How Does A Buyer Value an Amazon FBA Business?

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You’re selling your Amazon FBA business – in your eyes, no price tag can be put on the years of hard work, building your business from the ground up. The buyer understands this, but they do need to know the value. To give a fair price, and negotiate a fair deal at your FBA valuation process, it’s crucial to understand the buyer’s perspective.

Table of сontents:

How do I value my FBA business?

Start with your net profit. Ensure your financial statements are in order – they will give you the answers to your questions. Your net profit is what you take home at the end of the day after all expenses are paid. It’s usually calculated in a timeframe of 12 months. This number is not only your starting point but your strongest asset when selling your Amazon FBA business. 

If your financial statements aren’t in order, the best thing to do would be to hire an accountant. Ask them to review and clean up the documents – this will help you understand your business better, and determine if it’s the right time to sell. 

After reviewing your documents, you might discover that now it’s not the right time to sell. Perhaps it would be better to grow your business first and then plan the steps of your exit. 

How much do Amazon businesses sell for?

The price will be determined by a multiple of the SDE (Seller Discretionary Earnings) number. 

The SDE (Seller Discretionary Earnings) is calculated when you’ve determined your net profit and you calculate the add-backs. Our detailed guide teaches you how to calculate SDE, and categorize the add-backs. 

The exact multiple by which the SDE is calculated is dependent on a range of different factors, including the industry. It varies from around 1.5x up to 6x or 7x. At Benitago, we usually pay 4.5 – 5x the SDE. 

The multiple isn’t the same for all businesses and industries – you should always take into consideration the external and internal factors that might affect this number. Our next section explains how to estimate the all-important multiple. 

How much is an Amazon business worth?

The first aspects the buyer will look into are the age of the business, the type of the business, and the profit. Buyers usually prefer businesses that are over 3 years old, but that’s not a hard and fast rule. They tend to avoid businesses that sell perishable products like food or electronics – consult the buyer’s page for more detailed information. However, the profit that your business makes will be the deciding factor. 

In our ‘How To Sell an Amazon FBA Business’ guide, we go into detail on each of these categories. 

Growth

Before making a purchase, the buyer will look at the past and the future of your business. Does the business have a steady growth trajectory? Will it be profitable in the future? How will your business keep up with the competition and frequent changes? 

After a sale, the buyer will be investing their own time and resources to grow the business. They’re interested in growth because they want to be sure the business has a bright future, with potential for growth and expansion. 

Diversity of SKUs

One successful SKU is great, but ideally, you’ll have multiple successful SKUs across different categories, but in the same niche. This will make you stand out from the competition, as well as providing a safety net if Amazon closes your listing, or if the product’s popularity starts to decline. 

Owner Involvement 

We get it – you want to be included in every aspect of your business. Being hands-on is great most of the time, but when selling your business it’s crucial to take a step back and lower your involvement as much as possible. The new owner won’t be spending hours in the day supervising or checking the workflow. 

To increase the value of your business, you should hire managers and supervisors. Train your team to manage the process of selling, so the business runs like a well-oiled machine – without you needing to step in constantly. 

Reviews 

Reviews will make or break your brand. We always emphasize to our partners that your reviews reflect the quality of your product – if they’re below 4 stars, it shows the product has some flaws and should be inspected before the final sale. 

All of these factors will determine the final price of the business. Buyers and brokers do have their calculators to determine this value, but those numbers aren’t always correct, as the calculators are based on different values. 

The best thing you can do is to sit down and write a sheet of all the pros and cons of your business, bearing in mind the points mentioned above. Then, you can decide a fair price for your Amazon FBA business. 

If you’d like a free valuation, contact us by clicking the ‘What is My Business Worth?’ button.

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