand's recognition in your
niche, get reviews, and raise your SEO rankings.
Second, a
seller with an established FBA brand has more time to improve process
efficiency and streamline operations. A seller will have more time to
concentrate on growing the business rather than running it if they can take
over the operations and make them function just as well.
Consider
employing virtual assistants to help with customer service and other
time-consuming duties to improve your productivity. If you have the money, you
could hire someone else to do some of the more difficult jobs for you, such
graphic design or PPC advertising.
Multi-platform
Marketing
Selling
through Amazon broadens brand awareness and assists a company in reducing its
dependency on Amazon.
Customers
from demographics outside of your typical reach like to shop on other
platforms, therefore omnichannel selling allows you to reach audiences that
your Amazon site won't. Maintaining a multichannel presence also lessens the
chance of having your best-selling SKUs abruptly removed from Amazon or having
your Amazon Seller Central account suspended.
The
Quantity of SKUs
Both the
revenue-to-SKU ratio and the amount of time required to monitor each product
listing are impacted by your product variety.
For
solopreneurs, managing their product listing pages might be challenging if they
have too many SKUs. When operating an FBA store as a one-man show, we've
discovered that the sweet spot is a product range of three to eight SKUs.
Remember that seven-figure companies tend to draw in brand aggregators who have
teams capable of handling every aspect of the company, so it won't be a big
deal.
Concerns
about inventory management and operational efficiency may arise if you have
dozens of SKUs but only two or three of them are bringing in the majority of
your sales.
Finding out
which SKUs should remain on the list and which can be delisted requires
conducting a frequent SKU audit.
The
Greatest Locations for Business Sales
There are
two primary ways that you can sell: through a private deal or through a broker.
While some
may advise utilizing a do-it-yourself marketplace, we would advise against it
for two reasons. Because you have to handle everything yourself, there is no
protection for buyers or sellers in the event that a transaction turns sour.
A private
transaction is susceptible to some of the same dangers. New sellers won't have
the experience to bargain with buyers or know how much their company is really
worth. An astute investor will know how to manipulate talks such that they
benefit and the seller loses money on the sale.
When
pursuing a private deal, FOMO may also set in. We've witnessed sellers give in
to their fear of not being able to sell and accept the first offer that comes
up. Frequently, the deal is much less than what they had originally desired.
You want
someone in your corner who can reassure you and assist you when it comes to
selling your company. By working with a carefully selected broker, you may
market your company and bargain with buyers for the price you choose.
You won't
have to accept lowball offers and can concentrate on selecting the finest offer
for your company because qualified buyers on curated marketplaces must
demonstrate that they can afford to acquire enterprises.
When Is
It Time to Sell?
Timing the
market like stocks is one of the biggest blunders made by sellers.
This
strategy hasn't always worked as planned. Rather, we advise selling when your
company is experiencing its greatest growth. For most purchasers, an FBA brand
with efficient operations and items that have hundreds of excellent ratings is
a desirable investment.
It's
acceptable if there are certain things that could be done better. Many sellers
find it difficult to grow their FBA brand further due to a lack of resources or
time. The proper acquirer may be able to leverage these underutilized regions
as development levers to advance the FBA business.
You can
obtain the biggest cash windfall you've ever seen in a single transaction once
you sell your company.
To begin
organizing your exit strategy, register on our marketplace if you're interested
in learning more. It puts the wheels in motion so that you're ready to exit at
your own pace, even if you don't sell right away.
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