Selling your Amazon business is quite an exciting option. It’s safe to say the Amazon FBA business community is watching in disbelief after aggregators compete for well-scaled FBA businesses looking for an exit. Whether you’re a potential buyer or seller, now is an excellent time to consider either option, as the market appears hot.
For some sellers, deciding to exit (even though an ultimate goal) does not come without its challenges. Whether to list on a business sale site or work independently with a broker, what is the best route for you to take to see the most profit in your sale?
We’ll break down factors to consider in your exit, and we’ll provide an overview of helpful tips to see you have a smooth and successful sale.
What are the main factors to consider in the sale of your Amazon FBA business?
The first factor to consider in a sale is the business type. For the purpose of this article, we’ll focus on the sale of a Private Label Amazon business.
There are four main areas to consider:
- Business Type
- Age of the Business
- Value of the Business
- Market Share & Competition
1. Business Type
A private label business is a business structure where you are the manufacturer and brand owner, and as a result, you have control over the business. There is less risk in these cases versus other business models, such as reselling.
The business type is an essential factor for any potential buyer to consider. A private label business is viewed in high regard as typically brand awareness has been established. Unique differentiating characteristics have also been carved out, and if in a healthy position, the brand can stand out from the competition.
It’s essential to look at an exit through the buyer’s eyes and keep in mind what may be considered attractive to the buyer instead of what the seller views in high regard.
Lastly, keep risk factors in mind, as prospective buyers will be risk-averse and look for private label businesses that have not faced account suspensions or falling best-selling rankings. Keeping these factors in mind can prove helpful in your exit process.
2. Age of the Business
One of the vital considerations in any sale is the age of your private label business. Prospective buyers will want to factor in how long it may take them to recoup their investment.
Buyers will undoubtedly evaluate a seller’s financial history to determine if the purchase is right for them. Businesses with more history (older) are more likely for consideration as the first year or so of operation can mean high start-up costs and lower margins.
3. Value of the Business
To understand the value of your Amazon private label business, you should have strong financials to show prospective buyers. Not understanding your numbers when it comes to any aspect of your business is a detriment but can also jeopardize and cloud your sale. If numbers are not a strong suit, it’s a good idea to work with an accounting firm throughout your business development.
To understand how valuations are made, it’s important to understand two critical components of valuations:
SDE & EBITDA
SDE – Seller’s Discretionary Earnings – is the primary consideration in the valuation process if the business lies within $5-10 million in revenue.
EBITDA – Earnings before interest, taxes, depreciation, and amortization – is used when the revenue is higher than $10 million.
SDE is calculated by: Revenue – Expenses + Add Backs
Consider all factors of your costs—total costs of goods, amazon fba reimbursements Amazon FBA logistics, 3PL services, taxes, etc. Finally, if your business is in the position of paying your salary, you’ll want to outline this in the add back-calculation.
Understanding your revenue, expenses, add-backs, and performing routine Amazon FBA audits will help keep your numbers in line and make the valuation process clear and attract serious buyers.
If you’re looking to increase your Amazon FBA profits for an exit, view our blog for more helpful information.
4. Market Share & Competition
One of the more significant considerations in selling a private label business is market share and competition. If a private label owner is selling in a saturated market without a patent or unique selling feature, buyers may view this as a higher risk.
Ensuring your listings are up to date, and that your Amazon reviews and ratings are in good standing are a few other areas you should focus on throughout your business on Amazon. When it comes time for a sale. buyers will want to see positive review ratings.
In a private label business, differentiation is key to decent profit margins. Be sure to stand out from your competition and build a trusted brand amongst its loyal customers. Perform due diligence in protecting your assets through copyright, patents, and trademarks. Buyers will heavily consider trends in ranking, and a saturated, highly competitive market can potentially scare serious buyers off.
When to Sell Your Amazon Private Label Business?
That’s the big question, isn’t it?!
Many private label sellers do not consider an exit strategy when they begin their Amazon FBA journey. Having an exit strategy in place can help align your goals, build healthy financials, and hopefully see a positive sale experience.
A few factors to consider in your exit are how much time and energy you can commit to the business, can the sale of business assist you in another business venture? Are you looking to reap the financial rewards of a deal at this time in your life?
These are fundamental questions to ask yourself before you decide to sell. Having an exit strategy in place from the outset will help clearly address these questions clear when the time is right.
Preparedness is everything in business, especially in Amazon FBA, as things are fluid and can change rapidly.
Where Can I Sell My Private Label Brand?
There are a few options for you, and each has its pros and cons. In the current climate, aggregators such as Thraiso and Fortune Net are swooping in and buying what we call hot sales. Alternatively, you can list your private label business on sites such as Empire Flippers, Flippa, etc.
If posting your business for sale publicly does not appeal to you, you can also perform a deal privately through a broker. To find a buyer in the case of a private sale, it may take added measures to source interested parties, perhaps a fellow FBA seller or someone in your Amazon FBA network.
Choosing an exit in your Amazon private label business is not to be taken lightly. Sellers should consider creating an exit strategy far sooner than what most make a reality. Exit strategies help define goals, develop targets, keep on track and create strategic decision-making throughout the Amazon journey.