This is a guest post from Vincent Wong, part of the Empire Flippers marketing team. Today, he’s going explain how your FBA business can be turned into a valuable asset that savvy buyers will pay big bucks for. Let’s get into it!
When people discovered they could leverage Amazon’s reputation to create their own online business, it completely changed the game.
Becoming an entrepreneur through e-commerce was no longer some faraway dream where you needed a decade of experience in logistics and wholesale to even stand a chance. All you needed was a standout product that was in demand.
The FBA model is a sweet spot between dropshipping, which is highly restrictive on the level of control you have over the product, and full-on e-commerce, which can be really overwhelming to beginners in the e-commerce industry due to the many moving parts you need to manage.
Like many other founders, you probably found that building an FBA business unlocks many career and life opportunities. What started off as a side hustle to bring in a bit of extra cash each month became a respectable digital asset that might even have replaced your main source of income.
While your FBA business may have presented new opportunities, selling the business might be the key to achieving your future goals.
A lot of FBA owners have never even considered letting go of their darling company. However, I’ve seen some owners hold onto their business despite not having enough time or motivation to keep working on it any further. Revenues decrease, the brand value drops, and motivation gradually slinks into the distance out of sight.
What if selling your FBA isn’t the end of your entrepreneurial journey, but the beginning of the next chapter?
A six-figure capital opens completely new opportunities if you optimize correctly to increase the value of your business for a higher sale. Let’s cover the basics on when, how, and why you’d sell your business.
Choosing the Right Time to Sell
Whatever your reason might be, a sale is life-changing. Just imagine receiving 2–4 years of profit upfront in capital from the sale of your FBA business.
There are two reasons why people sell: personal and business.
Selling Due to Personal Circumstances
Life is full of surprises, some welcome and some unwelcome. Unforeseen circumstances might force your hand into adapting to the situation.
A death in the family will probably mean you need to change your priorities, meaning you don’t have enough time to maintain the business. Maybe you’ve put off seeing the world long enough and decided that it’s time to expand your horizons.
Selling the business frees up capital and time to let you enjoy your nomadic lifestyle with complete freedom and flexibility. Alternatively, it could be time to settle down. A profitable exit could be your ticket to buying a house without the need to apply for a mortgage.
Selling for Business-Related Reasons
If the reason is business-related, selling your FBA brand might be tied to future opportunities.
I’ve seen many FBA sellers and buyers with their fingers in many pies, which makes total sense when you consider that being bitten by the entrepreneurial bug means you’re constantly looking for new business ventures.
Selling your current business could fund your next project or series of projects. Maybe the other side ventures are already up and running, but their growth trajectory means you need to invest more time to maintain the growth. It could be a mix of all the above.
Whatever your reason is, there’s a high demand for FBA businesses, and learning how to get your business ready for a sale will provide you with the leverage you need in negotiations to put you in a position for a quick sale.
How FBA Businesses Are Valued
It’s really important to have all your financial information and documents in order before you put your business up for sale. Having a profit and loss statement (P&L) ready puts you in a fantastic position to start negotiating.
The P&L statement provides a comprehensive breakdown of your revenues and expenses, including any buy-backs for growth-related expenditures. If accounting isn’t your forte, don’t sweat it—some brokers (like yours truly!) help you with that as part of using their service.
Once you’ve got the information ready, it’ll be helpful to have a rough estimate of how much your business is worth in order to start negotiating.
Our formula to calculate a business’s value is slightly different from other brokers, as we use an average monthly net profit instead of annual profit figures.
In simple terms, our formula looks like this:
6–12 month average net profit x Multiple
The multiple depends on several factors, such as the age of the business, the number of SKUs, revenue diversity, and others. The good news is that there are plenty of ways you can shift the multiple needle in your favor.
7 Tips to Improve Your FBA Business
In the 2020 Empire Flippers Industry Report, we found that FBA businesses sold for an average of $324,959.99 and for an average multiple of 25.
What we discovered is that creating a strong brand contributes to a higher sales price. Having an awesome product isn’t enough if you want to sell your FBA business for the highest sales premium.
Branding is all-encompassing and takes into account many aspects of your FBA business. When you get branding right, it creates a defensible moat around your business, which keeps it unique and makes it much harder for copycats to start competing brands in the same niche.
Here are some of the ways you can deepen the moat around your FBA business to get a higher valuation.
Leverage SEO for Free Traffic
One of the most underappreciated aspects of Amazon is how powerful its search engine is. Optimizing your listings means you avoid losing out on sales because your products appear much lower down the search results than they should.
To start improving your FBA store’s SEO, start with keyword research. Use tools like Jungle Scout to help you find relevant and low-competition keywords to increase the likelihood of getting high-intent potential customers visiting your products. It’s basically free advertising and is a lot more cost-effective compared to PPC campaigns.
For more tips on how to improve your search rank and get more organic traffic, check out this guide.
Improve Your CRO
Speaking of PPC campaigns, most FBA sellers use paid advertising to get their products in front of as many customers as possible. However, it’s not guaranteed to produce the results you want if your conversion rates are really low.
Implementing effective CRO techniques will help your PPC campaigns feel less like a scatter-gun approach and more like a highly focused strategy that generates better quality leads.
The core of any great marketing campaign is solid copywriting that hones in on your customer’s pain points. Remember to focus on your product’s benefits, not its features. People want to buy a quarter-inch hole, not a quarter-inch drill. Your copy should communicate how the product will help people solve their problems. Once you achieve that, you should start seeing your CTR and sales increase.
Another way to win more customers is by choosing high-quality photos. The images are equally important to the copy and should be thought-provoking, as well as eye-catching. However, they should augment the copy rather than overpower the content’s attractiveness.
You could feature models from the same demographic as your target audience to help customers picture themselves using the product.
Grow an Email List
Building and monetizing an email list is an often underutilized way to diversify traffic and revenue sources.
What makes email lists powerful is the higher buyer intent inherent in the audience, since subscribers voluntarily sign up to the email list so they can hear more about your products and services. Since they’re further along in the sales funnel, you can nurture leads and potential customers with effective copywriting.
Make the most of A/B split testing. You can experiment with different versions of copy to see which one converts more and which one refines your email funnels accordingly.
When done right, an email list can be very valuable in nurturing a loyal customer base and adds more value to your brand. Win-win.
Pricing
Pricing is one of those things that can feel tricky to get right. Charge too much and people might not buy your products, while charging too little will lead to much lower profit margins.
The hard truth is that most consumers will pay for the most affordable option on the market that’ll solve their problems.
To make sure you’re keeping in line with your competitors, use repricing software. These tools make sure you avoid pricing yourself out of the market.
One great tip is that you can price your product slightly higher than non-FBA sellers, since you automatically get Prime status. The “free” next-day shipping makes it seem like customers are getting an even better deal since they’re only paying for the product.
If your products sell better during certain periods, consider offering discounts during these peak seasons. You can significantly increase your sales by cross-selling or up-selling products at discounted prices.
Reviews
I’d wager that both you and I check reviews before we commit to buying anything.
That’s no surprise, as most customers do the same thing. Research by G2 shows that 92% of customers are more likely to make a purchase after reading positive reviews.
Positive reviews reflecting a great experience with the product and service is a core part of branding. Because of the power that good reviews have on the value of an FBA brand, Amazon is especially vigilant about incentivized reviews.
If you’re struggling to get customer feedback on your products despite a healthy number of sales, consider enrolling into Amazon’s Vine program. You will receive authentic reviews from customers with verified purchases and will have a consistent track record of providing unbiased reviews.
Remember that even if a customer has an issue with the product or with receiving it, you still have a chance to turn it around. Providing excellent customer service shows your brand isn’t just about sales, but that it truly cares about your customer base. Prompt replies through the Amazon Buyer-Seller Messaging Service and offering prompt exchanges or refunds where appropriate will go a long way to building brand advocates.
When you’ve built up a strong customer base, positive reviews reflecting the excellent product and stellar customer service will naturally roll in. In turn, you’ll find the value of your FBA business increasing as the branding becomes more reputable.
Diversify Suppliers
One of the biggest challenges for any e-commerce business is managing inventory. For FBA businesses in particular, running out of stock can seriously damage the brand value and reputation.
Typically, I see many FBA sellers have at least three months of inventory held in FBA fulfillment centers at any one time. However, nothing in life is guaranteed (besides death and taxes). Forecasting can help you prepare an appropriate level of inventory, but it doesn’t completely protect you from the possibility of running out of stock.
To mitigate this risk, increase the number of suppliers who can fulfill your orders.
Nurturing and maintaining good relationships with a variety of suppliers means that you can turn to any one of them in the event that your primary supplier can’t deliver the usual shipment. It also opens up different opportunities to save costs, since certain suppliers could offer better prices with wholesale orders with certain minimum order quantities.
At the very least, you protect your brand from running out of stock, especially when it’s peak season when a particular product is high in demand.
Create a Hands-Off FBA Business
Entrepreneurs want to invest in a business, not buy a job. Automating as many processes as possible means the owner can focus on expanding the business, rather than putting all their effort and energy into repetitive time-consuming tasks.
Creating SOPs means anyone can step in and carry out the required tasks. They’re like a manual of sorts, and they make it a lot easier to delegate these types of tasks to outsourced employees or hired staff.
It’s not unusual for some FBA sellers to spend only five hours each week on maintaining their businesses. It’s also a large contributing factor to why these businesses sell pretty quickly for multiple six-figures.
The Future Lies Beyond Your Business
Putting all these changes into place increases the value of your FBA business, which compounds into an even higher valuation.
If you’re considering selling your business, you can go through a broker or try to negotiate a private sale. However, I’d recommend using a broker if you’re a first-time seller.
While you save money from the commission fee that a broker would charge by attempting a private deal, selling your business can be tough unless you have a large network of high net worth individuals already established. Without the necessary deal flow, it could take much longer than anticipated for you to find an interested buyer, let alone agree on a deal.
Brokers typically have some of the best deal flow in the industry. They usually have qualified buyers who prove they can afford to acquire your business. This saves you time and money from having to deal with tire-kickers making empty inquiries or just comparing different businesses without any real intent of buying.
You also benefit from a variety of white glove services to help you sell your business, like helping you prepare the financial data and migrating the business from seller to buyer.
We always recommend that all FBA business owners prepare for a sale, even if the thought never crossed their mind. When you step into a buyer’s shoes and ask yourself, “Would I buy this business?” it gives you a chance to reflect on how you can improve your digital asset.
Whether you go on to sell or not, operational processes are improved and the brand is strengthened.
If you decide to sell, you’re in a great position to get a high sales premium. Buyers compete for your business on marketplaces when they see your FBA business’s state and scalability.
Start by registering on our marketplace for free if you want to think about selling your site.
Vincent is a Content Specialist at Empire Flippers. Originally from the UK and now residing in Malaysia, he loves everything related to online businesses. When he’s not looking after his toddler, he’s trying to keep up with the e-sports scene.
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