6 CommentsWhile we often talk about sellers just beginning their journey selling on Amazon, what about the multi-million dollar Amazon businesses that are ready to cash out?
Selling your business may not be top of mind when you first launch your products, but as you grow your business over the years, it is definitely something to consider.
Despite recent news about roll-up companies like Thrasio acquiring third-party Amazon businesses, the possibility of one day selling their business for profit isn’t among the top motivators for starting out as a seller. 42% of Amazon sellers start because they want to reach financial freedom or to become their own boss — a realistic goal for third-party sellers.
If you create a business that provides value to your customers while creating a healthy profit for you and your family, that’s a win-win. And if you can make a profitable exit, well, that’s an added bonus.
Are sellers really making enough money on Amazon to even think about selling? The answer is yes. Data from our recent State of the Seller report shows that 19% of Amazon sellers have reached “Million-Dollar Seller” status (i.e. they’ve made over $1M in lifetime sales on Amazon).
If you own a profitable Amazon business and are considering selling, keep reading to find out why you might want to sell their business, whether your business qualifies, and how to get connected with potential buyers.
Why sell your Amazon business?
Sellers who have spent years building a brand, cultivating positive reviews, and achieving consistent daily sales — all while maintaining a healthy profit margin — have quite the asset on their hands.
Building a business from scratch isn’t easy, even on Amazon. For one thing, sellers often handle all aspects of launching a business themselves: everything from product research, sourcing, listing optimization, logistics, dealing with seller support, to name a few.
There are a number of reasons why you might want to sell your business, whether it’s to retire early, to invest in another business, or to make big financial decisions like buying property. While you’ve probably become attached to your brand, selling your business can offer freedom from daily tasks and the ability to really enjoy the fruits of your labor — not to mention relief from the stress of running a large Amazon business.
Then there’s the cold, hard cash at stake. While the value of any given ecommerce business varies, buyers will typically pay anywhere from 2.5 to 4.5 times EBITDA (earnings before interest, taxes, depreciation, and amortization) over a 12 month period for an Amazon business.
Say your operations bring in $300,000 in annual net profit (before taxes.) If you sell at the low-end of that range at 2.5x EBITDA, your business could be worth at least $750,000! It would take you at least 2.5 years to net the same amount if you continued to run your business without selling it.
Overall, not a bad payday. Of course, this is just an example, and the worth of your business depends on many different factors.
Is your Amazon business worth buying?
Before you look into selling your business, you should figure out whether your business is sellable or not, based on a few reliable metrics:
- The age of your business
- The number of hours you work to support your business
- The type of Amazon business you own
- Your business’s net profit EBITDA
Just because your business has high revenue does not mean that it will sell. There are many other factors that buyers will consider before making you an offer.
The age of your business
The longer you’ve been in business, the more attractive your brand will look to a potential buyer. If you’ve only been selling for a year or less, you may seem like a bigger risk to a buyer, and thus lower in value. Buyers look for signs that customers trust your brand, and that your products will continue to perform well on Amazon once they’ve acquired it. A wealth of positive reviews and solid rankings on Amazon are clues, but they both take time to develop.
A buyer also needs to be able to calculate when they could feasibly make a return on their investment. They can predict future earnings more accurately when they have years of sales data to look at.
A six-month-old business with $1 million dollars in revenue may not be valued as highly as a three-year-old business with $1 million dollars in annual revenue. Buyers will see the latter as a profitable asset in the long term, whereas the former is too young for reliable long-term projections.
The hours you work to support your business
Investors don’t want to purchase a job, they want to purchase a well-oiled machine that will run with or without you. A business that runs profitably with existing employees or virtual assistants and standard operating procedures will be worth more than a business run solely by the owner.
Similarly, a business that requires 5 hours a week of maintenance work will be worth more than one that requires 35 hours of work per week.
The type of Amazon business you own
If you sell on Amazon, you know there are a few different business models you can follow, private label, wholesale, retail arbitrage, and dropshipping among them.
Hands down, private label is the most desirable third-party business for prospective buyers. This business model is much more attractive than a reselling business because you own the brand and the assets along with it.
If you sell wholesale or arbitrage, you are considered a reseller because you are buying products from brands you do not own and reselling them for a profit. While these types of businesses can be worth something to a buyer, they’re not as attractive. Since you don’t own the brand, control the supply chain, or handle product development, the buyer has little control over their investment.
A reselling business can also be volatile, especially since you cannot always control the amount of competition on each Amazon listing. Unless you have an exclusive resale deal with a brand, your business’s performance can be rather unpredictable.
Your net profit
This one is pretty self-explanatory. The more money your business nets every month, the more money it’ll be worth to a buyer. Buyers want to see year-round consistency in sales as well. If your best month is in December but sales during the other 11 months fall flat, your business won’t be worth purchasing.
What is your Amazon business worth?
The next step is figuring out what your Amazon business is actually worth. The two most important considerations are the trailing 12 months of net profit and the multiple applied to that number.
As mentioned above, the average multiple is 2.5 to 4.5 times your annual net profit. The higher the profit your business produces, the higher the multiple you can expect. Factors like product categories, the number of SKUs you maintain, your supply chain, and the age of your business can have an influence on what the multiple is as well.
Empire Flippers has a free valuation tool that estimates what your business is worth. They base this number on things like revenue, average monthly profit, age of business, and hours worked to maintain the business.
They also draw from data from real businesses that have sold in the past and will show you what businesses similar to yours have sold for.
How to sell your Amazon business
We all know how profitable an Amazon business can be, and investors want a piece of the pie. There are a number of different companies with boatloads of cash looking to acquire profitable Amazon businesses. One of those companies is Thrasio who has raised over $1 billion for the sole purpose of buying up Amazon businesses.
You can use a brokerage such as Empire Flippers to list your business for sale. They can connect you with a number of potential buyers or investment firms interested in buying Amazon businesses.
How to make your business more attractive to buyers
As was mentioned earlier, sales and profits aren’t the only deciding factors for your business’s potential buyers. Having the right processes in place will make your business more attractive.
Know your numbers
It is very important to have accurate and organized books so you can present a clear and accurate picture of your business to potential buyers. You want to have proof that the business is running smoothly and you know exactly where your money is coming and going.
Keeping track of your expenses is crucial to any business, as it tells you if you’re really profitable or not. Buyers will ask to see everything from monthly revenue, to cost of goods sold, product purchase price, advertising costs, and storage costs.
Keep your listings up to date and optimized
Make sure your product listings are in tip-top shape. This includes optimizing them with relevant keywords, great product images, high-quality infographics, A+ content, videos, and most importantly, reviews.
Supplier relationships
Suppliers are the lifeblood of your business — if they don’t deliver or provide you with low-quality products, your business is basically dead. It’s important to not only build a strong supplier relationship but to ensure you are partnered with a reliable supplier who can deliver in a timely manner and consistently produce high-quality products.
Product diversification
The more products you have, the better you look to buyers. If your brand consists of just one to two products, it may not be as attractive to a buyer as all of the risk falls on those products. But if you sell multiple SKUs, the risk can be more evenly distributed across your brand.
Additional sales channels
Does your business just sell on Amazon, or do you list products on other marketplaces as well? While your Amazon business alone can be worth a lot of money, if you sell in additional marketplaces such as Walmart, eBay, your own ecommerce storefront, or even international Amazon marketplaces, that can potentially increase the value of the business.
Virtual assistants
Outsourcing parts (or all) of your Amazon business is a great way to free up your time and truly run a hands-off type of business. By using virtual assistants or freelancers to help with the day-to-day of your business, you’ll look better to potential buyers who do not want to purchase a “job.”
Are you ready to sell your Amazon business?
Growing and scaling a profitable Amazon business is not an easy task. It takes a lot of hard work, commitment, and guts to become an entrepreneur. After years of grinding and growing your business to where you wanted it to be, you may feel it’s time to let go and move on to something else.
We hope this article helped you understand the ins and outs of selling your Amazon. Do you have any more questions? Let us know in the comments!
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