After you’ve built up your thriving fulfillment by Amazon (FBA) business, you may want to cash out to either move on to another project, diversify, or just take a break. If that’s the case, you’ll want to optimize your business for sale. But what is it that FBA buyers look for in an Amazon FBA business that they are planning to buy in a potential acquisition?
Having good sales numbers is great, but there’s a lot more to it than that. To truly maximize your offer, you’ll need to think about how to run an FBA business that’s both profitable and future-proof. You may even need to change up your assigned FBA job functions to make sure you have dedicated employees working in every important sector of your company. Let’s take a closer look at the six big things an FBA buyer is looking for so you can cover these FBA responsibilities yourself.
1. A Focus on Amazon Never Hurts
When a company is looking to buy your FBA business, it doesn’t hurt to have an Amazon focus. The main reason is the ease of having a business streamlined on Amazon, it’s easier to implement advertising, review control, and even customer service. Having the right ratio can make your business much more appealing to a buyer.
As a good rule of thumb at Boosted Commerce, we generally recommend having at least 80% of your sales come through Amazon. We also recommend being an FBA seller, as this is the preferred selling method for both businesses and customers. According to Statista, as of December 2018, 73% of U.S. sellers utilized FBA, up from 58% in January 2017, meaning its popularity is only on the rise. FBA businesses are much easier for someone to take over since the majority of operations are already handled by Amazon anyway. Having other channels as growth opportunities leaves upside for the buyers once Amazon has been optimized.
2. SDE Scale
SDE, or seller’s discretionary earnings, is a way to show the value of your business. To calculate it, you’ll take your net profit before taxes and add your personal take and your non-essential expenses. Then you’ll subtract all of your liabilities, such as unpaid bills and debts. The result is your SDE.
Generally, we look to find businesses that have a minimum SDE of $250,000. To us, this is a sign that the business is doing well and has a track record to prove its viability. Most importantly it indicates a business will continue doing well in the future.
3. SKU Density
Amazon FBA buyers love to see stores with SKU density. If the majority of income is coming from a single SKU, that’s a lot of risk to take. What if that product suddenly loses popularity or is discontinued by the manufacturer? The store may not be able to continue turning a profit. But on the other hand, having too many SKUs also makes a business more difficult to manage and may pose additional challenges to analyze the true growth trajectory of any SKU.
In general, we recommend having at least four popular SKUs that account for more than 80% of your revenue but no more than high single digits. That way, your profits are spread out but not too spread out. The stronger density of SKUs within this limit, the more attractive your business is to a potential buyer.
4. Profit Margin
After being in the Amazon game for a while, you know the answer to “how does an FBA work?” Because of that, you know that FBA fees are nothing to scoff at. There are fulfillment fees on every order ranging from a couple of dollars to over a hundred dollars for oversized items.
You’ll need to account for these fees and other costs to make sure you’re getting enough profit. Amazon buyers generally look for a profit margin of at least 20%. If you’re not hitting that mark, you may need to adjust your pricing or see where else you can cut costs before you try to sell your Amazon FBA business.
5. Review Moat
Reviews are crucial for Amazon businesses. Not only are they important for ranking high in search results, but they also have a big influence on potential customers. According to data from Spiegel Research Center, almost 95% of online shoppers read reviews before making a purchase, so having a good number of reviews helps your product stand out.
Having a ton of five-star reviews indicates to FBA buyers that your store is doing something right. This is especially true if you have more reviews than the competition. Customers may be more willing to trust a product that has a hundred more reviews than a similar product. If an FBA buyer sees this, they’ll know your business already has a leg up in your industry niche.
Another important factor that FBA buyers look for is the length of time you’ve been in business. The longer your store has been operating, the more valuable it may be. That’s because longevity is often equivalent to success. If your business wasn’t profitable, you wouldn’t have lasted this long. Having a store history of at least two years shows that you’ve been able to build up a solid customer base and offer a quality product that people are satisfied with.
However, there’s one important stipulation here: You shouldn’t have used any black hat tactics to help your store stay afloat. This can mean a number of things, but one of the latest plots includes flooding a competitor’s listing with fake positive reviews so Amazon takes down all their reviews. Even if you just copied someone’s product listing content, that could be enough to turn off a potential FBA buyer.
Sell Your FBA With Boosted
Selling your business is a challenging decision to make. You’ve worked hard on it throughout the years, so you might be reluctant to hand it over to just anyone. However, if you match with the right buyer, you can get a life-changing payday and a long-term earn-out as they take your business to the next level.
Whenever you’re ready to get out of the game and head to your next venture, Boosted Commerce is here to help. We’ll perform a comprehensive review of the items we mentioned above so we can give you a fair and accurate estimate for your business. If you’re ready to proceed, the whole transaction can take place in as little as 35 days.
Storfund accelerates your marketplace payouts across multiple geographies and allows you to manage your finances in one place. Storfund helps e-commerce sellers drive sales and increase profitability by shortening their cash cycle, thus allowing them to purchase additional inventory and never run the risk of being out of stock. Our clients receive their sales the same day, irrespective of the marketplaces’ actions, be it rolling reserves or 14- or 30-day payment cycles. Storfund is available in 17 Amazon marketplaces and in the French marketplace Cdiscount. We work with companies registered in the European Economic Area (EEA), the United Kingdom, the United States, Canada, Australia and New Zealand.