A Guide to Selling an Amazon FBA Business
The popularity of Amazon FBA businesses is ever growing so if you have built a successful FBA business, selling your business could result in a profitable exit strategy for you.
Amazon FBA program is a service that solves some of the biggest problems faced by sellers such as storage, packaging, and shipping. Due to its many perks, businesses enrolled in this program are highly attractive to buyers.
Currently, 24% of Americans are planning to start a side hustle this year and the ease at which you can run an Amazon FBA business makes it an attractive opportunity for buyers. Amazon FBA can be extremely profitable for entrepreneur, and now more than ever investors want to get in on the action. There are number of companies acquiring profitable Amazon FBA businesses, the most notable being Thrasio who have raised over $1 billion to continue acquiring Amazon businesses. With a number of potential buyers, it’s a great time to sell your Amazon FBA business!
In this guide we’ll take you through everything you need to know about selling your Amazon FBA business, including the types of FBA businesses, different aspects of transferring ownership to a buyer, how to find buyers, valuing your FBA business and much more.
What is an Amazon FBA?
FBA stands for Fulfilment by Amazon. Amazon FBA is a service offered by Amazon that allows third-party sellers to use its numerous huge warehouses to store, package, and ship products to their customers. It is a straightforward concept – you sell, and Amazon ships.
When you enroll in the Amazon FBA program, you are essentially handing the boring aspect of your business over to Amazon, so the retail giant is responsible for shipping and product warehousing, packaging, and more. Post-sales processes like returns, refunds, and customer service are also taken care of.
With your business’s storage and shipping aspects taken care of, business owners can concentrate on sales and ensure that Amazon stays stocked with their products. Currently, more than two million sellers around the world are using the service to grow their businesses.
Types of Amazon Business Models
Almost anyone can launch their business on Amazon, but you will need to decide on your choice of business models. These business models have their pros and cons, and succeeding at selling on Amazon will require understanding which model is most suitable for you.
There are different Amazon business models, but the top three are resellers, private labelers, and proprietary product sellers. Let’s take a look at each of these business models:
This model involves hunting low-cost or discount products made by other companies so you can sell your finds at a higher price. It is probably the simplest business model since you don’t need to produce products – just buy wholesale and sell retail. However, if you’re looking to adopt this model, you will need to secure relationships with brands whose products you want to sell. It’s also important to keep in mind that resellers can find it more difficult to sell their Amazon FBA store as they usually aren’t creating long term value, don’t have any brand value and it’s easy for other retailers to compete with them directly on the same product listing.
- An affordable way to start third-party selling on Amazon
- It offers an opportunity to find out how well products are selling before buying
- No need to work on brand recognition since the products’ brands are established
- Potentially unlimited competition
- Profits may be low due to competition and low capital invested
- Scaling up can be hard since the goal is to find bargains
2. Private Labelers
Private labelers refer to a business model where a retailer sources products from a third-party manufacturer and brands them as their own. Walmart’s Great Value and Target’s Main Stays are both excellent examples of private labelers. If you are looking to operate your business as a private labeler on Amazon. In that case, you will need to identify companies that produce unbranded products for the sole purpose of selling to other brands. You will also need to have some experience in branding and marketing.
- Offers control of price
- Encourages brand loyalty
- Can have multiple product lines in one brand
- More control of the business
- Requires significant investment in stock and brand
- Potential for serious competition
3. Proprietary/branded Product Sellers
This model involves manufacturing your products so you can sell on Amazon. The idea is to create unique products or augment an existing product to make it your own. Unlike other business models, you own the products, so you are in charge of quality and value. Of course, this model is not for everyone, which explains why it is the least adopted of all business models on Amazon.
- Control of price and value
- Minimal risk of competition
- A brand is independent of Amazon and can survive without it
- Attractive to business buyers
- It can be quite risky
- Good reviews are essential
Can You Sell Your Amazon Seller Account?
Understanding what is allowed and what is not allowed on Amazon can be tricky. Generally, Amazon seller accounts are not transferable as it is against the terms of service of the online retail giant.
Amazon’s reason for this rule is to avoid fraud, as every seller’s account provides tools and resources that can be used to list products and manage orders. These accounts also feature activity history and buyers’ feedback, which are unique to each account.
While Amazon prohibits the sale of seller accounts, some loopholes allow the transfer of ownership of your seller’s account. The idea is that you’re not just selling your account but also selling your business, and there’s no way for Amazon to stop this from happening as that will be illegal.
So while you are not permitted to transfer ownership of your seller’s account, you can sell your FBA business. The mere fact that large publicly-listed companies selling products on Amazon have changed ownership several times without going the route of establishing an entirely new seller account every time a sale occurs points to the fact that you can transfer ownership of your Amazon FBA business.
How Do You Transfer Your Amazon Seller Account?
If you’re looking to transfer your Amazon seller account, you need to first be aware that the process can take anywhere from 1-2 months to complete. The length of the transfer process will vary depending on the volume of listings and the method chosen. You can transfer the legal entity which owns the store or the Amazon Seller Central Account. You can also transfer the product listings to your buyer which you can read more about here.
Let’s look at the two major ways through which you can transfer your Amazon seller account.
1. Transfer the legal entity
The easiest way to transfer your Amazon seller account is to sell the legal entity that owns the account. This process is critical and should involve both legal and accounting professionals since it involves the sale of shares, and there will be an agreement that binds the sale of the entity.
However, not many business owners want to hand over their established legal entity, especially if they own other assets besides the FBA business. Therefore, in this instance, you will need to effect an asset sale, which means you will have to opt for the next option.
2. Transfer your Amazon seller account
Transferring your Amazon seller account is a fairly straightforward process that entails the following steps:
Step 1 – Notify Amazon of the intention to sell: You and your buyer will need to inform Amazon of the decision to change your Amazon seller account’s details. If your buyer has a new account, you can expressly let Amazon know that the other party already has a new account that requires setup.
Step 2- Change the account details: Once approved, you will be required to change your account details to reflect the information of the buyer. Before anything else, you will need to update the primary email address, phone number, bank account details, credit card details, secondary phone number, and any other authentication details.
Step 3 – Transfer any other assets: The next action to take is to transfer all ancillary business assets (such as subscriptions, social media accounts, domain names, and trademarks) to your buyer.
Step 4 – Buyer inspects the account: This is the last step of the transfer process. It involves the buyer assessing and monitoring the account to ensure that all assets are just how you originally presented them. Again, the inspection period is dependent on the details of the contract between you and the buyer. Once the inspection period is over, the buyer and seller will finalize the deal, and funds will be transferred.
It’s important to ensure that the new owner is clear about their tax obligations, as they will have to complete the tax interview once they take control of the account. Additionally, since the process of transferring an Amazon seller account requires strict attention to detail and an understanding of how Amazon transfers accounts, it’s recommended to hire the services of a professional to guide you if you’re feeling unsure about any stage of the transfer process.
3. Transfer your product listings
If you want to keep your ASCA and not transfer it to your buyer, you will need to instead transfer the product listings to them. This is somewhat more complex, involves a few more steps and can take up to 3 months to complete.
Here’s how to do it:
Step 1. Buyer sets up an ASCA — Your buyer will need to open a new ASCA. If they already have one, they will need to inform Amazon that they intend to establish a new one. A new legal entity must be used for the new account.
Step 2. Seller provides inventory forecasts — You will need to provide your buyer with data on inventory levels, warehouse locations and sales predications. You will need to keep on hand or otherwise replenish 3-4 weeks of inventory in your storage facility or at least enough to sustain sales through the listing transfer process.
Step 3. Buyer sets up third party logistics (3PL) service — Your buyer will need to establish their own 3PL to receive the left over inventory, and provide you with these account details.
Step 4. Seller ships removal order inventory to buyer — You should now send left over, or removal order inventory to your buyer’s 3PL. That is, anything over and above the 3-4 weeks’ worth you are required to hold onto. To do so, you will need to create and submit a “removal order” by navigating to the “Manage Inventory” page from your dashboard and selecting the inventory that you wish to remove. Be mindful that Amazon charges removal fees per item removed.
Step 5. Buyer sets up an Amazon Brand Registry Account — Your buyer will need to apply for an Amazon Brand Registry Account, if applicable. They should use the same email as the email used for the business. You will need to add your buyer’s new store ID to your existing Brand Registry Account and give them the highest-level permissions/access.
Step 6. Seller transfers listing information — You will need to transfer your listings to your buyer’s Brand Registry Account. All reviews and rankings will remain with the listing as they are fixed to the listing, not the account. Your buyer can now access listings on their account.
Step 7. Seller gives buyer shipping information — You will need to provide your buyer with shipping/logistics information. For example, “ship from” address, label sizes, carton quantity and dimensions and any other information your buyer will need to relabel the goods. Your buyer can then update their Brand Registry Account with the new details and generate new FNSKUs for the products, that is, fulfilment network stock keeping units. This will link the listing ID to their account, rather than yours.
Step 8. Buyer relabels goods — Your buyer’s inventory will now need to be relabelled with the updated details. Your buyer can now start sending newly relabelled inventory to Amazon’s fulfilment centre for storage.
Step 9. Seller sends PPC ad campaign information to buyer — Once your buyer has transferred your listing ASINs to their Brand Registry Account and relabelled inventory for Amazon’s warehouse, you will need to start sending over details of your PPC accounts. The buyer can then replicate these on their new account.
Step 10. Buyer activates ASCA — Finally, your buyer can activate their ASCA and begin selling goods. You should now raise the price of the products in your ASCA by at least $10 to ensure your buyer’s listings prevail in search.
Step 11. Buyer gets to inspect — Once their ASCA is activated, your buyer’s inspection period can begin. During the inspection period, your buyer has the opportunity to monitor and assess sales volume and revenue to ensure it aligns with what you told them. The length of the inspection period can be shortened by agreement.
Step 12. Listing transfer process completes — At the end of the inspection period, provided your buyer is happy, you should now ship all remaining inventory to your buyer. The buyer now has full ownership of all assets.
How Much Do Amazon FBA Businesses Sell For?
The amount Amazon FBA businesses sell for varies as it depends on a variety of factors. Still, if you’re after just an overall idea, then most FBA businesses sell up to 7 times your annual net profits. So if your FBA business makes an annual profit of $150,000, your valuation will likely be between $300,000 and $600,000.
How Do You Value Your Amazon FBA Businesses?
The value of Amazon businesses is usually calculated based on two methods, namely SDE and EBITDA. SDE stands for Seller Discretionary Earnings, while EBITDA means the Earnings Before Interest, Taxes, Depreciation & Amortization. Generally, smaller companies (<$1M) use SDE while larger companies ($1M+) implement the EBITDA method. Going further, the value of an Amazon FBA business is determined by a variety of factors.
Age of business: A business is evaluated by its age, which is a pointer to its sustainability and future profit for a potential buyer. Thus, a business with many years of operation is considered gold and is likely to have more value than younger businesses. On the other hand, a relatively new business is unpredictable and most attractive to buyers with a high-risk tolerance.
Seasonality: Is the demand seasonal or evergreen? Some niches are more prone to seasonality, so FBA businesses affected by this factor may have lower value before buyers as sales are likely to fluctuate significantly.
Financial performance: The earning power of a business is one of the major factors that determine the value of any business. Therefore, buyers are attracted to businesses with sound financial records and statements.
Owner’s involvement: Most buyers of Amazon FBA businesses prefer businesses that concentrate on growth and not on operations. They’re not hunting full-time jobs as they often have other businesses and don’t want to feel stuck operating just one. The less time and effort required to run an Amazon FBA business, the more valuable it becomes.
Products: Buyers typically look at two things about the products of an Amazon FBA business. First, a business with more than 5 profitable products tends to attract more buyers, indicating a great chance of profitability. Second, buyers prefer customized products as this protects copycats in the marketplace. You’ll also need to consider the product category, the number of SKUs you manage and the supply chain, shipping costs. The cost and complexity of these factors will directly influence your profit margin and therefore business value.
Location: Where your business is based matters, buyers typically place a premium on businesses situated in the USA and that have tax returns on their business. The reason for this is that buyers can easily secure financing for a business with clean books and tax returns.
How Much Does it Cost to Run an Amazon FBA Store?
Amazon charges the seller a referral fee depending on the category of products sold. In other words, the seller pays Amazon a percentage of the total selling price of a product, including all shipping and handling costs and any gift-wrapping services. The referral cost is in addition to the seller’s plan fees.
Each seller has the option to choose from an individual plan or professional plan.
If you’re just starting off with selling, Amazon’s pricing page gives you a breakdown of each plan and helps you decide which service is more suitable for your business type.
For example, the individual plan is a great plan for those starting off in the Amazon FBA space and are unsure on what to sell.
The professional plan places you on top product pages and is good for rapidly-selling items.
There are additional fees for product shipping costs and some sellers may incur fees for long-term storage at warehouses, optional advertising services, or premium account services.
If you’re looking to find buyers, there are a few things you need to put in place to make your business more attractive to buyers.
I. Documentation: It helps to put together your financial records and statements. If this sounds like too much work, consider hiring an accountant to help you bring your accounts to date and make your financial statements clear and accurate. Serious buyers don’t want to spend time and effort going through months of financial records and tax returns to determine how profitable your business is.
II. Operation procedures: Taking over a business can be demanding, but having well-documented standard operation procedures in place can make it easy for buyers. Buyers are willing to pay a premium for a well-documented business as it allows them to quickly learn and understand how the business runs.
III. Outsourcing: Buyers understand the power of passivity and usually search for businesses that allow them to outsource tasks to virtual assistants or contractors. Your business will be able to attract more buyers if you’ve been able to detach yourself from the operations by outsourcing the tasks to others.
Negotiation During The Sale
Finding buyers is just one side of the coin, while negotiating a great deal is the other. Many sellers often have no trouble finding buyers for their Amazon FBA business, but the problem is negotiating a deal that benefits both them and the other party. Here are some tips to help:
1. Define your exit strategy
Before you start negotiations, it’s vital to understand your personal goals for selling your Amazon FBA business. For example, are you looking to stay involved in the business’s operations, or do you want to completely disconnect from it? If you want to stay involved, be prepared to outline the benefits of your knowledge and experience to the buyer.
2. Understanding the goals of the buyer
Negotiation is easier when you know what your buyer seeks to achieve by purchasing the business from you. Asking a buyer why they’re buying an Amazon FBA business can help you identify ways to negotiate better so you and the other party can arrive at a win-win situation.
3. Quickest deal vs. Best deal
What type of deal are you searching for? Most sellers prefer to wait for a few weeks to get a deal they feel meets their expectations. However, sellers who may be going through financial hardships may want to seal the deal faster—determining whether you want a quick deal or a great one will inform the decisions you will make during negotiations.
4. Provide financial documents and highlight growth potential
Financial statements say a lot during negotiation as they help buyers instantly realize the value of your business. These documents will help a potential buyer have a clear idea of the profitability of the business. Plus, you can also highlight the growth potential as serious buyers usually want to invest in something that has the potential to scale.
5. Powder in the keg
Having powder in the keg can be your golden ticket to success. This simply means having an offer that can sweeten the deal. You can liken this to a gift for a prospective buyer.
6. Set emotions aside
Negotiations can be intense, but they need not be. Rather than make an emotional appeal during negotiations, make a case for your offering and let the other party know what they stand to benefit from the sale. Buyers may question your past decisions or the rationale for making certain demands but keep a level head and respond with facts rather than get defensive.
Increasing The Value Of Your Business For Sale
Buyers will make an offer based on the perceived value of your business. If you’re looking to make your business more valuable, here are a few areas to focus on.
A. Best Sellers Rank (BSR)
The position of your key products on the best sellers rank list plays a critical role in sales and is, therefore, an important metric that buyers look out for. The idea isn’t just for products to rank highly on the bestsellers lists but to also show a consistent and growing BSR as buyers will interpret it to mean your products have fantastic and sustained traction with customers.
You can learn more about Amazon Best Sellers Rank here.
B. Brand site
Many sellers invest a lot of time and effort into their Amazon store to the detriment of their website. Another area that buyers will consider is the appearance and functionality of your corporate site. Buyers want to see websites with email opt-in to allow for greater marketing and a working content strategy boosting traffic to the products on the Amazon store.
The type of suppliers you rely on says a whole lot about the reliability of the business in the long run. It’s important to have consistent and reliable suppliers, able to deliver short lead times, and who manufacture quality products. Having more than one supplier – just in case your only supplier is unable to deliver for some reason – also increases the value of your business. A secure supply chain means the business can continue to run even after the sale.
Advertising consistently and creating budgets for marketing campaigns are favorable for business buyers. Demonstrating that the paid campaigns you embarked on are consistently generating profit sends a message to buyers that paid marketing works for your business and that it can be an avenue for them to explore when they want to boost sales.
Ways To Sell Your Amazon FBA business
Some places to find buyers include:
Marketplace: There are different marketplaces you can list your Amazon FBA for sale. Selling your business on Flippa.com is an excellent way to ensure your Amazon FBA business is put in front of the largest pool of buyers, including institutional buyers. You can find out more about listing your business on Flippa here, or watch our guide to selling your business on Flippa.
Broker: The big difference between selling your business yourself or using a broker relates to the value of your business. Businesses over a certain value will tend to require a little more time and effort to sell and a broker is there to help. They’ll take on the process. They will work to review your valuation, work with potential buyers, help prepare critical paperwork including the necessary prospectus, field offers and manage the DD process which can often be time-consuming and cumbersome. Find out more about Flippa’s broker program here.
Direct: If all the options above are not suitable for you, consider selling your Amazon FBA directly to potential buyers. You won’t have to pay any fees as you will be doing all the hard work of researching and reaching out to potential buyers.
How Much Do Amazon FBA Businesses Make?
According to Jungle Scout’s report, most new Amazon sellers make at least $1,000 per month of sale, while top sellers can make more than $350,000 in sales per month. The same report also showed that most new sellers pulled in strong profits in their second year of selling on Amazon.
Is Amazon FBA Still Profitable?
Contrary to assumptions that the market is oversaturated, Amazon FBA has shown to still be profitable. A report found that nearly half of the sellers can make $12,000 to $300,000 annually, and about a fifth of sellers can make up to $3,000,000.
Can I Start Amazon FBA With No Money?
The answer is yes. You can start selling without opening your wallet by following these steps:
If you look around, there’s a good chance of a few items collecting dust in your home. Why not sell them on Amazon?
Create an Amazon seller account. It is free to create an individual account, and you can get started immediately after providing a little information.
List the product on Amazon and upload photos of it.
Deliver the product when it sells by shipping to the customer.
Can you make a living off Amazon FBA?
Yes, you can. Around 71% of all Amazon sellers run their business using the private label method, which sees them earning $625 to $1,875 per month per product. However, by selling multiple products, you can earn much more.
How much can you sell your Amazon FBA business for?
As explained earlier, the value of your business is dependent on the revenue generated. For example, using the Sellers Discretionary Earnings method, if your business generated profits of $200,000, your Amazon FBA business is 2-4 times the profit (SDE). The transferability will be valued at around $400,000 and $800,000.
Is Amazon FBA still profitable in 2021?
Yes, Amazon FBA is still profitable as many sellers are making money via the program. With more than 150 million active users that are ready to buy anytime, Amazon FBA is still a lucrative option for sellers.
How Much Do Amazon FBA Sellers Make A Year?
Nearly half of the sellers can make an average of $12,000 to $300,000 annually, and some super-sellers make up to $3,000,000 each year.
Can Amazon FBA Make You A Millionaire?
The sheer scale of Amazon means it’s possible to earn millions on the platform. Selling using Amazon FBA can make you a millionaire, but you will need to sell consistently and follow the rules set by Amazon.
How Do You Value A Business On Amazon?
The value of Amazon businesses is usually calculated based on two methods, namely SDE and EBITDA. SDE stands for Seller Discretionary Earnings, while EBITDA means the Earnings Before Interest, Taxes, Depreciation & Amortization. Generally, smaller companies (<$1M) use SDE while larger companies ($1M+) implement the EBITDA method.
Is Fulfilled By Amazon Worth It?
Despite the fees Amazon charges for the Amazon FBA service, it is still worth it for most businesses as it comes with different advantages, including:
- Effortless shipping and logistics
- Discounted shipping rates
- Return management
- Fast delivery
- More storage space
- Amazon Prime status