February 27, 2023
Type 2

Have you considered what comes next for your multi-million dollar Amazon business? While launching your products may have been your primary focus in the beginning, as you grow and scale, it's important to consider what the future holds. Even if you're not actively looking to sell, it's important to be prepared for when the time comes. It's interesting to note that the possibility of selling for profit isn't the primary motivator for third-party Amazon sellers, with financial freedom and becoming one's own boss being the top reasons for starting out. However, if you create a business that provides value to your customers while generating a healthy profit for yourself and your family, selling can be a lucrative opportunity. With a significant number of Amazon sellers achieving "Million-Dollar Seller" status, selling on Amazon can be a highly profitable venture. If you're a profitable Amazon business owner considering selling, read on to learn why it might be worth considering, whether your business qualifies, and how to connect with potential buyers.

Can you think of reasons to sell your Amazon business?

It's a question that sellers who have put years of work into building their brand, earning positive reviews, and generating consistent daily sales with a healthy profit margin may be asking themselves. Creating a business from scratch on Amazon is no easy feat; launching a business often involves handling all aspects of it independently, including product research, sourcing, listing optimization, logistics, and navigating seller support.

While sellers may be attached to their brand, there are several reasons why selling their business might be worth considering. Selling could provide the freedom to retire early, invest in another business, or make significant financial decisions, such as buying property. Additionally, it can offer relief from the stress of running a large Amazon business and allow for the enjoyment of the fruits of one's labor.

But let's talk about the financial incentives. While the value of an ecommerce business varies, buyers typically pay anywhere from 2.5 to 4.5 times EBITDA (earnings before interest, taxes, depreciation, and amortization) over a 12-month period for an Amazon business. Let's say your operations bring in $300,000 in annual net profit (before taxes.) If you sell at the low-end of that range at 2.5x EBITDA, your business could be worth at least $750,000! That's quite a payday. If you continued to run your business without selling it, it would take you at least 2.5 years to net the same amount. Of course, the value of your business depends on many different factors, but selling can certainly be a financially rewarding decision.

Are you wondering if your Amazon business is attractive enough for potential buyers to consider purchasing it?

Determining if your Amazon business is worth selling involves assessing a set of key metrics, including the age of your business, the amount of time you spend working on it, the type of business you operate, and your net profit measured by EBITDA. However, high revenue alone doesn't guarantee a sale, as buyers look for a range of other factors that influence their decision to make an offer.

The length of time your business has been in operation.

The longer your business has been operating, the more appealing it will be to potential buyers. If your business has been selling for a year or less, buyers may perceive it as a greater risk and assign it a lower value. Buyers seek evidence that your brand is trusted by customers and that your products will continue to perform well on Amazon after acquisition. While positive reviews and solid rankings on Amazon are indicators, they take time to establish.

Buyers also require the ability to estimate when they will realize a return on their investment, which is more feasible with years of sales data. A six-month-old business generating $1 million in revenue may not be as valuable as a three-year-old business with $1 million in annual revenue. Buyers perceive the latter as a profitable asset in the long term, whereas the former lacks reliable long-term projections.

The amount of time you spend working to support your business.

Investors are not interested in buying a job, but rather a self-sufficient business that operates efficiently even in the absence of the owner. A business that has a team of employees, virtual assistants, and established operating procedures is more valuable than one that is solely dependent on the owner.

Likewise, a business that requires only 5 hours per week for maintenance is more valuable than one that requires 35 hours per week.

The nature of your Amazon business that you operate.

There are various Amazon business models available, including private label, wholesale, retail arbitrage, and dropshipping. Private label businesses are the most desirable to potential buyers, as they offer full ownership of the brand and its assets. On the other hand, wholesale and arbitrage businesses are considered reselling businesses, as they involve buying products from brands that you don't own and reselling them for profit. Although reselling businesses can have some value to a buyer, they are less attractive because the buyer has limited control over their investment, and the business can be unpredictable due to factors such as competition on Amazon listings.

The profit that your business generates

The higher the monthly net income of your business, the more valuable it becomes to potential buyers. In addition to profitability, buyers also seek consistent year-round sales performance. A business that has a significant spike in sales only during one month and low sales during the rest of the year will be less attractive to buyers.

Have you considered what the value of your Amazon business might be?

Once you have determined if your Amazon business is sellable, the next step is to determine its worth. The primary considerations for valuation are the net profit of the trailing 12 months and the multiple applied to that number. The multiple can vary based on factors like the age of the business, the number of SKUs, the supply chain, and the product category. Typically, a higher net profit will result in a higher multiple. Empire Flippers offers a free valuation tool that considers factors like revenue, average monthly profit, age of the business, and hours worked to maintain it. Additionally, they provide data on similar businesses that have been sold in the past to help determine the worth of your business.

Here are some steps to take if you're looking to sell your Amazon business.

It is widely known that Amazon businesses can be highly profitable, making them attractive to investors. Thrasio is one of the companies that is actively looking to acquire profitable Amazon businesses and has raised over $1 billion for this purpose.

To sell your Amazon business, you can work with a brokerage like Empire Flippers, which can connect you with potential buyers or investment firms. However, sales and profits alone do not guarantee a sale. You need to have the right processes in place to make your business more attractive to buyers.

First and foremost, you should have accurate and organized books, which show your business is running smoothly and profitable. Keeping track of expenses is crucial, as it helps you determine your true profitability. Buyers will want to see monthly revenue, cost of goods sold, product purchase price, advertising costs, and storage costs.

Your product listings should also be optimized with relevant keywords, great product images, high-quality infographics, A+ content, videos, and most importantly, reviews. Suppliers are crucial to your business, so it is important to build a strong relationship with them and ensure they can deliver high-quality products consistently and on time.

Product diversification is another key factor to make your business more attractive. If you only sell one or two products, the risk is higher for potential buyers. But if you sell multiple SKUs, the risk is more evenly distributed across your brand.

Selling on additional sales channels like Walmart, eBay, your own e-commerce storefront, or international Amazon marketplaces can increase the value of your business. Finally, outsourcing parts (or all) of your business to virtual assistants or freelancers can free up your time and make your business more attractive to buyers who want to purchase a hands-off type of business.

Are you prepared to put your Amazon business up for sale?

Building a profitable Amazon business that grows and scales successfully requires a lot of hard work, commitment, and entrepreneurial spirit. However, after dedicating years to building and expanding your business, you may feel that it's time to move on and pursue other endeavors. Letting go of your business can be a tough decision, but it can also be a rewarding one if done properly.

There is no cost, no obligation and no pressure. And it may be the best 30 minutes you’ve ever spent on getting your business off the ground.

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