How to Valuate Your Amazon Business
Many Amazon business owners are so focused on improving their product and growing their bottom line that they have never even thought about selling their business as an Amazon seller central account. A question we have seen repeatedly over the past couple of years is: “Is my business even sellable? I never even thought about that.”
The short answer is “yes,” but there are a few boxes it needs to check first. In order for your business to really be worthwhile for a purchaser, it needs to check all of these three boxes:
Make at least $200K in profit per year. Smaller businesses can go through other brokers and marketplaces.
Be at least three years old.
Must be automated to the point where the seller works less than 15 hours per week.
Even if you don’t meet these criteria, you can still sell your Amazon business, but it is really too small for a seller's representative like us to be able to help you. You can look into selling through a Facebook group or marketplace like Flippa.
If you are interested in finding out how much your Amazon business would be worth to an investor, start by clicking the link below so you can get started on completing a free valuation.
How Much is My Amazon Business Worth?
We are seeing most Amazon FBA businesses sell for between 2.4 X and 3.3 X their annual profit.
Businesses making over $250,000 in annual profit will be at the higher end of that valuation, while smaller businesses <$100K annual profit will typically sell quicker, it will be for the lower end of the valuation spectrum.
Factors Affecting Amazon Business Valuation
The primary factor affecting the valuation of your Amazon business is simple: How much money is it making you?
There are a variety of other factors that we see play a role in what the sales price of the business is as well as how quickly it will sell.
Some of them are:
The industry in which your product competes: Some industries are more popular/competitive than others.
How old your business is: A sustainable track record of profitability is as good as gold.
Where your business is based: Sellers based in the USA that have tax returns on their business are at a major advantage.
- When a business has clean books and tax returns, we can help buyers secure financing to purchase the business.
- Clean books and tax returns not only will help provide cash at closings for the buyers, but it also gets the business a higher valuation.
How many hours per week are you working in your business?
What countries are you selling to? The more diversified your sales are geographically, the more valuable your Amazon business is.
- How are you sourcing product?
- Are these non-proprietary products that you are marking up 200% and reselling? Your days are limited and your competitors are close, so your company may not be an attractive listing.
- Do you have proprietary products or unique relationships with your manufacturer? That’s a business that will see some attention.
- Number of products: Your business will sell best if you have more than five profitable products, but fewer than 20.
- Product location: Getting into the buy box and proving that you can stay there will increase valuation.
- Product Reviews.
- 90% of sellers we see have great vendor reviews, the product reviews are where the money is made. We expect this to be of increasing importance moving forward.
If you are serious about selling your business, request a free valuation today.
Do I Sell the Corporation, the Product Listings, or the Seller Central Account?
Typically, small business transactions are asset sales. The buyers will make an offer for all of the assets they want to acquire and have the seller keep all of the liabilities. For Amazon sellers and omnichannel retailers, this means you’ll be selling your website, seller central account, and inventory, along with the supplier relationships, standard operating procedures, and training.
Who Will Buy my Amazon Business?
In the past year, we have seen the growth of buyers outpace the growth of sellers. This is especially true for businesses making more than $250K per year.
The three main buyers of Amazon businesses we see are:
Boutique private equity companies
Small investment firms have popped up with increasing frequency over the past few years. They raise anywhere from $2 million to $10 million from investors. Then they’ll acquire a portfolio of businesses, streamline the operations and use their expertise to scale the businesses.
For more information on PE firms buying Amazon businesses, this is a worthwhile read.
Amazon’s success is no secret and professionals in the industry have taken notice. Typically these are people with a finance or engineering background who see the value in owning a small business and would rather work three hours per week and spend time with their family than pursue their current career.
Many buyers based in the U.S. are eligible to use assets from qualified retirement accounts to purchase businesses. At Raincatcher, we always go the extra step to help buyers explore financing options. This also helps the seller get cash offers and higher valuations. You can read more about our buyer services here.
Current Amazon Sellers
We see many people who are already selling on Amazon purchase additional businesses/ product listings. They may only increase their workload by 1-2 hours per week and can get a great return on their investment.
In addition to Amazon, we also see this trend in lead generation and affiliate marketing businesses.
How Do I Sell My Amazon FBA Business?
Originally, this was a cumbersome procedure, but Amazon has streamlined it some in recent years.
We created a blog all about the process of selling your Amazon FBA Business. You will need to call Amazon during U.S. business hours and tell them that they will be selling their business. Amazon has a best practices guide that they update periodically that helps with the asset migration process.
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