Selling your Amazon Business the Right Way

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We have Coran Woodmass The FBA Broker is with us to talk through Selling your Amazon Business the Right Way.

Been running two years selling Amazon FBA Businesses.

The Averages

Across the marketplace across all business for sale or sold
For most FBA businesses there’s a single core product and all the business relies on this
You don’t really want one product line to be over 30% of the total revenue

Your net profit is what the multiple will be based on
The baby niche is pretty popular
The sold data and look at it by category
A rough idea of 2 to 2.5 times at $300k double would be $600k you would take home plus inventory at cost

Having a bookkeeper who knows Amazon and can give an SDE (Seller Discretionary Earnings) number
Typically Amazon Sellers are using spreadsheets or software to manage the numbers
Figure out the expenses that are related to the business and are transferable to the new owner
- PPC Spend
- VAT has to be added (in UK)
- Maybe a VA helping out
- Inventory going into Amazon

Net profit can be 30-50% less than what the Seller is expecting when selling your Amazon business
Biggest expenses that people don’t understand is cost of goods sold
Product/Inventory Costs
- Doing ‘accrual accounting’
- Inventory is bought at different times of the year – we buy at different times of the year
- Take into account the ‘Cost of Goods Sold’
- All the costs to get the product into Amazon
Promotions and Rebates
- The topline number can be affected a lot by PPC and Giveaways and Rebates
Staff or Fulfilment that you do yourself hides a staff cost for another new owner

Preference would be for everyone to use a bookkeeper that understands the selling process when selling your Amazon business
Do you books twice, once for taxes and once for selling the business
Do it the right way
Add back the personal business expenses
Coran hasn’t found a software tool that can be used for running the business and setting the business up for selling

What products are profitable
Brand strategy
- One brand in one niche
- One brand that can support multiple niches
- Multiple brands
Exclusively about selling you would:
- Brand that support multiple niches/verticals
- Work out which are the profitable products to have
- Scale as quickly as you can
First year put everything back in plus more to grow it as fast as you can
Six months before sale – optimize the business
Show 12 months of growing before you go to sell
Downside in this tight timeframe is you really want to optimize your net profit
Really 4-5yr mark is what we’re seeing for now to give the product range time to grow and breathe

What Buyers are looking for now…
Brand matters a lot
Do the products stand on their own
Can they be found off Amazon
Can they be put into retail now?
This is how a strategic investor could pick up your products and put them into their business right now

Proprietary Elements

How hard is it for someone to see this product and go source it
Longevity, History helps the product
Buyers will pay more for products that have been operating longer
Boost your multiple:
- Repeat orders
- Subscriptions through your website
- Want a way to market to that customer again – reselling is cheaper than acquiring customers
Things you can do to your business now to make it worth more

Income only matters from a multiple perspective
If it’s selling 30% or more off of Amazon then it will matter
For most Sellers, if your infrastructure, team and strategic advantage in the marketplace is ON-Amazon then double down on that

Year 1 was good but year 2 had some misses – how do you deal with this with Buyers?
Ideally you don’t want to be rapidly expanding when you have one eye on selling – two different goals
Only start to plan to sell when you’ve figured out your product mix
This is to get the best multiple
Best exit is when you’ve figured out the product mix and are growing only in the lines that are working
From a Buyers side – most buyers know you need to expand the product line to grow the revenue
But if you’re having quite a few misses, you don’t really want to be selling in that year

Under a year
Selling in under a year is not Coran’s area
Sometimes you try some stuff and got a couple that work and some don’t so you look to sell it
You get a low multiple and probably half you expect
Chances are you just want out and buyers will make a low-ball offer

How much inventory are you holding at cost compared to your net profit number
Businesses with a lot of SKUs are holding a lot of stock as you have to
Apparel has lots of variations and colours
If your inventory number landed cost is above your net profit then something is wrong
Dead lines and maybe whole categories that aren’t selling through
An investor will go through all of this
When you’re going to sell then you want to optimise and sell-off dead items
Having too much stock is a horrible time to sell

Bulk of the market is in $100 to $500k mark
A lot of 1st Time investors are coming into the market at this price point
Looking for businesses that is already working and expanding on it
Most of these buyers are in the US and are cash buyers
They want some US income
In Germany and UK, Switzerland has a lot of really big cash buyers who want outside US too
Less Buyers for UK only businesses

Don’t sell in less than a year
Make it defendable asa product
Give it 2-4 years to optimize the net profit to the buyer
Category also matters (Home and Kitchen, Health) can dictate multiple
Sexy items (adult) have less buyers
Sexy products though matters in the lower price pool – they want to talk to their friends
Higher price point $2m in revenue – then you’re attracting serious buyers who just look at the numbers not sexy
Sexy is better at the lower price points

The lower level buyers have ‘fear of loss’ as a motivation to avoid buying it
Listing suspensions are talked about early
- what happened
- how they fixed it
- how they stop it happening again
An issue with your whole account can be more difficult to sell
A supplement product line was halted as a whole category by amazon for reasons completely unrelated to the seller
The buyer in this scenario accepted but had to reverse out this product line from the business