Thinking of getting out of the Amazon FBA game? Or, do you want to start afresh with something entirely new? Most sellers believe that the only way to do this is to start selling off your merchandise. Furthermore, gradually disband your company. However, did you know that an active and growing market exists to sell your business?
This way, you can sell your businesses for a significant amount which could even be a great cash injection for your next venture. So, what are you waiting for? Cash in on all the hard work you have done to get your business this far. In this article, we will help you realize what you need to take into account to come up with a fair price for your business.
So, what is your Amazon FBA business worth?
Four considerations will play by far the most prominent role in how much your business is worth. Each has an equal say. Therefore, you could say that they each represent a 22.5% role. The other factors make up the remaining 10% of influence.
As an experienced Amazon FBA, you should easily be able to establish where your business is according to each point. However, we will give a short description of each as well as show you how to use it, if you are not so familiar with Amazon terminology and technicalities.
Five main factors that determine the worth of your Amazon FBA business
- Your business’ EBITDA: This acronym stands for Earnings Before Interest, Taxes, and Amortization. It’s a relatively straightforward algorithm to help you determine the profit-making power of your business.
- The type of business: For logistical and market-related reasons, some businesses are prized more than others. We will explain the different models in this context in case you’re not sure which type of business you run.
- Your current assets/inventory: If you run a very light business model, you might have very little (if any) physical assets that need to be transferred in the sale. However, almost any business will have in-stock merchandise that needs to be handed over.
- Age: The age of a business says a lot about it, especially in times like this where things move so fast and businesses can rise and fall in the blink of an eye.
So, are you ready? Get your calculator and business reports ready. Let’s find out how much your Amazon FBA business is worth.
How to calculate your EBITDA?
Calculating an Amazon business’ EBITDA has almost become the de facto way to estimate its worth. Rest assured that any potential buyer will also calculate this value before making you an offer. Correspondingly, they might request the relevant information from you to do so.
As such, we will use this as the baseline price of your business. This will be the starting point for negotiations that will most likely also include all the following factors. It’s from this point onwards that value is added to (or subtracted from) the worth of your company.
Factors that you should consider
All of these are factored in for your EBITDA, which is basically your annual net profit before: taxes are paid, depreciation that is calculated on your assets, and any loans you have against the business.
For Amazon sellers like yourself, this most likely only means the total profit on sales for your Amazon products.
Profit involves taking the total of the payments made to you and subtracting any expenses:
- Amazon seller and referral fees
- Warehousing costs
- Shipping fees
- Merchandise cost
- Other operational costs incurred by you
On a per item basis, you can calculate the net profit by using this equation: Product selling price + shipping fee x referral fee – origination cost= profit. Use “add the sum total” of this together for all your different products across the year.
Other fees that you should also consider
It gets a bit trickier when we get to the warehousing fees. Amazon calculates warehousing fees on a monthly basis based on the merchandise you have left in the warehouse. To put it differently, that means it can go up or down per month based on when you sold how many items. It’s best to get a total of your warehousing fees for the year and subtract the lump sum.
Lastly, subtract any other operational fees you incur to get your product to Amazon. The asking price for your business will be this final EBITDA value multiplied by 2. As it’s implied, your company should be able to maintain this form for at least two years.
So, if you have an annual net profit of $50,000, then the value of your business will be $100,000.
Amazon provides all the tools you need in the Seller Central dashboard for you to collect this kind of financial information.
Determine your business type
Although this plays a huge role in both the interest for and the value of your business, it’s much more subjective than the straight-shooting EBITDA. Your business model simply might not suit an individual for personal reasons.
However, there is some method to this madness that will help you determine your bargaining power as particular models are in higher demand than others.
This is one of the most popular ways to sell on Amazon. In short, you find a product to sell that you are allowed to label or package with your own branding and pass off as your own merchandise.
The difference between the two is that private labeling most often involves low cost/no brand items. These are often imported from China through sites like Alibaba. White labeling usually involves much more traditional products that allow you to replace their branding and sell it as your own.
This type of business is relatively attractive because you operate at high margins (usually as high as you wish). In fact, you don’t manufacture or source your own products once you have a supplier. It’s potentially very low effort yet very high payoff. The one downside is that anyone else can sell the same product.
Retail arbitrage (or, wholesaling) involves selling well-known products that you find from local stores. These sellers usually rely on sales in local outlets that beat the available prices in other areas.
The biggest problem with this model that puts off buyers is the risk. It’s a very up and down type of business that can rake in massive amounts of money the one month and then sit idle for another. It’s hard to build a stable business on something that relies on sales.
However, if you got your hands on reliable and low-cost suppliers that still allow you to sell these items at competitive prices, it will make your value soar. This space might become more challenging to compete in as Amazon themselves are maneuvering into basic supplies.
Your Own Product line
This is probably the most attractive option for buyers and the type of business that will receive the most attention as well as serious offers. In this case, you are also selling your own intellectual property, manufacturing techniques, and brand with your business as these are inseparable.
If you are successful, you probably “own” your very own slice of the target market. This most likely equates to more consistent and longer-term success. In any event, you have something unique that can’t simply be taken on and sold by just anyone.
Your current assets and inventory
The kind of assets that make up your company is highly dependent on what kind of business you run and what your merchandise is. Do you own any of your own manufacturing equipment? How about packaging tools? In most cases, you would like to pass this on along with your business unless you are planning to start a new one with the same infrastructure.
Depending on how the sale is structured, this can either be calculated as an additional, separate sum or as part of the actual business sale. Pinpointing the value of a capital asset can be a real headache, but usually comes down to its original price adjusted by the depreciation it’s subject to.
Of course, the value of your inventory is much more straightforward. The only complication that can arise is when you must decide whether you want to add the storage fees and handling costs to the existing products’ value.
One significant way in which businesses and property differ is how their assumed value changes with time. Businesses become more valuable with time, mainly because that proves that they can weather a bad period and stay profitable. It also props up the aptitude of the owners which creates a positive outlook on the organization and structure of the company.
An Amazon selling company that has been around for a while is even more impressive considering how fickle the online marketplace can be. Sellers (and their businesses) go faster than you can say “FBA,” and a company that has been around a while must have a good product with a consistent and reliable consumer audience.
Other factors to take into account
Many smaller factors also have a say in the final offer you will receive. These play a much smaller role than the previous ones but could still make or break a good deal under certain conditions.
- Tax status: Many FBA sellers aren’t even aware of the fact that they are still obligated to pay taxes for their Amazon sales. This led to many Amazon FBA businesses ending up deep in the red with the revenue service even after they have gained massive success. When you make a sale of this kind, overdue taxes might be transferred to the buyer who will make up for it by offering a lower price.
- Product niche: This factor can also come down to either practical sense or simple human taste. Products go in and out of style which will temporarily drive your price up or down. A product niche that is slower in changing and where products stand a smaller chance of being replaced by better versions will be more appealing.
- Product seasonality: Highly seasonal products or products that only sell during a certain time lead to a less balanced checkbook and more uncertainty. Think of swimwear that will only sell well before and during summer.
Make sure that you get what your business is worth!
Ultimately, you will also have your own idea of what your business is worth. That makes it extra important learn about all the factors that influence the value of an Amazon FBA business. Having objective measures helps you develop realistic expectations and not be led by your emotions or attachment to your company.
The best thing you can do to strengthen your bargaining position and to strike a good deal is to inform yourself fully. We have created an article that covers this same process from the perspective of the seller. We recommend you read it to gain even greater insight into the experience.