Building an Amazon Exit Strategy: Valuation, Aggregators & Acquisitions
What features augment the value of an Amazon business to potential buyers and how can an owner maximize the profits during the exit phase?
The Importance of Exit Strategy for Amazon Sellers.
Owning and running an Amazon business can be quite an enjoyable venture. It can even be said that it is a walk in the park. Amazon business owners can start their venture with one or two products and systematically develop it into a whole new brand. However, like in any business, there reaches a point in time where an owner may want to walk away. Whether it is to pursue a new venture, go into early retirement, or simply to obtain the value for the business after a considerable amount of effort, it needs to be said that there is a point where an owner may want to walk away.
This is where an exit strategy comes into play. An exit strategy is defined as your approach to disposing the business in such a manner you achieve the optimum value for it. It needs to be noted that in a situation where there is no coherent approach to the matter at hand, the seller is more likely than not to lose a considerable value. With the right set of actions, it is quite possible to turn your Amazon business into a coveted deal for an aggregator, private equity, or any other willing buyer.
This guide will explain the attractive components of your Amazon business, the niceties of business valuation, the roles of aggregators, and how to guide yourself sequentially through a successful exit strategy.
What Factors Attract Acquirers To An Amazon Business?
Not all Amazon stores will garner the same value from buyers. Investors want to be sure they will be making a sound investment, and that the business will be profitable and scalable. Here are the primary things they look for.
1. Financial Performance
Potential buyers want to deal with businesses that have demonstrated revenue growth consistently over a year or even two, and in addition have sizable healthy profit margins. Financial records must be obtainable and verifiable.
For example, a business that consistently generates $100,000 a month for 18 months will be deemed stable, while fluctuating sales will be deemed risky.
2. Brand Strength and Protection
Faster sales are associated with strong brands. Having a trademark in the Amazon Brand Registry lends more professional status to a business and protects it from copycat competitors, packaging, logos, and original designs.
3. Diversity within a Product Portfolio
It’s a bit of a gamble to only have one product which is considered a “hero product.” Buyers like companies which have several “best selling” products since it mitigates the chances of a loss of revenue due to one product’s failure. Additionally, it is highly attractive to have products that customers leave positive reviews for and that have low rates of return.
4. Smooth Business Operations
Buyers prefer companies where the transactions are seamless. Having well defined SOPs, strong partnerships with suppliers, and smooth control of inventories helps facilitate the transition.
5. Market Position with Growth Opportunities
Buyers will be of high value to companies which rank highly on Amazon search results. Having strong SEO, good Pay-Per-Click advertising, and positive reviews convinces buyers that the brand has a lot of room for growth.
Understanding Valuation: Calculating the Worth of Your Amazon Business
Valuation is defined as determining the worth of the Amazon store. Most businesses apply the rule of multiples to decide the value for yearly net profits.
Common Valuation Range
Amazon FBA businesses tend to sell for multiples of 2.5x to 5x every net profit they make annually.
Smaller businesses which make under $500,000 profit often get lower multiples.
Businesses with stronger brands tend to have high multiples.
Key Valuation Factors
Above all, consistent revenue growth over a given period of time is more valued as opposed to sudden growth.
Margins within the 20-30% range tend to be of higher value.
Higher value private-label brands will surpass resellers.
Traffic Sources: Weaker sales means we would rely less on advertisement.
Customer Loyalty: They increase their value.
Example Calculation:
If your business makes $250, 000 annual profit, and the buyer offers 3.5x multiple, your selling price would be $875, 000.
Who are Amazon Aggregators and What are their motivations for acquisitions?
In the last few years, Amazon Aggregators have become very active on the buying side for FBA businesses. These companies have huge funds for purchase and growth of Amazon brands.
Top Aggregators
Thrasio: most of the competition has billions, and it is the largest aggregator.
Perch: centered on consumer scalable goods.
SellerX: purchase Amazon brands in the US and Europe.
Heyday: funds the advancement of lifestyle brands.
Boosted Commerce: purchases evergreen and niche goods.
Why Purchasers buy Businesses
Proven Revenue Streams: Businesses that are already profitable.
Economies of Scale: Centralized managing of multiple stores.
Enhanced Profitability: Growth into new territories.
Cross Selling: Utilize their current network to increase sales of new brands.
Example In Point:
Thrasio has bought hundreds of Amazon accounts. Some sellers who sold their business to Thrasio got paid over $1 million. This is an indicative case to display the buying side of Amazon FBA businesses.
Preparing for a profitable exit
Unlike most other strategies a business might use, exit strategies are much easier to implement if you put in sufficient preparation. If you get the preparation phase right, you are likely to receive higher valuation, and sale becomes easier.
1. Prepare Financial Statements
Prepare accurate P&L statements and file taxes appropriately and on time.
Keep a clear distinction between personal and business accounts.
2. Build Your Brand
Obtain a trademark and enroll in the Amazon Brand Registry.
Invest in improving packaging and branding.
Develop a website and grow a social media audience along with capturing emails.
3. Automate Business Processes
Develop SOPs for routine activities.
Establish reliable agreements with suppliers.
Set a ceiling on how much you can spend with a certain supplier, marketplace, or manufacturer.
4. Refine Your Amazon Store
Employ the A+ Content feature to enrich product listings.
Increase the quantity and quality of reviews and star ratings.
Invest in PPC Ads with strong ROI and low ACoS.
5. Strategize the Appropriate Exit
Aggregator Sale: Fastest sale possible, however, you might pay a steep price for it.
Private Equity Buyer: More time to transact, but you will receive a better price.
Broker Sale: Brokers are experts in deal making and can help sellers get better offers and negotiate better for serious buyers.
Common Mistakes Sellers Make
Relying too much on a single “on fire” product.
Retention of organized books.
Oversimplifying branding and checking in on the customer journey.
The phrase “when it rains, it pours” refers to a situation, but in this context the sentence means the seller waited too long to sell the company for a price that the seller could have gotten before the company’s sales started declining.
Adding Value Before Selling
To determine the value that has to be added to the business before selling it, the following points can be evaluated:
Add new products to the line to achieve diversification.
Increase the quality of the product to reduce the product return rate.
Increase sales on platforms other than Amazon, such as Shopify or through social media.
Develop an email list for customer retention.
Case Study
This is Sarah, an Amazon seller of home decor products. At the beginning, the only product she sold was wall art. Eventually, she added throw pillows, lamps, and storage boxes to her product line. Sarah developed a well-known brand with high-quality, well-received customer shipments.
At the point of sale, her business boasted five best-selling products, a registered trademark, and well-managed business accounts. An aggregator presented a purchase offer for 4.2x yearly profit, and she sold the business for 1.1 million dollars.
This proves the point that sufficient diversification and strategic planning can do wonders.
FAQs About Amazon Exit Strategy
Q1. What is an Amazon exit strategy?
How do you plan to sell the business for the maximum value in a reasonable time? That is what an Amazon exit strategy is.
Q2. How long does it take to sell an Amazon business?
On average, 3 to 6 months, based on the type of buyer.
Q3. What documents do I need?
Profit & loss statements, tax return documents, contracts with suppliers, and Amazon sales reports.
Q4. Is it possible to sell with only one item?
However, it is less appealing to purchasers. Having multiple products increases your value proposition.
Q5. Is it necessary to work with a broker?
Aggregation is a direct work and purchase, however it is helpful to work with a broker to obtain maximum value.
Q6. How do profit margins work?
Margins generally preferred are 15-20%.
Q7. Am I allowed to sell products if a trademark is registered?
Yes, however, it is more valuable.
Q8. Which aggregation companies are famous?
Thrasio, Perch, SellerX, Heyday, Boosted Commerce.
Q9. When do I sell for maximum profit?
When sales are stable and increasing is better to sell than to sell when they are decreasing.
Q10. What are some ways to improve the valuation?
Diversify the products. Expand out of Amazon’s platform, improve the brand for clean finances.
Conclusion
An Amazon business is often viewed as one of the most beneficial to sell. Having a defined exit strategy ensures you’re selling to serious buyers and will get the best price possible.
Keep in mind, everything is sellable. Dominating the market with clean balance sheets, efficient business processes, and Amazon Store optimization will lead to a better selling price.
Whether you decide to negotiate with an aggregator or a private buyer for your business, the aim should be the same for both: a clean and profitable exit which compensates your efforts and prepares you for the next chapter of your life.
