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Amazon Business Valuation – Beginner’s Guide

value-an-amazon-business

Table of Contents

There is a great deal of focus on improving the product and maximizing profits among Amazon business owners. The business owners have never even considered the possibility of becoming an Amazon seller central account. It has become increasingly common over the past few years to receive the question: “Can I even sell my business?”? “I am even unaware of the value of my Amazon business.”

Answering the question is yes, but there are a few boxes that should be checked first before the answer is given. Your business must satisfy all three of the following criteria in order to be considered worthwhile for a prospective buyer:

  • Profitably generate at least $200K per year. More modest businesses may take advantage of other brokers and markets.
  • A minimum age of three years is required.
  • Must be automated so that the seller has to work fewer than 15 hours per week.

You can still sell your Amazon business even if you do not meet the criteria listed above, but it is too small for us to be able to assist you. A Facebook group or marketplace such as Flippa may be a suitable option.

This article discusses how much value an Amazon business can have for an investor, if you are interested in finding out. 

The factors affecting the valuation of Amazon

Your Amazon business valuation will be affected primarily by the amount of revenue it generates.

Amazon FBA business valuation is affected by a variety of other factors, including how quickly it is likely to sell.

The following are some of them:

  • Competitive environment in which your product operates. The number of competitors and the popularity of some industries is greater than others.
  • The age of your business. Profitability is as good as gold if it is sustained over the long term.
  • The location of your business. The benefits of having tax returns on your business are significant for sellers located in the United States.

Are there product listings to sell, or the central seller account?

A small business transaction is usually an asset sale. Upon receiving the Amazon business valuation, the buyers will make an offer for all the assets they are seeking to purchase and have the seller retain all the liabilities. The goal is to sell your website, seller central account, and inventory to Amazon sellers and omni-channel retailers. Including standard operating procedures, relationships with suppliers, and training services.

Who is interested in buying my Amazon business?

The growth of buyers outpaced the growth of sellers in the past year. Business owners making over $250K per year were particularly affected by this trend.

There are three primary purchasers of Amazon businesses:

1. Private equity firms that offer boutique services

Over the past few years, small investment firms have become increasingly common. Such firms raise anywhere between two and ten million dollars from investors. Once they have acquired a portfolio of companies, they will consolidate their operations and use their expertise to scale them.

2. Changers of careers

There is no doubt about Amazon’s success, which has attracted the attention of professionals in the field. The majority of these individuals come from backgrounds in finance or engineering and are interested in owning a small business. As opposed to working full-time, they would prefer to spend time with family and work three hours per week.

The assets of qualified retirement accounts can be used for buying an existing amazon FBA business in the United States. 

3. Amazon sellers currently on the platform

The practice of buying additional business listings or product listings is common among Amazon sellers. It may only take them a few hours extra per week to increase their work load, but they can expect great rewards.

In addition to Amazon, we notice the same trend in affiliate marketing and lead generation businesses.

What is the Amazon value of business process?

Empire Flippers uses the following formula to value Amazon businesses:

Valuation = Average Monthly Net Profit x Multiple

The formula below will provide a quick assessment of what your business would be worth if it were sold on Empire Flippers. Here, we have taken into account your business performance data, displaying the average net profit for each month and multiplying it by a multiple. If your score is low you may contact any brand value accelerator platform,  they are experts in increasing FBA value. 

Estimating the price of windows

Prices are typically calculated based on the average monthly net profit for 12 months, 6 months, or 3 months, the latter being the gold standard.

Selling for a year gives buyers an understanding of your business’s income and traffic if this is your first time selling. During a peak season, a shorter pricing window will likely overinflate what your business typically earns. The data may substantially underrepresent the firm’s performance if the period during which the data were collected was quieter than usual.

When the seller’s business just started turning a profit, some may be tempted to set a shorter pricing window. The best thing to do in this case would be to wait for another 12 months before finalizing the sale of the business.

Age of Amazon FBA

There is no doubt that older companies are valued higher than newer ones, as mentioned above. It is also true that the age of an Amazon business will affect its valuation as well. Over time, you will be able to optimize your business so that you will be less dependent on ownership and more likely to achieve product-market fit.

By spending time wisely, it is possible to streamline your business so it runs smoothly. An FBA business will benefit from lower costs and better processes in order to operate more efficiently and achieve a higher bottom line.

Diverse channels of traffic

In order to minimize risk in your Amazon FBA business, you should create multiple channels for traffic. Besides paying attention to organic search, it is important not to overlook the paid search aspect as many. PPC advertising is one of the methods FBA owners use to drive more traffic to their storefronts to advertise their product listings.

You can master Amazon’s ranking algorithm to make your products appear in customers’ searches when they’re looking for similar products. Marketing your products through optimization is more cost-effective. In contrast to paid ads, which can extend your reach to a wider audience, organic listings can save you significant time and money while attracting a similar amount of traffic.

A multichannel approach enables your business to reach a larger audience than that of Amazon alone. You gain access to different audiences by selling on other eCommerce marketplaces, not only creating another revenue stream.

Review and rating of customers

Your Amazon business valuation increases if you maintain a strong social media presence. Reviews and ratings left by customers on your Amazon storefront are a softer gauge of brand strength compared to social media.

Like the age of the business, a higher average rating and more positive reviews will result in a higher valuation for an Amazon FBA business. In other words, these are signs that a brand is well-established and trustworthy. In order to earn Amazon’s Choice, smaller brands must have a high level of positive customer feedback. 

The Amazon’s Choice badge will allow your products to be displayed in a category when a potential customer searches for the first time. Hence, your products will be displayed before those of other sellers. Businesses that sell for six figures or more often have high average ratings across their products and best-selling products with the Amazon’s Choice badge.

By registering your brand with the Amazon Brand Registry, you improve your chances of earning the Amazon’s Choice badge and protect your brand at the same time. The benefits of registering your brand include gaining access to a wide range of tools that will assist you in marketing your offerings and increasing conversions. You have a greater opportunity to gain an Amazon’s Choice badge or even a Best Seller designation as your Amazon storefront accrues positive reviews over time.

Number of Active Products

Having a wide variety of products available on Amazon affects your multiple and also influences the types of customers you attract.

Since the seller is still experimenting with the most effective SKUs, smaller brands can afford to have many active SKUs. Their entire brand may have been based on a relatively small number of product lines. 

According to our observations, these types of businesses are attractive to those new to the FBA space who are seeking their first entrepreneurial experience. As long as they can learn the ropes and get involved with daily tasks, they won’t mind spending more time on this task. 

In contrast, private equity firms that are seeking to acquire substantial FBA businesses tend to prefer those with fewer than 30 products. Having a threshold of 250 SKUs is a low number that can be managed without consuming too much time or effort. 

Furthermore, it is imperative to consider how the revenue split across the SKU range influences the multiple in addition to the person-hours required for maintenance. A single SKU should not make up more than 50% of the total income, for example, if your business has more than three SKUs.

Buyers may not be willing to take on a considerable risk if a product has the lion’s share of profits. The whole business may be at risk of extinction if Amazon removes that product listing because it violates its terms of service. In addition, having too many SKUs places your business at risk of incurring long-term FBA storage charges. In what circumstances should your company utilize the maximum number of SKUs?

Selling Your Business in the Best Places

It is possible to sell your Amazon business in two ways: either privately or through a financial intermediary.

DIY auction sites and marketplaces exist, but since there is no built-in protection for both buyers and sellers, we strongly recommend that you avoid them.

Selling privately can yield a much higher price because some sellers believe they won’t pay a broker’s commission. Despite the fact that this may be true to some extent, first-time sellers may experience more difficulty in negotiating if they are approached by investors who have experience manipulating the terms of settlement.

FAQ’s

1. What is the fair market value of my Amazon business?

Almost certainly, you can sell your FBA business for 3.5x to 6.0x your SDE (stated operating expense) if you decide to do so. An analysis of the last twelve months is usually used to determine the SDE of Amazon FBA businesses. An extensive range is available between 3.5x and 6.0x.

2. How does Amazon add value to its business?

As a result of offering its customers a broad array of products on its website, Amazon.com creates value for its customers. A timely delivery of products will also demonstrate a high level of commitment to the business and to the customer

3. How to value an Amazon business

Profitability is a determinant of the value of Amazon businesses. In other words, if you made $2M in sales in 2017 and you made $500,000 in profit, then your business would be multiples of $500,000 profit. 

The market is paying 2-4 times the SDE for Amazon FBA businesses, so the business could be worth between $500K and $1M depending on how attractive and transferable it is.

4. What is Amazon Alexa’s business value?

A new report from RBC Capital Markets says Alexa could generate 18 billion to 19 billion dollars in sales by 2021, about 5 % of Amazon’s overall revenue.

Conclusion

Selling your Amazon business has never been a better opportunity than it is today. In general, FBA businesses are in high demand and this trend is expected to continue for some time to come. Starting the process of preparing your business for sale as early as possible is recommended. The first thing you need to do is calculate your Amazon business value and then improve it. The optimization of your operations will result in increased revenue, even if you are not considering a sale.

Picture of Zeeshan Riaz <br> <span class="designation">Chief Operating Officer</span>
Zeeshan Riaz
Chief Operating Officer

With education and experience in IT. Law and E-commerce industry, I have successfully helped more than 250 E-commerce businesses worldwide to reduce their operational cost with cutting edge eCommerce Marketing Services. I do manage a team of more than 250 people team which includes Amazon, eBay, Shopify, website development, SEO and SMM experts.

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