This article won’t just help you increase the potential sale price of your FBA business: it’ll help you build a better, more profitable business. In short, to increase your FBA business value.
How? Let’s take a second to think about your FBA business as an investable asset.
If you were to purchase an FBA business as an investment, what factors would you consider?
You might look at monthly earnings: the higher the business’ profits, the more it’ll be worth. You might look at traffic: the more traffic the business generates, the more it’ll be worth. You might look at its brand presence: the more well-aged the business and established the brand, the more it’ll be worth.
You get the idea.
The elements of an FBA business that an investor looks at are the parts that make up its structure, and the stronger the structure, the more the business will be worth.
The three factors mentioned above – profits, traffic, and brand presence – are the factors we consider most highly when valuing an online business.
With the basic formula below, we split the net profit away from the other factors and use it to generate a ballpark valuation figure because the more money a business earns, the more it’s worth.
The multiple is generated based on many factors, the main ones being the business age, model, and time required for maintenance.
In 2019, the average multiple for FBA businesses sold on our marketplace was 26x, but we’ve recently increased our multiples to match the changes in the market.
The most obvious way to increase a business’ valuation figure is to increase its net profits. But how do we increase the multiple?
Here are the five simplest ways to increase your FBA business value for a higher sale price.
Do you know your business’ in-goings and out-goings? A buyer will want to know about them.
Getting your business’ finances in order not only makes it easier for a buyer to fully understand its profitability but also helps you understand it.
When you know where you’re overspending or wasting money, you can make cutbacks and quickly increase profits, thus increasing your business’ value.
If an experienced buyer can see where your finances are not optimized, they will likely offer a lower price and quickly increase the profits themselves after acquiring the business. Make sure you have optimized your business as well as possible with the resources at your disposal to avoid selling your business too cheaply.
When a buyer assesses your business’ earning history, they will ask about any dips or increases in profits. It’s a good idea to understand these events yourself, so you can prepare answers and put the buyer’s mind at ease.
The best way to organize your business’ finances is to create a profit and loss statement (P&L). Having your accountant do this will save you time and ensure an accurate statement.
The P&L shows the buyer has everything they need regarding your business’ finances to better understand the history of your business.
This is why we create P&Ls for sellers when they list on our marketplace. This is not only a step in our vetting process to qualify the business, but it also makes it easier for buyers to assess businesses quickly, increasing their likelihood of making a purchase.
If you’re packaging your own products, stop.
Most FBA buyers will skip your listing if they see you work many hours on your business, especially if you’re doing your own packaging, as they don’t want this hassle. The first thing they would do if they did decide to acquire your business would be to outsource the product packing.
Although outsourcing packaging comes at a cost, it actually empowers you to make more money by giving you more time to focus on your business’ growth.
If you’re worried about having someone else handle your products, you can hire a third-party logistics (3PL) company to carry out quality checking. They will make sure the products are up to your standards before packaging them and sending them to your delivery service provider. If you use the same 3PL company to deliver the product, they will send it directly to the customer.
Selling a few products, and only on Amazon, limits your business’ value. You don’t want all your eggs in one basket.
Add product variations, such as size and color, or add new products to your listings for a quick value boost.
If you build your brand around just a few products, then you’re playing a long-term game, and your business’ value will increase more slowly. This is fine if you want to build a niche brand and be in it for the long run, but if you want to increase your business’ value quickly to sell it for more, then you should add more SKUs to your product range.
More products mean the business can make more sales, which is attractive to a prospective buyer. This is why we use the number of products as a valuation factor.
You should also consider expanding off of Amazon into eCommerce or DropShipping. This would make your business more stable in case of an issue with its FBA aspect; for example, if your Seller Central account were temporarily banned, you wouldn’t lose out on sales completely because sales would still be coming from eCommerce or DropShipping.
We always preach that diversity is king in business.
You might score a quick win by daring to do what most FBA business owners won’t – ask your suppliers for better rates.
If you’ve been working with your suppliers for a while and have shown that you get them regular business, you’re in a good bargaining position. The worst they can do is refuse the lower rates, and the potential rewards of shaving a few cents or dollars off each product can be huge.
In keeping with the theme of diversification, using multiple suppliers for your FBA products will make your business more stable. This mitigates the negative impact a supplier issue could have on your business, which helps you overcome potential buyers’ worries that your business may have supply troubles after they acquire it, thus increasing your business’ value.
Organizing your operations is a less tangible but nonetheless important valuation factor.
The efficiency of your operations determines how many orders you can take on and how well those orders are fulfilled. More and better order fulfillment means more revenue. Organizing your inventory ordering and management, customer service and listing page management, and PPC campaign operations to a tee, among other operations, is crucial to preparing your FBA business for sale.
The best way to do so is to create standard operating procedures (SOPs) for each operation necessary to run the business. SOPs are especially important if you outsource tasks to freelancers or employees because they help ensure employees know how to do their jobs properly.
SOPs are a highly desirable asset for your business as they will allow buyers to take over your business with ease, whether your current employees decide to continue with the business or the buyer’s hands the SOPs over to their own employees. That way, they can focus on growing the business or sit back with a mostly passive income generator.
Building your business based on the understanding that it is an investable asset will help you grow it more quickly into a stronger business. That’s because all the elements that make it a solid asset also make it a solid business – they’re one and the same.
That said, if your business is performing poorly, there will still be a buyer out there for it.
Some buyers look for businesses with poor inventory management that have experienced multiple stock-outs or those that have low-quality listing pages. These flaws are opportunities for buyers with the skills to improve those areas of the business to increase profits and make a healthy ROI.
Poor performance does mean you will probably get a lower price than better-performing businesses of a similar size, however, so bear that in mind when negotiating deals. Try to think of the sale price from the buyer’s perspective, regarding the risk they’ll be taking.
Whatever stage your FBA business is at, if you would like to sell it, then submit your business to our pool of buyers on the world’s largest curated FBA marketplace. Our buyers have over $1 billion in verified funds waiting to be invested in FBA businesses.
We look forward to seeing you there.