Page Nav






How Much Could Your FBA Business Be Worth?

It might have escaped your notice that you possess one of the most sought-after investment opportunities for internet companies.   In ...

FBA Business

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.

Read More:

Everything you should be aware of regarding the 2024 IPI changes and Amazon storage limits

Ways to Increase Amazon Product Reviews in 2024

5 Foundations of an Effective Amazon Advertising Strategy

No comments