Fulfillment by Amazon has increasingly become one of the most significant tools to generate revenue online. In fact, many consider Amazon FBA as the frontier in peer-to-peer e-commerce. Over the years, FBA has enabled millions of merchants to harness Amazon’s distribution network, access customers on a global level, and generate significant financial rewards. A well-established FBA business is a lucrative online business as it extends many attractive investment opportunities to the business seller as well as buyers. This article is your ultimate guide that highlights how to establish a valuable FBA business and how to sell it to make money.

A Look at the Amazon FBA Market

50% of the products sold on Amazon are owned by third-party marketplace sellers. And 66% of the top 10,000 sellers use FBA. The whole Amazon market is extensive, and FBA presently is at its core. In the year 2018, third-party sellers generated sales of $42.7 Billion. Then reports started to come across that suggested how sellers used FBA and made a ton of money in a short time span. With the exponential growth that businesses witnessed by using Amazon FBA, sellers across the world began to consider it to increase their profit making potentials.

The Value of an Amazon FBA Business

FBA businesses are valued the same way as all online businesses are estimated, that is, through multiple seller discretionary earnings, also known as seller discretionary cash flow. Seller discretionary earnings denote the profit that is retained by the business once all the costs associated with their products and operating expenses have been deducted from the overall revenue generates. The owner’s salary can be added to this number, as well. You first calculate the value of the Amazon FBA business then formulate a multiple to add to it. This multiple is a vital element of the equation and is influenced by a myriad of facets associated with your business. In a nutshell, these facts rely on sustainability, transferability, and scalability of your business. Your FBA business will be worth double or triple the yearly profit that you generate. So, if you make $200 per year, then in the FBA market, your business value will range between $400 and $500.

Factors that Affect your FBA Business’s Multiple Below we have mentioned certain prominent factors that influence the multiple of your business.

  1. Business Duration

The longer your Amazon FBA business has been in the market, the higher will be its sustainability. A prolonged track record in the market shows the buyers that you are authentic and sustainable. Furthermore, it will also make it easier to forecast profit. While new businesses have a smaller buyer audience, they are still sellable.

Amazon FBA business
Amazon FBA Business Duration
Prolonged track record in the market

  1. Business Trends

The concept of business, technology, the Internet and the network. A young entrepreneur working on a virtual screen of the future and sees the inscription: Trends

There are not many people who are interested in buying a business that is declining. Similarly, there are only a handful of business owners who want to sell a rapidly growing business. The ideal selling scenario occurs when the business shows consistent trends is a modestly upwards.

  1. Operational Involvements

One of the attractive things about owning an online business is the potential passive income that it offers. Businesses that don’t require much involvement by the owner and can be set up in lesser time are more attractive to buyers as opposed to businesses that require higher owner involvement.

  1. Business Concentration

Business concentration in any form is a risk that buyers must factor in a while determining the price. If a majority of the revenue it generates from a single product or supplier, then buyers will want to know the arrangement terms and assess whether or not it will sustain. A change in this arrangement can result in a significant loss in value. Every business is different, and these factors can vary based on the nature of the business. However, above are some common factors that affect the multiple during the valuation of a FBA business.

Amazon FBA Business Concentration
Amazon FBA Business Concentration According to nature of business

How to Sell Your Amazon FBA Business? Once you have established a highly valuable Amazon FBA business, you have to look out for the option of selling your business. Primarily, there are four options for you to sell your Amazon FBA Business –

  1. Marketplace

When you sell your FBA business on the marketplace, you have to prepare well-structured information on your business and post a listing to attract potential buyers. Benefit of Marketplace

  • It is affordable – Selling your business on the marketplace is cost-effective. All you have to pay is a couple of hundred dollars for listing fees.
  • Extensive Distribution – When you list your business in a reckoned business-for-sale channel, your ad is likely to reach a large number of audiences, increasing your selling probabilities.

Challenges of Marketplace

  • Exhausting Process – You have to personally manage the process of approaching and convincing buyers, answering the questions they have, sending non-disclosure agreements, negotiating offers, preparing selling contracts, ensuring due diligence, etc. Evidently, you would need strong experience in the business sales process in order to complete the whole process efficiently. Furthermore, it is time-consuming, which might impact your business operations.
  • Not Popular

There are thousands of business listing in a marketplace, making it challenging for you to stand out in the crowd. Generally, a business owner who is looking to sell their business in the marketplace tend to hire listing brokers Selling your FBA business on marketplace works for people who have experience in selling businesses and adequate time to go through the strenuous sales process.

  1. Selling Through Broker

When you have a huge business and not enough experience in selling a business, then selling with a broker is an ideal option for you. A broker takes over the entire selling process, including developing marketing strategies, acquiring marketing materials, contacting buyers, ensuring due diligence, negotiating offers, drafting sales contracts, facilitate Escrow fund transfer. Brokers also leverage their expertise to suggest valuation and suitable deal terms to ensure economic benefits and legal protection. Benefits of Selling Through Broker

  • Better Distribution – If you associate with an experienced and reputed broker, your business can obtain access to better selling networks that encompass qualified business buyers. Your business will be exhibited in from of a highly-targeted investor audience who will be able to close the deal efficiently and timely.
  • Better Management of Selling Process – An experienced broker will manage the whole process after you have offered him/her adequate information. Therefore, you will have adequate time to concentrate on your business operations.
  • Optimum Business Value – A proficient value will know how to value your business as per market conditions properly. They will target various offers and negotiate the one that renders maximum value.

Challenges of Selling Through Broker

  • High Broker Fees – A broker generally charges up to 15% of the business sales value once a deal is closed. However, the net proceeds you will receive will be higher than any other form of selling.
  • Upfront Requirements – To work with brokers, you will need to have organized information of your business ready to extend. This is because their buyers are organized, focused, and motivated to invest in the right kind of business.

Hiring a broker to sell your business is a great option when you don’t have the right selling experience or don’t have enough time to spare to go through the sales process. Based on the size of the business, a broker can help you sell your business in 4 to 8 weeks.

Challenges of Selling Through Broker
Benefits of Selling Through Broker
Better Management of Selling Process

  1. Direct Selling

You can directly contact the potential buyers via call or email and convince them to buy your FBA business. You get better results when you target buyers dealing with the same niche as yours. Benefits of Direct Selling

  • Cost-effective – This type of selling involves minimum cost as there is no fee involved. The only fee you will incur will be for legal advice.

Challenges of Direct Selling

  • Finding the Right Buyer – You will require putting in a lot of research and outreaching work in order to find the right buyers. It is a time-consuming task and considered risky.

A direct approach is a viable option when you are well-aware of the process, or you are okay with low possibilities of success. It can take you months before you can close the deal.

  1. Selling On Auction

Selling your FBA business on auction is similar to selling it on the marketplace as you will have to prepare similar information and take care of the whole process. However, you will have a predetermined period to sell your business, creating competitive tension amongst the buyers. Benefits of Selling On Auction

  • Set Timeframe – When you list your business on auction, you have certainly over the time duration under which you will find a suitable buyer.
  • Better Access to Buyers – Auctions typically have a large network; therefore, your business gains the opportunities to be viewed by a large number of visitors.

Challenges of Selling On Auction

  • Lower Business Value – Buyers on the auctions are not seasoned are looking for smaller sales. Considering that they are inexperienced, it prolongs the selling process.
  • Arduous Process – Since you are the one responsible for handling the whole process, selling on auction can be quite strenuous.

Auction is a good selling option if you are a small business and want to sell your business quickly for a low valuation. Tips to Increase the Value of your FBA Business By following the right steps, you can considerably boost the value of your FBA business. Below we have highlighted some important tips that can help you increase your business value prior to the sale –

  1. Reliable Suppliers

Suppliers are a prominent component of any FBA business. Ensure that there is a clear and defined relationship between you and your suppliers. When you are working with suppliers, draft a contract that defines the operating procedures, and document every process.

  1. Protect Your Brand

Ensure that all your products are registered under Amazon’s Brand Registry. This will safeguard the credibility of your brand and protect others from selling products under your listing. It also eliminates the probabilities of search errors. Registering your brand makes your brand for identifiable and defendable, adding more value to your business portfolio.

  1. Develop a Brand Site

If you don’t have a brand site already, then you must create one and start driving traffic on it. Additionally, register your site with the Amazon Affiliate Program in order to earn affiliate commissions. Blogging about your niche and products adds value to your business and paves the way for customer acquisition.

  1. The Right Packaging

Including frustration-free packaging is an excellent way to make your brand stand apart from businesses like you. While it may require some involvement by you, once you have done that, your products will ranks higher. There has been increasing pressure on companies as well as consumer to become responsible consumers; therefore, FFP is likely to become very popular in the coming year.

  1. Include a Communication Source

One of the drawbacks of Amazon FBA is that there is no adequate customer information for suppliers. Including your email on your website or offering business cards with your products offers customers to contact you in case of any queries. An email list is an effective way of generating traffic to your product and creates a buzz about any product launch in the future.

The Right Packaging in Amazon FBA
Developing a Brand Site
Including a Communication Source

  1. Concentrate on Your Health Status

Excellent health status concept draw on transparent white wipe board with a hand holding a marker

Your FBA seller accounts have a health status that must adhere to specific criteria if you are selling under a restricted category. Criteria to maintain a good health status include –

  • Less than 1 % defect in order rate
  • Less than 2.5% pre-fulfillment cancellation rate
  • Less than 4% delayed shipment rate

A brand with better business value will evidently be more attractive to the buyers. The above factors are some effective steps that can ensure that your FBA business ranker higher and pique the interests of potential sellers. If you own an FBA business, you are likely to consider selling it at some point. This comprehensive guide will help you understand all the important factors associated with the FBA business and selling options available for you. It is imperative that you understand each option, compare them, and then decide which selling option is best suited for your business. If you are selling on your own, ensure to value your business in order to obtain optimum profit properly. You can contact a broker who will help you with the same; he or she will also help you build an effective exit strategy.

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