What Is Your Amazon FBA Business Worth and How to Sell It
In 2006 Amazon launched an original idea it called Amazon FBA (Fulfillment By Amazon) that has broken new ground in the e-commerce world. The Amazon FBA model lets you as an e-commerce retailer sell products through the Amazon platform but with the unusual offer that Amazon stores the product, picks it, packs it, and ships it out to the buyer. From its genesis, this program has lifted the expense and burden of order fulfillment off the retailer and enabled many small-budget entrepreneurs to create businesses that would otherwise have been far beyond their power. By letting sellers control inventory at a glance and ship products quickly, Amazon helped small businesses give customers a five-star consumer experience.
Not surprisingly, Amazon FBA grew at a breathtaking rate. When the program launched, Amazon’s net sales stood at $10.7 billion, according to Marketplace Pulse. Its Prime members numbered less than one million. And it was still jockeying with eBay for dominance of the third-party seller marketplace. Today, Amazon generates $141.92 billion in net sales. Its Prime membership stands at more than 100 million. And it now controls 43.5% of the total e-retail market compared to eBay’s 6.6%. On Amazon, 66% of the top 10,000 sellers operate with the fulfilled by Amazon model, and about half of the goods shipped to Amazon Prime members come from third-party sellers.
It’s no wonder that Amazon is adding hundreds of thousands of new sellers every year. Entrepreneurial people know Amazon FBA’s popularity has yet to crest, and they are willing to invest in it. That means, of course, that if you’ve built a successful Amazon FBA business, you hold a valuable piece of digital real estate. But since this business model is unlike most, it can be hard to know how to exit when the time comes.
“How do I value my Amazon FBA business?” you might ask. “How much can I sell my Amazon FBA business for? And where can I get the best price for my business?”
Trends in Amazon FBA businesses sold year over year
Since 2016, sales of Amazon FBA business have ramped up. These businesses are reaching maturity, said Mark Daoust, Founder at Quiet Light Brokerage, people are learning they can sell them, and seller growth is proving consistent.
What kinds of businesses are selling? According to the State of the Amazon Marketplace 2018 study by Feedvisor, 73% of Amazon third-party businesses maintain just 1-5 employees, but that’s a 10% drop from the previous year. Those employing 50 more more staff increased by 5%. So most Amazon businesses are still small, but the largest business are picking up in number while the smallest are thinning out. Amazon business owners live everywhere, and 20% of them live outside the U.S. Still, they tend to concentrate in California, Florida, New York, Texas, and New Jersey. The most successful sellers either already sell outside the U.S. as well as within it or they soon plan to launch into the global marketplace soon.
While nearly anything that’s not illegal can be hawked on Amazon, certain categories dominate the market. Home and kitchen products are maintaining their lead at 18% followed by health and personal care, clothing and accessories, books and movies, toys and games, and sports and outdoors. Sellers in nearly all categories are becoming increasingly profitable. While 60% of Amazon sellers earn revenue below $250,000, 3% are earning above $10 million. Sales at all levels are growing. In our experience, most smaller businesses sell to individuals while those earning above $2 million tend to pick up corporate buyers.
How to value your Amazon FBA business
Valuing your business properly lets you make sure you are getting a fair price for the enterprise you worked hard to build. Without the usual metrics for business valuation such as real estate or foot traffic in place, however, valuing a e-commerce company can seem complicated. What is your Amazon FBA business worth?
Your Amazon business value probably falls between 1.4 and 5.3 times the annual SDE (seller discretionary income), which is the total benefit a business produces for its owner. The average multiple stands around 3.08. You can determine you SDE with a simple mathematical formula: Total Sale – Cost of Goods Sold – Expenses + Owners Wage. If your SDE stands at $250,000 and you sell it for the average multiple, your asking price would come in at $770,000. Of course, SDE and average multiple aren’t the only variables to consider.
A number of other factors go into finding the value. The age of the business, for instance, can help buyers know if you have an established core of customers or are still in the start-up phase. The geographic location of your target market can also affect the business’ price. For instance, if most of your customers live in North America, your enterprise is probably more valuable than if your client base lives in another world area. Sales trends, profit margin, inventory, employees, product diversity, and more also help define your business’ worth.
How to sell your Amazon FBA business
In our experience, some Amazon FBA businesses sell more quickly and for more profit than others. Resellers who lack a consistent supplier, for instance, may struggle to find a buyer longer than private-label and proprietary sellers who control a product’s manufacturing process. So while the information below is intended to offer general guidance, recognize that your mileage might vary.
- As in any business sale, start by determining what your business is worth. You can use the calculations above or contact a consultant who specializes in buying and selling location independent businesses to help you.
- After you know the value, consider how to increase your business’ value. Do age, diversification, market demographics, or any other factors affect the potential asking price?
- Ask yourself why you are selling the business. Do you find the business overwhelming or boring? Is there something else you’d rather do? Do you need the capital? Or are you solving a problem you don’t have by selling the business right now?
- Identify your ideal buyer. Doing so will help you market, price, and sell your business more effectively.
- Save the broker fee. List your business on our website, which is a marketplace for buying and selling location independent businesses.
Amazon FBAs are a great way to make money. Despite the crowded marketplace, many new entrepreneurs and small business owners are launching or buying these enterprises and turning a profit on them without the burden of handling fulfillment. If it’s time to sell your Amazon FBA business, let us know. We specialize in helping entrepreneurs like you sell location independent businesses quickly.