Fulfillment by Amazon (FBA) has emerged to be among the largest and most reliable ways of making money online. Seen as a new frontier in the e-commerce business, FBA has enabled millions of entrepreneurs to take advantage of Amazon’s distribution network and customers to make huge profits.
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When developed well, FBA business can attract many online merchants and can become the target of many business buyers. In this article, we will look at how to value an FBA business or dropshipping ecommerce company. We will also explain how to increase its value before selling it and what makes it more appealing to a buyer.
Understanding The FBA Market
Little is known about the adoption of FBA. But statistics show that third-party marketplace sellers account for 50 percent of all items sold on Amazon. And 66 percent of the top 10,000 sellers use FBA.
The marketplace is big and expanding, with FBA as the engine. Last year, Amazon made $90 billion in sales from third-party sellers. This was up from only 15 billion five years ago.
No wonder today there are many stories about how early movers made huge profits within a short time. It is now common to hear several sellers going from 4-6 figures monthly income within a short time.
With the many FBA success stories, it is no surprise that many business owners are beginning to explore the potentiality of selling their businesses. After all, who would not want to reap the most out of their business sale?
How Much Is Your Amazon FBA Business Worth?
The valuation of FBA businesses is done just like many other online businesses - by looking at the seller’s discretionary earnings (SDE).
SDE refers to the profit the business owner is left with after deducting all expenses from the gross income. You can include the owner’s salary to the profit figure too.
To value your FBA business, you need to calculate its SDE first before devising a multiple to apply to it.
The multiple plays a vital role in the equation and is affected by several business-related factors. The factors include a wide range of financial, operational and traffic aspects, but they ultimately come down to sustainability, transferability, and scalability of the business. Any market or functional factor that directly or indirectly affects core aspects will influence the multiple.
Factors To Consider When Valuing An FBA Business
Owner Involvement
Part of the selling point of running an online business is the potential nature of passive income it brings. A business that needs, let’s say, 5-10 hours a week are more attractive compared to those that require a lot of involvement from the owner.
Business Age
An FBA business that has operated for a long time is considered to have a proven record of sustainability, and is predictable in terms of future earnings. Younger businesses can still be sold to buyers who can tolerate higher risk.
Concentration
Concentration of any kind in a business presents a risk that an investor must price in. If 90 percent of revenue comes from one supplier or product, most buyers will question its sustainability.
Trends
Very few buyers would buy a declining business. The idea is to sell a business that is in a growth path, or that shows signs of growth.
Selling An Amazon FBA Business
Business owners looking to sell their FBA businesses have four major options: Marketplace, Internet Business Brokers, Auction, and Direct Sales.
Marketplace
If you decide to sell your Amazon business on a marketplace, you will need to prepare information regarding your business and post a listing for potential buyers to see.
This is a good option for sellers looking for a low-cost listing with a wide distribution network. However, due to the high volume of businesses listed daily, it may take time before listing your business on a marketplace yields results. Also, you will have to run the selling process yourself. So, it is not suitable for a person selling their business for the first time.
Brokers
Selling your online FBA business with a broker is arguably the best option, especially if you have a large business, don’t have selling experience or want to get the most from your business sale.
Auction
Selling an FBA business through an action platform is the same as for the marketplace listing, in that the seller will have to prepare the same information and run the process themselves. However, with the auction case, there is a fixed period for your business to sell, which creates competition among buyers.
Direct
You can also approach potential FBA business buyers through calls or emails and convince them to buy your business. You can do this by targeting other business owners in the same niche. However, this approach can potentially leak the information that you are trying to sell, which can trigger a higher employee attrition rate and vendors.
When developed well, FBA business can attract many online merchants and can become the target of many business buyers. In this article, we will look at how to value an FBA business or dropshipping ecommerce company. We will also explain how to increase its value before selling it and what makes it more appealing to a buyer.
Understanding The FBA Market
Little is known about the adoption of FBA. But statistics show that third-party marketplace sellers account for 50 percent of all items sold on Amazon. And 66 percent of the top 10,000 sellers use FBA.
The marketplace is big and expanding, with FBA as the engine. Last year, Amazon made $90 billion in sales from third-party sellers. This was up from only 15 billion five years ago.
No wonder today there are many stories about how early movers made huge profits within a short time. It is now common to hear several sellers going from 4-6 figures monthly income within a short time.
With the many FBA success stories, it is no surprise that many business owners are beginning to explore the potentiality of selling their businesses. After all, who would not want to reap the most out of their business sale?
How Much Is Your Amazon FBA Business Worth?
The valuation of FBA businesses is done just like many other online businesses - by looking at the seller’s discretionary earnings (SDE).
SDE refers to the profit the business owner is left with after deducting all expenses from the gross income. You can include the owner’s salary to the profit figure too.
To value your FBA business, you need to calculate its SDE first before devising a multiple to apply to it.
The multiple plays a vital role in the equation and is affected by several business-related factors. The factors include a wide range of financial, operational and traffic aspects, but they ultimately come down to sustainability, transferability, and scalability of the business. Any market or functional factor that directly or indirectly affects core aspects will influence the multiple.
Factors To Consider When Valuing An FBA Business
Owner Involvement
Part of the selling point of running an online business is the potential nature of passive income it brings. A business that needs, let’s say, 5-10 hours a week are more attractive compared to those that require a lot of involvement from the owner.
Business Age
An FBA business that has operated for a long time is considered to have a proven record of sustainability, and is predictable in terms of future earnings. Younger businesses can still be sold to buyers who can tolerate higher risk.
Concentration
Concentration of any kind in a business presents a risk that an investor must price in. If 90 percent of revenue comes from one supplier or product, most buyers will question its sustainability.
Trends
Very few buyers would buy a declining business. The idea is to sell a business that is in a growth path, or that shows signs of growth.
Selling An Amazon FBA Business
Business owners looking to sell their FBA businesses have four major options: Marketplace, Internet Business Brokers, Auction, and Direct Sales.
Marketplace
If you decide to sell your Amazon business on a marketplace, you will need to prepare information regarding your business and post a listing for potential buyers to see.
This is a good option for sellers looking for a low-cost listing with a wide distribution network. However, due to the high volume of businesses listed daily, it may take time before listing your business on a marketplace yields results. Also, you will have to run the selling process yourself. So, it is not suitable for a person selling their business for the first time.
Brokers
Selling your online FBA business with a broker is arguably the best option, especially if you have a large business, don’t have selling experience or want to get the most from your business sale.
Auction
Selling an FBA business through an action platform is the same as for the marketplace listing, in that the seller will have to prepare the same information and run the process themselves. However, with the auction case, there is a fixed period for your business to sell, which creates competition among buyers.
Direct
You can also approach potential FBA business buyers through calls or emails and convince them to buy your business. You can do this by targeting other business owners in the same niche. However, this approach can potentially leak the information that you are trying to sell, which can trigger a higher employee attrition rate and vendors.