How Investors Evaluate Amazon FBA Businesses
When selling an Amazon FBA business, it's crucial to understand what investors are looking for. Several key factors come into play when evaluating an Amazon FBA business including:
- Scale
- Financial Profile Attractiveness
- Brand equity/USP
- Category and Competitive Landscape
- Legal (such as account health, trademarks, and patents)
- Supply chain setup
These factors help determine the value of a business. However, it's essential for founders to keep in mind that buyer credibility is crucial in the sale process. Accurate financial reporting, a clear growth plan, and a solid understanding of the business's potential are all essential in presenting a compelling case to potential acquirers.
Key Metrics for Evaluating Amazon FBA Businesses
Let's take a closer look at the specific metrics that investors focus on when evaluating Amazon FBA businesses:
- Scale: The size of the business and the longevity of the seller's account are crucial in determining the value of a business. Very small businesses with no business history can be challenging to value, as they can be a fad and lack sufficient historical data to prove success. A buyer will also consider the team and resources required to operate the business.
- Financial Profile Attractiveness: Buyers prefer to see consistent profitable growth, meaning that both top and bottom-line need to be growing. Buyers typically value higher business with consistent +20% margin and growing at double-digit rate
- Legal: Having all trademarks in place everywhere relevant globally is crucial. When acquiring an FBA brand, a buyer is acquiring stock, reviews/ratings, and the brand itself. Without trademarks, anyone can come in and shut down the brand on Amazon or anywhere. It’s also crucial to have an outstanding Account Health on Amazon
- Brand Equity/USP: The product's defensibility, reviews/ratings, repeat rate, market opportunity, repeat purchase rate, and brand USP are all crucial factors in evaluating the brand equity of an Amazon FBA business.
- Category and Competitive Landscape: Understanding the market opportunity, category growth, competition, pricing, and sales channels beyond Amazon is essential in evaluating an Amazon FBA business. A business with a strong presence on other e-commerce platforms or in retail stores may be more valuable than one that is solely reliant on Amazon. From a buyer's standpoint, it's also better to be priced below the competition (assuming margins are still healthy) than above it, and any patents, IP, strong reviews/ratings moat can be helpful in this regard.
- Supply Chain Set-Up: Operational efficiencies and inventory are key metrics that investors consider when evaluating the supply chain setup of an Amazon FBA business. Having enough inventory to avoid any out-of-stock risks is important, and efficient supply chain operations can lead to cost savings and a more valuable business. Tracking IPI score and Restocking limits are also crucial metrics that investors track closely
How 3fin Can Help You Maximize Your Business Valuation
At 3fin, we understand the metrics that investors consider when evaluating Amazon FBA businesses. Our expertise can help you improve your business's valuation in the following ways:
- Profit Maximization: With 3fin, you can identify cost-saving opportunities that will boost your profitability. You'll also be able to save 15 hours a week of repetitive task workload, freeing up time to focus on growing your business.
- Inventory Management: Our supply chain assistant can help you ensure that you have the right inventory valuation and enough stock to keep buyers comfortable.
- Buyer Credibility: By partnering with 3fin, you'll be able to present accurate financial reporting and a clear growth plan to potential acquirers.
- Access to Potential Buyers: With 3fin's user features, you can grant potential buyers access to your 3fin platform, speeding up their due diligence process and ensuring your valuation stands during the DD stage.
