Last Updated on June 26, 2019 by Shane Corbitt
Start at Part 1 of this 5 part series.
There are a wide range of ways that you can increase the value of your FBA business. In many ways, the freedom that an FBA business affords opens many doors to growth and improving efficiencies.
Financials
If your earnings are generated predominantly from a few products, or are subject to strong seasonal fluctuations, it could be worth diversifying into other product categories, or searching for seasonal products that sell well when your existing seasonal products don’t tend to sell. This can provide more stability of cash flows and reduce the reliance on sales from an individual product.
Gross margins largely determine the sale price of your business. It can be a good idea to remove any unnecessary overheads at least 6 months prior to selling. Expenses such as employees (where tasks can be automated or outsourced), buildings, equipment, vehicles and travel costs should be removed if they aren’t integral to successfully operating the business.
Old stock that is hard to sell is a major obstacle for potential buyers. Oftentimes, it can be a good idea to dump old stock and focus on products that are making you money.
Web Traffic
For businesses with their own website, a great search engine optimization (SEO) campaign can lead to immense gains in search traffic, along with new customers. This type of activity takes planning, time and effort. However, when done right, it pays serious dividends and can help to solidify your brand as a trusted name with consumers.
If you have a brand website, adding links to products for sale on Amazon can be a great way to earn affiliate income (on both your product and other peoples products). Amazon Associates is a program whereby if a customer purchases a product from a link on your website, you can earn a 4-10% commission. Another benefit of participating in the Amazon Associates scheme is that it diversifies your income streams, thus increasing the stability of your cashflows.
Types of FBA business
Businesses with a strong brand, unique products or proprietary technology tend to be the most valuable type of business, followed by private label businesses and then resellers. If you are willing to invest the time and effort to transition your business up the value chain, this can be a great way to increase the value of your FBA business whilst enjoying the income that you have worked so hard to achieve.
Operations
As mentioned above, anything that can be outsourced or automated, should be outsourced or automated. By removing yourself from the driver’s seat wherever possible, you are creating a self-managing asset that is more attractive to potential buyers.
There’s a wide range of businesses offering services to help in this respect. From quality control and correctly packaging products before being sent to Amazon’s warehouses (for example, FBA Inspection) to automated accounting software that pulls data from your Amazon account and accurately records this information in Xero or QuickBooks (A2X Accounting – www.a2xaccounting.com), it really is possible to create a self-managing business (for the most part). For a more detailed guide full of resources for managing online businesses in general, check out Tim Ferriss’ book “The 4 Hour Work Week” (not specifically related to FBA businesses, but still a great guide).
Develop systems and processes, document how relationships with suppliers work and integrate your business into existing systems wherever possible. In fact, if you are going to do something more than once, it’s worth documenting the process so that someone else can do it for you. Some examples of processes that should be documented include: product sourcing criteria, inventory reordering, day to day operations, tax calculation, collection and payment, and details of relationships with any third-party contractors. By documenting processes, it forces you to critically analyze which tasks are necessary, making your business more efficient as a result. This also makes your business more attractive to buyers.
Customers
The more customer information you have at your disposal, the better. It can be a good idea to develop a website showcasing your products and brands and building a dialogue with customers through social media. Sales that come from Amazon don’t tend to include much information about your customers. By developing a presence outside of Amazon, you can gather valuable information that can be used for marketing efforts in the future.
However, before taking on this strategy, it is important to carefully consider the potential benefits, risks and workload that this might entail. If you think that other uses of your time such as researching and adding new SKUs might be more effective at growing income, then it may be worth doing this instead. The combination of happy customers and social media can be a gold-mine for word of mouth promotion. However, for disgruntled customers, social media gives them a place to voice their discontent for everyone to see.
If your customers aren’t forthcoming with reviews, you might find value in using an automated post-sale customer follow up tool such as Sales Backer (salesbacker.com). By increasing the amount of reviews that your products receive (as long as they are mainly positive), you can create a self-reinforcing cycle: more positive reviews = more sales; more sales = more positive reviews; more sales = business growth = higher valuation.
Suppliers
If possible, sign exclusivity contracts with suppliers to ensure that nobody else can access your products. Although these contracts are not always strictly honoured, they do provide value to prospective buyers, and represent a barrier to entry for competitors who may wish to take your market share. For popular products that you are unable to access exclusively, try to gain favourable terms. Astute buyers will want to know that they can continue to source products from the same suppliers with the same terms, and that no interruptions will hinder business operations on the supply side.
If lead times on product delivery poses an issue to your business, see if your supplier would be willing to hold stock in their warehouses on your behalf.
As mentioned above, it can be a good idea to take actions to reduce the workload of dealing with suppliers through well-documented systems, and automating/outsourcing functions wherever possible.
Diversification
If your business is skewed towards just a few products, research other products that could add value to the business. If you aren’t completely happy with your relationships with suppliers, test out new suppliers.
If you have a number of products that aren’t selling well, it might be a good idea to analyze the sales and profitability of each SKU – remove or improve profitability on SKUs that aren’t performing. You can improve profitability by increasing prices (if possible), or negotiating a better deal with the factory.
Other
Leave something in it for the next person: If you can throw in some ‘extra freebies’ such as new products that are fully prototyped, researched and ready to launch, or maybe preparations to enter new markets immediately after acquisition, this can make your business more valuable to buyers. On the other hand, if you struggle to sell the business, you can always take action on these preparations and enjoy the gains yourself. By making potential buyers feel like they are getting a good deal, it makes selling the business much easier, and can possibly lead to a bidding war between multiple buyers.
Keep the books clean: It’s easy to produce messy financials when you’re busy handling the daily operations of the business. Simple mistakes such as lumping a wide range of expenses in the ‘miscellaneous’ category can scare buyers off. Don’t underestimate the value of clean, clear books!
Register your brand with Amazon’s Brand Registry: This will protect the integrity of your brand and prevent copycats from mimicking your brand. Registering your brand solidifies the value of your digital assets, and also helps to reduce matching errors when someone searches for your product.
Apply for Frustration Free Packaging: Amazon has a programme whereby products are shipped in parcels that are easy to open without using knives, recyclable, and durable for transit purposes. Amazon’s Frustration Free Packaging meets industry standards related to durability in transit.
Sellers that use Frustration Free Packaging widen their target audience to consumers who seek products that are packaged in this way. Although this is probably more suitable for larger businesses, here is a link for more information if it is of interest to you: Link
Clarify who your target buyers are: Is your FBA business small enough to be purchased by an individual or ‘ma and pa’ operation, or is it more likely that you will be acquired by a corporate or private equity. Each buyer has their own set of priorities and risk profile. By understanding more clearly who you expect to purchase your business, you can make adequate preparations to make your business more attractive to your target market. We will delve further into this topic in the next section.
Reduce the ongoing hassle of bookkeeping by integrating your Seller Central account with A2X Accounting software: A2X Accounting software is made specifically for Amazon sellers. Here is a brief overview of how it works: When Amazon creates a new settlement file, A2X automatically fetches it, crunches the data and generates a summary of the revenue, expenses and other transactions. You can configure A2X to summarize sales by SKU, by product type, to group all sales together or to group by country.
A2X generates invoices or journals from each settlement and posts them to your cloud accounting system, either automatically or at your command. You can select the ledger accounts and tax rates that apply to each type of Amazon transaction. When the settlement payments from Amazon appear in your bank account, you can easily reconcile with the A2X settlement postings.
This makes book keeping clear, transparent and simple. For management purposes, it removes a number of tedious tasks from your workload. It also helps to instill confidence in potential buyers – by having accurate, easy to use financial statements that are prepared by automated, trusted third party software (A2X), buyers can feel more comfortable about the reliability of the information you provide
Sure, buyers will still be interested in successful businesses that have unorganized records and rely on a spreadsheet, bank statements or Amazon Seller Central data. However, chances are you will probably achieve a lower valuation multiple, as ambiguous records represent increased buyer risk.
==> Follow this link to Part 4 of this series in selling your FBA business. <==
