If you are thinking of selling your Amazon business, you will first have to make sure that it is attractive enough to catch buyer’s attention. Keep in mind that the market determines the value of your business and that those that attract the most buyers are the ones that, finally, end up selling at higher prices.
In any case, it is important to be prepared to generate that attraction, and for this, we have prepared a list of tips that you should keep in mind so that your Amazon business becomes attractive enough for buyers.
7 Tips To Attract Buyers
#1 What is your Amazon FBA Business Growth Like?
If you’re thinking about selling your business and want sellers to take notice, you must make sure your business is growing in all key metrics, from total sales to net profit. The growth trend of your Amazon business will be one of the most influential factors in the value of your Amazon business.
Buyers dislike risk more than anything, and high-margin FBA businesses are worth more because they are less risky and you need to sell less to make the same amount of money. Let’s see this through an example of two businesses with the following metrics:
- Business A: $1MM revenue, $300k net profit. Average selling price $100
- Business B: $2MM revenue, $300k net profit. Average selling price $100
To make the same profit, business A needs to sell 10,000 units, and business B needs to sell 20,000 units. For every additional unit sold, business A makes an extra $30, while business B makes only $15.
So, growth will be a key indicator for equity investors. Prove your business is growing to attract better multiples.
#2 Cost Of Goods Sold (COGS)
A profitable product will also sell for a higher multiple. Product longevity is a key factor for buyers because they like products that remain relevant for years to come.
Most buyers are looking for an existing product portfolio that will remain profitable, regardless of whether they launch new SKUs or not. So it is very important to consider how long your product will remain relevant.
Remember that products that are sold for at least five times their original price are much more profitable.
#3 How Long Have You Been in business?
Amazon FBA investors need at least 24 months of business to compare metrics and be sure that your financial and commercial performance is consistent. We can establish a kind of indicative range:
- Less than 12 months: it’s not possible to sell your business (no sufficient data).
- 12-24 months: Sell your business if you absolutely must. At this moment, it is possible to compare metrics and check your business performance.
- From 36 months: comparability and predictability are better achieved when your FBA business has at least 36 months of existence or at least 3 consecutive annual high season campaigns
Aggregators are buying like crazy and even newer businesses are acquired, but if you’ve been around for less than 2 years you will have a harder time selling. Better wait to maximize options and valuation. Focus on growing instead of selling your FBA business.
#4 Keep TACoS at bay
The Total Advertising Costs of Sale (TACoS) measures ad spend relative to the total revenue generated, giving advertisers a much more accurate picture of the performance of their ad spend.
This is the basic formula for measuring TACoS:
A low TACoS means that when advertising on Amazon, a product generates strong sales. However, a high TACoS means that product ads do not generate solid revenue, which likely means that your ads are underperforming.
Businesses with TACoS above 12% may woo investors as it may be an indicator of:
- Revenue getting pumped / business getting staged for a sale, especially if it has increased recently.
- Poor organic performance.
#5 Stockouts
Buyers are familiar with them and perceive them as upside. Don’t hide them.
Everyone has stock problems at some point in their business life, and it is not something to be ashamed of or kept hidden at all cost. Do you remember the blockage in the Suez Canal last March? The container ship Ever Given ran aground, causing blockage of the chokepoint through which more than 10% of the world’s seaborne trade traffic flows. And… what about the congestion problems in the Ports of Los Angeles and Long Beach? These congestion problems were aggravated by an outbreak of Covid-19 among its employees. These circumstances make stock problems more than likely…
One piece of advice. If you have suffered stock problems in the last year, you can grow by 8% just by fixing them. This will be a positive thing for buyers.
#6 Use a Reputable Broker
Using a reputable broker while you are trying to sell your business has a set of advantages. They will help you maximize valuation, remove the distraction and help with the closing. While you’ll be tempted to reach out to the big names directly and skip intermediaries, chances of you selling your business seamlessly through a broker increase dramatically.
Additionally, identifying the perfect broker is not always easy. You will want to find one that has the necessary experience in the industry and has worked with companies of a similar size to yours. It is also important that the broker has a certain reputation in the market, so be sure of this before signing any contract. Keep in mind that there are many brokers working with digital companies and others that specialize in Amazon businesses.
#7 Financing Your Offer
Buyers will be much more confident if you can accommodate a seller note or earnout. Additionally, increase your universe of potential buyers by stapling financing from a professional lender. Whenever SBA is not available, alternative lenders like Boopos are willing to help if your metrics are good.
Many managers are interested in changing their life and becoming their own boss. They want to acquire a business and grow it but oftentimes face the problem of financing to do so. A financial alternative like Boopos can help people looking to acquire a business as we can finance up to 85% of the acquisition. This way, you can sell your business without the buyer having to worry about the lack of financing.
#Summary
Although the market determines the value of your business, there are important considerations to review if you want to sell your Amazon Business.
The growth trend of your Amazon business will be one of the most influential factors in its value and the price you are selling your product affects directly its profitability.
The longevity of your Amazon business is also important for FBA investors who need at least 24 months of business to compare metrics and be sure that your financial and commercial performance is consistent. Pay attention to your Total Advertising Costs of Sale (TACoS) and don’t be ashamed of your stock problems.
Finally, work together with a reputable broker to do this transaction easily and use an alternative lender that suits your needs and your buyer ones.
Get funded in 7 days and avoid a low or undervalued sale.
