How to Increase the Value of Your Amazon Business: A Practical Business Flipping Guide
Selling an Amazon FBA business can be very lucrative. And in recent times, the number of successful sellers has surged tremendously.
However, you cannot expect to create a store, get it running and sell it for a high price. Buyers have certain expectations and are interested in stores that match their standards. Therefore, the more attractive your store is, the higher its valuation. And on the opposite – if your Amazon business doesn’t meet set requirements, you may want to improve your current offering before listing it for sale online.
So, what are these requirements, and what are the actionable steps to increase the value of your Amazon business? This guide will teach you some of the best practical strategies for growing your existing Amazon business, along with helpful tidbits and answers to popular store-selling questions.
How Do You Value a Business on Amazon?
Before learning and implementing strategies that increase the value of an Amazon business, you should try to understand how the valuation process takes place. There are several factors used to appraise the value of an Amazon store, some of which include:
- Revenue and Net Profits: Used to determine earnings generated by active product listings and deduce whether the ROI targets will be met or not.
- Business Age: Potential buyers are attracted to older, more established businesses (as they’ve already passed the initial and tumultuous stage of product ranking and launch).
- Growth Trends: A consistently growing business with decent profits is preferred over a company with spontaneous spikes in sales (common among Amazon FBA businesses that sell seasonal products).
- Assortment of SKUs: Stores with a broader range of related products are favored over those with a catalog of products spanning unrelated categories or a store with a single product (or two) responsible for a significant chunk of the revenue.
- Intellectual Property: Having trademarks and patents prove that the brand is strong on the creative and legal side of things.
- Automation: A business that has employees or outsources its operations is likely to have a higher value than a company in which the owner does all the heavy lifting.
- Marketing Channels: In today’s hyper-competitive eCommerce world, engaging audiences across various online channels is essential. Your website, eCommerce store, or sustainable traffic sources will attract buyers with bigger pockets.
- Branding and Social Media Presence: Increasing brand awareness, having social proof, and high customer satisfaction rates make your Amazon brand credible and less likely to fail.
These factors act as metrics Amazon sellers can use to evaluate their businesses, but they don’t exactly translate into numbers. If you—like many Amazon sellers—are wondering: how much is my Amazon Seller Account worth? Then the following methods will help answer that query.
The profit multiplier is the first and most common method, which averages annual net profit and uses a valuation multiplier to determine value. This method tells whether the amount is high enough for you to consider flipping your business. The formula is as follows:
Valuation = Net profit x Multiple
Subsequently, sellers can more accurately evaluate their Amazon business using the ‘Seller’s Discretionary Earnings (SDE)’ or ‘Earnings Before Interest, Taxes, Depreciation, And Amortization (EBITDA)’ methods.
These techniques calculate the net earnings of an account after subtracting sales fees and expenses, including Amazon FBA selling fees. They show the amount buyers or investors will get and enable them to compare against similar businesses.
To make matters easy and the valuation process smoother, we’ve created a free and simple-to-use online calculator to fetch you a rough estimate of your FBA business. Check it out here!
What Is a Multiple in Business?
A multiple, multiplier or valuation multiplier is an industry figure that can be used to evaluate Amazon FBA businesses. This figure is affected by age, branding, revenue diversification, ease of transfer, added assets, and much more.
9 Ways to Improve the Value of Your Business
Now that you know how Amazon business valuation works, let’s discuss some strategies you can utilize to bump up your sale price!
1. Register Your Business as a Brand: Make the Most of Amazon Brand Registry
An important rule of marketing is: “sell your brand, not the product”, which is why the first thing on your Amazon store improvement checklist should be to enroll your business in the Amazon Brand Registry program.
Establishing yourself as a brand gives your business credibility and importance in Amazon’s eyes and offers you many benefits.
With Amazon Brand Registry, your advertising data and product listings are protected; no third party can hijack your listings or change their contents, and you have complete control over the product display page. This reassures prospective buyers that the store won’t fall prey to bad actors.
Brand registered users are alerted in case of fraudulent or suspicious activity, and the seller support team quickly responds to sellers’ concerns.
Branding provides security and gives you access to powerful tools and features that help refine your advertising efforts, increase sales and conversions, monitor performances, and more. These tools help scale an Amazon business and elevate it from another ordinary Amazon store to one buyers compete to purchase.
2. Focus on Multiple Products within a Single Niche
Picture this, you have a single product in your store that generates a lot of profit, and a buyer buys the store, but further along the way, the listing gets suspended, deactivated, hijacked, or runs into trouble. The entire business is put on hold.
That’s why buyers avoid single-product stores owing to the high risk. If your store only operates one ASIN, you should consider expanding your product line!
Still, remember that more is not always better; even if you sell multiple products but your store relies heavily on one listing for revenues, you should consider modifying your portfolio.
However, you should not add random products; instead, go niche specific. Try to offer superior products and associate your brand with a particular category. Adding listings that complement one another is the cornerstone of building a loyal customer base (as a consumer interested in one item within a niche will probably be interested in others too).
Another tip is to look at underperforming products. Do your competitors offer higher quality products? Are your product detail pages under-optimized? Does your product fail to address buyers’ pain points? These are all points to consider.
3. Build a Strong and Agile Supply Chain
Although your product portfolio can be significant, what’s equally essential is to have a solid and agile supply chain – that directly impacts inventory performance metrics and sales on Amazon. A reliable and healthy supply chain cuts down on surplus expenses related to manufacturing, inspection, insurance, and inventory transportation by efficiently producing and shipping stock based on the required quantities.
The average Amazon FBA store buyer knows how this business works and pays special attention to the health of your supply chains. Having trustworthy suppliers, quality check SOPs and faster lead times increase the chances of you snagging a premium on your listings.
If your primary concern is along the lines of selling your Amazon FBA business at a high price, then you should implement the following protocols:
- Research trustworthy manufacturers
- Maintain substitutes in case of emergencies
- Vet and hire legitimate shipping agents
- Ensure quality control
- Document each process to streamline procedures and communications
- Encourage adherence to deadlines
4. Improve Your On-Amazon Reputation
Amazon strives hard to provide its customers with top-notch service and access to the best products. To achieve this goal, it built and continues to refine its algorithm to accurately rank and position products on their SERPs.
Although the entire list of metrics is unknown to those outside the platform, the major ones include:
- Sales velocity
- Listing optimization,
- Product ratings and reviews, among others.
After making a few sales and gathering product reviews, a chain reaction begins. When shoppers visit your product detail page, go through the listing and see the positive reviews, they make purchases—these are called conversions.
Generally speaking, the more reviews you have, the higher your conversion rates, leading to increased sales.
Every unit you sell helps you climb the search engine rankings, which effectively enables you to bring in more sales. More sales equal more money, increased popularity, higher inventory sell-through, lower storage fees, and savings on other costs that can be allocated for the ad budget, better sourcing avenues, or brand-building endeavors.
The benefits don’t end here; the Big A rewards sellers with accolades such as “Bestseller” or the “Amazon Choice” tag. These events create a snowball effect, boosting revenues and making the business grow exponentially.
5. Establish a Strong Off-Amazon Footprint
Owning an Amazon business shouldn’t limit your branding efforts to the platform. Instead, you should target off-Amazon channels as well.
Build a robust off-Amazon presence through external means such as blogs, social media platforms, live streams, etc. Create social media accounts for your business and display your brand, connect with potential customers, and show them what you have to offer to drive customer engagement.
Businesses with proactive customer engagement and a strong brand presence receive a high valuation than businesses that don’t.
When you market via off-Amazon platforms, you get noticed by potential customers who would otherwise not know of your existence (and most likely purchase products from your competitors).
Having an external footprint gets you recognition, strengthens your brand image, diversifies your audience, and increases your pool of loyal customers that actively follow your brand and make repeat purchases (it’s often cheaper to create repeat customers than it is to attract new buyers).
Aside from the benefits mentioned above, establishing an off-Amazon footprint creates a type of failsafe. If anything were to happen with your Amazon store in the future (e.g., an account suspension), you’d have a loyal consumer base to fall back onto.
6. Sign Better Supplier Contracts
Supplier contracts are essential as a manufacturer can make or break an Amazon business. So, do your due diligence to affirm supplier information and carefully inspect the contract to see what changes need to be made to the product and whether there is room for further negotiations. While you’re at it, go through the distributor agreements as well, if any.
The following are a few red flags indicating that you should try to seek out better suppliers:
- Your relationship with your manufacturer is not satisfactory
- Late shipments
- Above-average product return requests from buyers
Ultimately, try to sign exclusivity agreements with your suppliers where they will only produce a particular version of the product for you. Additionally, try to negotiate convenient payment terms or other beneficial clauses. Not only do these add worth to your Amazon business at the time of valuation, but—in a way—create barriers to entry for existing and future competitors.
7. Carry out End-to-End Optimization
Always keep your product listings updated, as SEO-savvy buyers will assess your store to see if it’s well-optimized or not.
A seller should regularly update their listing content to suit current times, add and remove keywords in the front end and back end fields following changes in search volume trends, keep an eye on competitor’s activities (and know which keywords they’re targeting), upload clear and high-quality images, create compelling A+ content, incorporate video, and whatever else is required to enhance your store.
These steps aren’t just important to please potential buyers; a significant chunk of your revenue depends on how well your listings are optimized and in line with the algorithm’s guidelines.
A well-written sales copy paired with high-quality images convinces visitors to make a purchase and may even convince a prospective buyer to bid for the right price.
8. Eliminate Underperforming Products
A portfolio featuring consistently profitable products is valued higher, so sellers should always maintain an even portfolio.
If you’re in the Amazon online selling game for the long run and to earn for yourself, then it’s okay to keep underperforming products (and experiment with them). However, if your end goal is to sell the store, then there is no point in maintaining underperforming SKUs.
Such listings reflect negatively on your store and needlessly bring up concerns from prospective buyers who begin to doubt the success of your Amazon business.
Underperforming listings become baggage that strains the valuation of your FBA business and hamper you from securing a good deal. So it’s crucial to tidy up your portfolio and eliminate listings that don’t perform up to par.
When you add new products or plan a cleanup operation, start by performing analysis, do it every other month, and track/calculate the ROI and sales of each product. If it looks promising, change your strategies to make it perform well. Otherwise, let it go.
Pro tip: Make your store as risk-free as possible for the buyer.
9. Keep the Transfer Process Easy and Hassle-Free
Buyers avoid businesses that are a nuisance to acquire. They prefer well-documented ones with operations that are easier to take over. These include SOPs, contracts, financial statements, third-party product testing, etc.
A good purchase offers a smooth transition of power. This means that each party should clarify their duties and expectations, whether the occupation of the owner is of essence to the business, and if specialized skill sets are required for the business to operate or not.
Another aspect of the transfer process is post-sale cooperation. You should offer assistance to your buyer and mention the tasks you can and will aid the new party with. It’s also recommended that you outline your degree of involvement in connecting the buyer with your suppliers and allowing them to carry forward with the old contracts.
Transferring an Amazon seller account requires undivided attention and a deep understanding of Amazon’s seller guidelines. We strongly recommend reaching out to an experienced e-commerce broker to sell your FBA business and guide you at every stage of the transfer process!
Frequently Asked Questions
Time to answer some of the most commonly asked questions about Amazon FBA business valuation.
Can Amazon Business Make You Rich?
Yes, provided that you:
- Offer a product that is superior to your competitors
- address your target audience’s pain points
- are creative and execute effective marketing and advertising strategies
- follow Amazon’s seller guidelines and are compliant with their ToS
By following these steps, you stand a chance of creating a highly-profitable Amazon store.
How Do I Sell My Amazon FBA Business?
To briefly summarize the process, you can sell your amazon business online by:
- Getting a valuation,
- Looking for buyers,
- Listing your store for sale,
- Negotiating your terms with interested buyers,
- Signing a deal and transferring your asset over to them.
Transferring your business successfully can range anywhere from 3 to 9 months, depending on the size of your business, where you choose to sell, and whether you take help from brokers/agents.
Where can I Sell My FBA Business?
You can sell your Amazon business independently to buyers, on an online marketplace, partner with a broker for your sale, sell to aggregators, or sell on an auction platform. Your buyers include industry contacts, individual business people, aggregators, syndicates, and micro funds.
What Is My Amazon Store Worth?
Your Amazon Store can be valued with a multiplier anywhere between 1.5 to 6 times its average annual sales. The multiples depend on the performance of your business.
Conclusion – Increase the Value of Your Amazon FBA Store Now!
To sum it up, we discussed how to value your business (with a calculator as a bonus!), strategies you can use to improve your business valuation and get a good deal, and some frequently asked questions. Should you have any questions on Amazon business valuation, the process of selling, or anything else related, don’t hesitate to book a free session with our consultants.
