Many saw Fulfillment By Amazon (FBA) as a huge opportunity when it first rolled out, and they were right! There are thousands of people who have harnessed Amazon FBA to create very profitable businesses.
A good revenue-generating Amazon FBA business is going to attract a lot of attention in the markets. In general, a typical FBA business will often have higher (sometimes far higher) revenues than traditional content sites and are built to be easier to automate.
That doesn’t mean there aren’t problematic businesses for sale. Because there are.
How does an investor find a good deal? How do they tell the good businesses versus the problem ones?
Let’s dive into this!
Where To Buy an Amazon FBA Business
There are multiple places to find a good Amazon FBA business for sale, but four stick out from the rest.
1. Private Sale
Private sale is one of the best ways to acquire an Amazon FBA business from a current owner. There are Amazon FBA business owners who put out feelers via forums or newsletters, but many times approaching the business owner via supplied contact information is how these start.
Many owners won’t have any interest in selling, but many are at least open to the idea once contacted. Some aren’t aware of how valuable an FBA business can be to the right buyer.
Private sales take a lot of work and investment to pull off. Due diligence is crucial, but there are major opportunities that can be found from some simple outreach efforts.
Flippa is the largest open marketplace in the world for buying and selling online businesses. This means there are plenty of listings of businesses for sale that follows the FBA model. Basic information is given such as monthly revenue, website age, and asking price.
While it may seem like there are many amazing deals early on, keep in mind that Flippa is an unvetted marketplace.
This means due diligence is crucial to making sure that all the reported numbers are not fabricated.
Going through potential FBA business sales on Flippa will require extra work and due diligence but there are some great deals to be found.
3. Empire Flippers
Empire Flippers is very well-known for being one of the largest marketplaces for online business acquisitions in the world. Many dozens of FBA businesses can be found listed for sale at any given time.
The income between different listings can vary greatly, so whatever style and size of an FBA business an investor is looking for, there’s a good chance they will be able to find it.
Most of the listings are in the six or even seven figures, so that is a budget consideration that is important to keep in mind.
4. MicroAcquire Marketplace
The MicroAcquire marketplace is the other great option for finding an FBA business for sale. These are heavily vetted businesses sold from a marketplace that specifically focuses on making it easier for businesses to be sold or acquired.
Finding a diamond in the rough will be more difficult, but the numbers are more reliable and the assistance provided makes for a great overall experience.
Amazon FBA Business Model Explained
Fulfillment by Amazon means you actually send the products you intend to sell to an Amazon warehouse under the FBA program. They take care of safely storing the items and shipping them when ordered.
There are fees for storage and shipping, but this means that Amazon takes care of the logistical side of things.
This allows an FBA owner to sell many different products and is used by people practicing retail arbitrage, individuals mass dropshipping products, and even stores/companies creating their own products to sell.
The step-by-step process Amazon outlines for getting started with FBA can be found here.
Once the items are shipped to the Amazon warehouse, Amazon takes care of the next steps from there.
Buy an Amazon FBA Business or Build From Scratch?
Once an investor decides on the Amazon FBA model, there’s a major question that comes up:
- Should I buy an existing Amazon FBA business?
- Should I build a new Amazon FBA business from scratch?
There are plenty of success stories that come from both options. Building from scratch has the added benefits of teaching a relative newcomer the ins and outs of how these businesses work.
On the other hand, getting started can be expensive and if this won’t be the main focus of the investor’s attention, buying an existing business with cash flow makes a lot of sense.
Both routes can lead to success, but a lot of learning (or very good support) is important along the way.
When buying remember that for investors with no experience in FBA it’s good to find a solid business that is cash flowing and at least partially automated. If an investor is looking for a business to grow and scale then it is important to have first-hand knowledge of how these businesses work to have the knowledge and experience needed to scale up.
Amazon FBA Store Business Valuation: 4 Metrics
Several factors go into sales valuation for this style of business. Understanding these will help to come up with a fair and accurate valuation.
The Valuation Formula
The average profit considering all of the revenues minus operational costs. Do not factor in growth costs that are one-time (e.g., content marketing, email copywriting).
What about inventory? Existing inventory is not factored into the valuation. Inventory is valued separately and the buyer will need to pay for that. Note that usually existing inventory is valued at the actual wholesale costs the seller paid.
1. Revenue & Profits
The money numbers definitely matter. Keep a special eye on the revenue vs profit numbers. While content websites often have low expenses so most of the revenue is profit, that is often not the case with FBA.
The right business can be attractive as an asset to acquire either way but it’s important to keep these two numbers separate for a fully accurate view of the business being acquired.
2. Business Age
Business age matters and is factored into the monthly multiplier.
A long-established business with a proven track record of steady or growing revenues over time is going to fetch a higher valuation than a business thrown together 10 months ago that had some success during the holiday seasons.
This is also because Amazon’s algorithms favors aged seller accounts and listings.
3. Profitable PPC Campaigns
A common way FBA businesses grow is to use Amazon’s native ad platform to drive sales. This is call pay per click (PPC) marketing.
Since Amazon’s algorithm favors growing sales, total number of sales, and amount of sales in a specific time period, PPC is a great way to get sales on products which lends itself to generating organic sales through Amazon’s search bar.
As a buyer of a FBA business, make sure to get an understanding of how much of the costs are being spent on PPC and how much sales are brought in as a result. Furthermore, campaigns need to be tweaked regularly
A red flag would be the current owners have not performed updates to the campaigns thus the overall trend of sales from PPC campaigns is decreasing while costs remain the same.
Here is a good guide on Amazon PPC.
4. Recognizable Brand and Registration
Is the brand recognized? Is it a name that has received attention even if just in a narrow niche, or has the marketing not taken off?
Also, have the sellers taken an extra effort to get the brand registered through Amazon.
7 Aspects of Due Diligence for Amazon FBA Businesses
Due diligence is always important, but especially so with an Amazon FBA business. Many of these require a sizable monthly investment, so it’s crucial to make sure all the numbers are correct as reported before actually buying.
1. Seller Account Health
Amazon provides every seller a page that monitors their seller account health (found here) that gives information on if they are in line with Amazon’s policies, if there are potential violations Amazon is warning them of, or even if the account is in danger of deactivation.
As a buyer, you will be taking over full ownership of the seller’s account. Seller account health is a crucial part of due diligence.
2. Business Type
Find out what type of FBA business is being sold.
Depending on the setup, a full purchase of the FBA business might require a contract or acquisition of another business.
Amazon FBA is great for a private label business. In this model, a person looks for items on Amazon that sell like crazy but has easy wins (i.e., lack of reviews, lack of good on-page optimization)
They then create the same product via private label contract, put on their label, and entice ratings to become the recommended product in that niche on Amazon. A very potentially profitable way to use FBA.
Resellers, also commonly known as retail arbitrage, use Amazon FBA to store items they bought in person at low prices and then can mark up to sell at a much higher rate on Amazon.
They often buy a wide variety of items that are already selling on Amazon, set the pricing, and then let FBA do the rest. This can be a great way to make money, but the business is built around the person doing the shopping and sale hunting to flip those items for a profit.
Is the FBA business selling products created by the business owner? If so, is the seller handing over the patents, copyright, or that business over as well?
This is sometimes combined with dropshipping where a business owner has a product created, shipped to Amazon, and then Amazon takes care of the orders from there.
What is the competition in the space? Is it a highly competitive niche or is there potential to be the only big player, or at least one of a very few, in the space?
A great tool to use is Jungle Scout, which you can use to do preliminary research into a niche, product, category, etc., to understand long-term trends, competition, and much more.
4. Product Reviews
Having a lot of good product reviews, especially with a private label or proprietary property model of an FBA business is a major benefit. This means the business comes with built-in trust with Amazon customers, which is always a major plus.
5. Reason(s) For Selling
Why is the owner selling the business? Did they struggle to make it profitable? Are they just juggling too much? Was this the breakthrough business and now they just want to cash out and retire?
The reasons given for selling can tell a lot about the potential quality of a deal. Check out our deep-dive analysis of 89 sellers and their reasons to sell.
6. Growth Opportunities
What are the growth opportunities of the business? Is this a steady moneymaker that has leveled out because it reached its full potential already or is there a lot of room for more growth?
Knowing whether an FBA business has maxed out its potential or has room to scale up and grow can make a major difference when it comes to what it is worth to a potential buyer.
7. End Goal – Flip or Keep?
What is the end goal? If the goal is to flip the business at a later date then it’s important for the business to have a lot of room for potential growth.
On the other hand if keeping it is the goal, then a business that has maxed out most of its potential can still work if it’s offering safe steady revenue.
The end goal will affect how an investor wants to value a potential purpose.
How To Acquire an Amazon FBA Business
There are five major steps in the process of acquiring an Amazon FBA business. Most deals will follow these steps on a step-by-step basis.
1. Perform Rigorous Due Diligence
Confirm every single number multiple times. You want to be positive about the sales, revenue, and profit numbers before moving forward with any type of a deal. Their seller account must be in good health and things need to be running smoothly.
Here is a generic guide to due diligence you can follow.
2. Define the Multiple
According to DealFeed.io, an aggregator that analyzes business for sale from top brokers, the going multiple is 38X to 50X.
The multiple depends on industry trends, stability of the business, age of the business, competition, and brand.
Once you know the multiple (or if a broker has set one based on market trends), then you can use the valuation formula to calculate the valuation.
3. Make the Winning Offer
Many good Amazon FBA businesses in a marketplace will have multiple offers. Don’t push way out of your budget but put together an offer that is solid for the specific businesses that are interesting. If you make the winning offer, then the next steps come into play.
4. Amazon Seller Account Transfer
Usually an Amazon seller account cannot be transferred, but you can transfer the business. Here is a quick guide that covers this issue.
5. Website Transfer (if any)
If a website is attached to this FBA business, that needs to be transferred. This allows you as the buyer to have the complete business and keep it running smoothly or even improve it.
A successful FBA business may or may not have a website. If it doesn’t, that’s fine. If there is a website then that should be part of the deal.
There are many good reasons to be excited about the potential that an FBA business acquisition can provide.
- FBA businesses can make high amounts of monthly revenues
- While Amazon handles the logistics side of things, it’s still important to have a solid plan or model in place for the business
- Rigorous due diligence is absolutely essential
- FBA businesses come in three main types
- Properly prepare for the highly detailed and sometimes technical steps of the business handover process – get experienced help if necessary
An Amazon FBA business for sale offers a major opportunity for the right investor, but it’s important to follow the advice here to make sure your investments are in great deals, not landmines.