Your Ultimate Must-Know Advice Guide to Successfully Selling an Amazon Business
Selling an Amazon business is exciting. But it can also be daunting when you’ve never done it before, and you’re not sure what the process will entail.
Once you’ve read through this guide, you’ll have a handle on pretty much everything you need to know to sell your Amazon business, so you can get back to being excited!
Questions to answer before selling your Amazon business
Before we delve into the exact process of selling an Amazon business, there are a few questions you’ll need to answer if you’re going to have a smooth sales process. The most pressing is whether you’re likely to be able to sell your business. But you’ll also want to have a realistic idea of how much you could sell your business for and whether you can do anything to increase the sale price.
Can you sell your Amazon FBA business?
In almost all cases, the answer is ‘yes’. However, there are three main factors that will influence how easy it will be to sell your business and the price you can get for it:
1. Type of business
2. Market position & product quality
3. Business size
Better positioning with each of these factors will increase the sale price of your business and make it much easier to sell. But that doesn’t mean your business will be impossible to sell if you’re not well positioned regarding any or all of these factors.
Here’s how each factor will play into the saleability of your business.
Type of Amazon FBA business
The type of Amazon FBA business you have will dramatically affect the ease of sale and sale price.
The most common types of FBA businesses are:
+ Private label
FBA resellers buy wholesale volumes of products at wholesale prices and then re-sell them in retail quantities at retail prices. The profit is in the difference between the retail price and the wholesale price. (You may see this practice referred to as retail arbitrage.)
This makes reseller businesses easy to start, which means there’s very little barrier to competition.
FBA reseller businesses are therefore very difficult to sell because the buyer could just start their own competing business and the number of future competitors is pretty much unlimited.Product supply can also be a problem as there’s no guarantee products will always be available at a discount when the business needs additional stock.
If, however, you have an exclusive contract that gives you the sole right to resell a brand’s products on Amazon, that limits your business’s competition for the life of the contract and so makes buying the business a more enticing prospect. That’ll make it easier to sell your business and increase the value of your listing.
Private label businesses sell products under their own branding (hence the term private label product), which means product supply isn’t an issue. However, other brands can sell the same product, so there can still be heavy competition in the marketplace.
If you have a private label FBA business, you’ll likely find it easier to sell than an FBA reseller business, and you should be able to get a better price for it.
Proprietary businesses sell products that are exclusive to their brand. As an example, they might have a patent on the product design, or they might use a secret formula.
This doesn’t mean there aren’t other competing brands selling solutions to the same problems. But it does mean there aren’t any other brands selling identical solutions to the sample problems.
If your FBA business sells proprietary products, you’ll find it much easier to sell your business and buyers will probably pay more for it than for a similar private label or reseller business.
Market Position & Product Quality
The market position of your listings, such as the number of reviews, subcategory rankings, competitiveness of the category, price and product ratings, strongly affect the value of your business. These factors influence a buyers’ expectations of how long into the future your listings will continue to grow and earn strong profits.
Prospective buyers will also want to know how much profit they could make when running your business. So, your historical earnings will also determine the price you might be able to get.
Generally speaking, the greater your business profits, the easier it will be to sell your business and the higher the price you’ll be able to get for it.
How much do Amazon businesses sell for?
At the low end of the scale, Amazon businesses can sell for around USD100,000. At the higher end of the scale, they can sell for USD100 million, or more.
What is your Amazon FBA worth?
As with houses, your business is ultimately worth whatever someone will buy it for. But since you can’t know that until someone actually buys it, that’s not very helpful.
Instead, you can look at historical sales of Amazon FBA businesses.
The key is to look at the list price value, the business’s revenue, the multiplier that takes you from the revenue to the list price value, and the business category. The FBA Broker has done some good analyses of the data from 2017, 2018, 2019 and the first half of 2020, which provides a great basis for you to estimate what your business might be worth, and a simple calculation with which to do that estimation.
Before you can use the calculation though, you need to be able to calculate your business’s SDE or EBITDA.
How to calculate your SDE
Your seller’s discretionary earnings (SDE) is defined as the “total financial benefit that a single full time owner-operator would derive from a business on an annual basis”. Here’s the calculation:
SDE = net income + interest + taxes + depreciation + amortization + owner’s compensation + non-recurring costs
An alternative calculation is:
EBITDA + owner’s compensation = SDE
Non-recurring expenses are one-off business costs such as a new computer or other equipment.
How to calculate your EBITDA
EBITDA stands for earnings before interest, taxes, depreciation and amortization. Here’s the calculation:
EBITDA = net income + interest + taxes + depreciation + amortization
How to calculate an estimate of your business’s worth
To estimate the worth of your business, multiply your SDE or EBITDA by the relevant multiplier. Most Amazon FBA businesses tend to sell for a price 2.5-4 times their SDE or EBITDA, with the average being 3.5.
To get a more accurate measure for your business, you can take into account some business specifics.
Here are some calculations based on business value.
If your SDE is less than $500,000, you could use SDE X 2 as an approximation.
If your SDE is $500,000-$1 million, use SDE X 2.6.
If your SDE is $1 million-$2 million, use SDE X 3.2.
If your EBITDA is $2 million-$5 million, use EBITDA X 4.1.
And, if your EBITDA is more than $5 million, use EBITDA X 5.5.
And here are some indicative calculations based on industry.
For a supplement business, the medium multiple in 2019 was 4.1. For health and personal care businesses and home and kitchen businesses, it was 3.6, and for sports and outdoor businesses, it was 3.5.
Just remember, you’re not guaranteed to sell your business for these values. These calculations are only intended to give you an estimate of the value of your business for planning purposes. The eventual sale value of your listing, should you decide to sell, will still depend on things like the type of FBA.
What can you do to increase the value of your Amazon FBA business before a sale?
There are two main ways you can increase the value of your Amazon FBA business.
Gain a competitive advantage
The bigger your competitive advantage, the more your business will be worth more to a buyer. But how can you gain a competitive advantage?
There are many ways to improve your business’s competitiveness, but here are three great ways:
1. Increase customer loyalty. If you can secure loyal customers who wouldn’t dream of shopping with a competitor, that will increase the value of your business. The way you do this will depend on your business and target customers, but simple ways to help improve customer loyalty include improving customer service and customer satisfaction. Even something as simple as producing a digital brochure that shows customers how to make the most of their new purchase can make a big difference.
2. Increase your product rating. Better quality products are more popular and lead to happier customers. So improving the quality of your products is another great way of increasing the value of your business. For example, if your Amazon product rating is 4.3 stars, consider liaising with your manufacturer to make small changes that address negative customer feedback and complaints and see if you can increase your product rating to 4.5 stars.
3. Register your intellectual property. If you can patent a unique process or product, buyers will be willing to pay a lot more for your listing.
Diversify your business
Diversified businesses are always lower risk because they can better weather market changes (and regulatory changes etc.). So, if you can diversify your business in some way, you can increase its value.
Great ways to diversify your Amazon FBA business could include:
+ Adding more products (businesses that derive 70% or more of their income from one product are higher risk)
+ Servicing additional niches
+ Implementing additional traffic sources within Amazon (e.g. sponsored ads and PPC ads)
+ Attracting additional traffic from outside of Amazon (e.g. social media, your website, email marketing, paid search ads on Google and other platforms)
+ Diversifying your business channels by branching out to additional platforms that make sense for your products (e.g. Walmart, Etsy)
How to sell an Amazon Business — your step-by-step guide
So, once you’ve determined that your business is sellable, and you’re happy that you’ve maximized its value, you can actually start the process of selling. Here’s exactly how you do that.
Step 1. Find potential buyers
Your first step is to locate someone or a corporation that might be interested in buying your business. You can either reach out directly to buyers like D1 Brands, in which case you’ll walk away with all the profits from the sale. Or you can go through a broker that will search for a buyer on your behalf but will take some profits from the sale of the business in compensation.
Most brokers use the Modern Lehman formula to calculate their brokerage fees. When using this method, the broker will charge fees equal to 10% of the first $1 million of the sales price, plus 9% of the second $1 million, plus 8% of the third $1 million, etc. down to an additional 3% for every million above $8 million.
You could list your FBA for sale on a marketplace or auction platform. However, most listings get very few views on marketplaces, so it can be very hard to find a buyer that way. And most businesses that sell through an auction platform sell for only 0.5-1.5 times their SDE.
Step 2. Initial review
Once you’ve found a potential buyer, they’ll do an initial review of your business. You’ll need to make sure your public facing business assets are in order (so make sure your Amazon shopfront is in tiptop shape), and that you’re ready to describe your business in a way that puts it in the best light.
Step 3. Letter of intent
Once prospective buyers have reviewed your business, if they’re interested in buying it, they’ll send you a letter of intent (LOI). If you’re happy with the LOI, you sign it.
Step 4. Due diligence
Once you’ve signed your LOI, you’ll need to provide your buyer with financial and operating paperwork, so they can do their due diligence research into your business to ensure it meets their expectations.
Step 5. Legal
Assuming the due diligence process doesn’t reveal any red flags, you’ll need to prepare purchase and sale contracts and begin the migration phase. At this stage, you’ll also need to ask Amazon for approval to sell your business.
The process for seeking approval is usually simple. Start by opening a case with Amazon or emailing them to notify them of your intention to sell. Here is an example template you can use.
I am writing to notify you in advance that I am planning on selling my Amazon FBA business. As part of this process, my banking information and account credentials may change, and I may log into my account from several locations.
This notice is to assure you that there isn’t any fraudulent activity occurring on my account.
Please confirm you have received this advanced notice.”
This step is important because if Amazon flags suspicious activity once the transfer has taken place, they’ll revert the account back to your original settings.
There are two ways to transfer your business. You can transfer your Amazon account, in which case Amazon will give you instructions for how to do that. Or you can transfer your listing to another Amazon Seller Central account. Your buyer may prefer the latter if they already have a large Seller Central account. Sometimes, Amazon may require you to use the second transfer method.
At D1 Brands, we accept both account and listing transfers. And, if you choose to sell to us, we’ll prepare the purchase and sale contracts and begin the migration process for you so you don’t have to worry about those steps.
In addition to these steps, it’s best practice to have the buyer place the agreed sale price into an escrow account. For your peace of mind, D1 Brands always uses a reputable third-party escrow service.
Step 6. Closure
The final step is for the buyer’s funds to be transferred to your bank account (which will be done by the third-party escrow service if you use one) and for you to notify Amazon that you’ve sold your business.
Things you need to know when you’re planning to sell an Amazon business
So, that’s the entire business sales process. But you may still have a few questions, so we recommend you read through the below answers before you start looking for a buyer.
How long does it take to sell an Amazon FBA business?
If you buy through D1 Brands, it takes just 30-45 days to fully close a sale once the LOI has been signed. We usually conduct our initial review 1-5 days after you reach out to us. Then if we’re interested in buying your business, you can expect an LOI within 1-2 days. Due diligence typically takes 2-3 weeks, legal takes 1-2 weeks, and then it typically takes up to a week for you to receive the sale funds from the escrow account.
We’re very good at what we do, however, so the entire sales process can take significantly longer if you choose a less experienced buyer. It’s even longer when you take into account the process of finding a buyer.
For example, the average time to sell in the first half of 2020 was 168 days.
Our top tip for successfully selling an Amazon FBA business
Make sure your financial statements are accurate, and you have a good prospectus to show to interested buyers. It’s not a good start to negotiations if you can’t succinctly show the value of your business or if your financials have errors in them.
How is it possible to sell an Amazon seller account when Amazon restricts the transfer of seller accounts?
It’s true that Amazon’s policy is that seller accounts are generally not transferable. The key thing to note here is that Amazon likes to discourage account transfers but doesn’t actually forbid them. It’s entirely acceptable to link accounts, and as long as you ask Amazon’s permission, it’s also possible to transfer accounts.
In fact, hundreds of Amazon accounts have been transferred in the last few years. And D1 Brands has never had an issue with an account or listing transfer.
What protection does an NDA offer if you share information with a competitor during the sales process?
If a competitor is interested in buying your business, you will naturally be concerned that they’re just fishing for inside information about their competitor. So, having a well-written NDA (non-disclosure agreement) can help you stay in control of your information while you’re discussing a potential sale.
However, you can also take additional steps to protect your business:
1. Research the potential buyer. For instance, you can check their financial position. If they refuse to provide you with such information, don’t share any information with them. There has to be some give and take.
2. Release information in phases, starting with the most general information. Only release sensitive information once you’re part way through making a deal. And don’t release the personal details of your customers or employees at any point.
3. Highlight the confidential nature of any materials you’re sharing by watermarking them with a ‘confidential’ label.
4. Come up with a coding system that enables you to match documentation with a specific potential buyer. If all your documentation is different, you’ll be able to trace any leaks to the specific buyer.
What are the pitfalls of minority ownership when selling your Amazon business?
When selling a business priced over $5 million, it’s not uncommon for the seller to retain a minority ownership of the business (i.e. to not sell the entire business). Perhaps the main pitfall with such an arrangement is that it’s very hard to sell a minority ownership stake to anyone else. So if you retain a minority ownership, you’re unlikely to be able to sell that to anyone else if you ever want to.
You can overcome this risk by including a buy-sell arrangement in your business sale arrangement that means you will be able to sell your share of the business to the buyer if you decide you want to in the future. (You might also see this referred to as ‘put and call rights’.)
Other issues are related to sorting out compensation and liabilities, the professional fees associated with sorting out the legal and tax arrangements for such an arrangement, and the normal challenges associated with any partnership. It is for these reasons that such arrangements are rare when selling a smaller Amazon business.
Is it time to sell your Amazon business?
Now you know whether you’ve got a good chance of selling your Amazon business (and presumably you do if you’ve read down to here), are you ready to start the sales process? We’ve laid out the process here, and given you some great advice about how to increase the value of your business. But if you have any questions at all, our team of Amazon FBA experts are always here to answer your queries and provide personalized guidance.
And when you’re ready to sell, just get in touch with D1 Brands, and we’ll guide you through the entire process, step-by-step, to make selling your Amazon business easy.