You’ve probably heard tales of FBA sellers who have successfully sold their business for impressive sums.
For some people that might be the goal — to build a business which they can eventually sell at a profit, rather than carry it on indefinitely.
If this sounds like you, then it’s important to be strategic early on. You need to be building your business with an eye on the prize — what will make it an attractive prospect to future buyers?
Also of note, if you’re not planning on selling your business any time soon, the tips we’re about to go through are still for you, because what makes a business attractive to buyers is also what makes it successful for you in the long term.
So, let’s dive in. What does make an FBA business attractive to potential buyers?
A buyer wants to know about your product mix in detail. You might have 10 different products, but if a large percentage of your sales are from just one, then you’ll be considered a one product business.
This is not so attractive to buyers as it shows a lack of diversification, or spreading of your product risk. If another seller is able to source the same product at the same price or less, then potentially, your sales could be wiped out by a competitor.
Competition is a big deal to interested investors. If you’re selling in a very volatile market that is full of competitors, then your business is not such an attractive buy. This is especially the case where other sellers are sophisticated and aggressive. If they can meet you in terms of price and professionalism, then that represents a huge risk.
The other side to your product mix is your actual profitability per product. Are your profit margins consistent? Or do they vary considerably? For example, if you are selling in a volatile category as described above, you margin might vary wildly as you’re forced to lower prices to compete. Most investors would like to see a solid 30-50% product margin with little variability.
One of the good things about an FBA business is that it’s already built on a platform which makes it easily scalable. Of course, product can be a factor here too. If you are selling something very unique which takes time to produce, then you will only be able to scale in relation to how quickly more product can be made.
Ideally, investors would like a business which can easily scale upwards.
What makes your business scalable? For one thing, having good systems in place for all the important parts of your business. As an example, you might be using Forecastly to automatically monitor your inventory, a tool for repricing, and have a clear process in place for when and how to order new stock.
It’s always a good idea to have documented processes. This shows any potential buyer that you take care of due diligence across your business and that you have a system which they can easily pick up and run with.
We’ve spoken previously about the factors which can give your business a unique edge over others. One of those can be your supplier relationships.
For starters, you need to have a solid relationship with your suppliers. This means agreements over lead times for your orders and could include contractual items such as exclusive rates or creating a unique product which is not available to others. A potential buyer would want to know that any agreements like that will be carried over to them in a sale.
Another point to note is how suppliers are managed. If you’ve got multiple suppliers for your many products, this can become a fulltime job to manage, so buyers are keen on automated or reliably outsourced management of multiple suppliers if possible. Your business will be much more attractive if that’s not something you usually have to spend all day on.
Unique branding is a much more attractive prospect to a potential buyer than another “me too” Amazon seller. Why? Because unique branding gives you a few advantages:
- Defensibility. Your brand and products can’t be copied easily because you hold the rights to them.
- Visibility. A unique brand tends to be a much more memorable thing to market than another relatively anonymous Amazon account. You have unique collateral and you probably have a presence outside of Amazon too.
Buyers want to know that your products can’t be easily ripped off and that they will have a strong position should anyone try. Using Amazon Brand Registry is an important step for ensuring that you’ve secured the position of your brand.
Most of the time, FBA businesses are getting bought by investors who hope to realize a profit from the business. Those investors are concerned with two primary goals:
- Getting their investment back.
- Getting a return on their investment.
The longer your business has been around, the more financial data you will have available to prove the profitability of your business. Most will not go near a business that is less than 12 months old unless it is something incredibly unique which they want to get a jump on.
If you can wait at least a couple of years before trying to sell it helps you out because you will have had the opportunity to iron out any kinks, you may have realized even more profit and, as a result, your business will be worth more.
Alternative Traffic Sources
One of the tricky things about Amazon is drawing in traffic to your products from the millions of daily visitors to the site. There are thousands of competing offers, so possible buyers can be heartened if you have multiple sources of traffic coming into your products.
These could include:
- Your brand website.
- Your social media accounts.
- Your blog.
- Other websites where you post or advertise.
- Paid traffic from a source like Adwords or Facebook.
In short, you need to have built up other sources for driving sales rather than relying on Amazon alone.
Your Popularity on Amazon
An investor is also concerned with how popular your brand is on Amazon. How attractive are you to buyers on Amazon?
To determine this, one measure they will look at is your best seller ranking for key products. What they would like to see here is consistency (for example, remains within the top 10) and growth over time. You don’t even need to be ranked super-high, but if you can show steady growth that will impress many buyers.
Another measure of popularity is your reviews. Again, buyers want consistency. You should have a pattern of happy customers providing you with good reviews
Is building up an FBA business to sell the dream for you? If so, there are many people like you who have successfully sold their businesses for good sums.
If you’re not looking to sell, the tips outlined will still ensure that you have a strong FBA business to continue with.
The journey to selling your business begins early. If you want to not only achieve a sale but gain maximum price, then you will need to set up your business strategically, with a view to making the points we’ve outlined here attractive to potential buyers.
Have you sold an FBA business? We’d love to hear your thoughts about the experience below.