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Selling Your Amazon Business? Here’s What You Need to Know

During these times of financial uncertainty, while many markets are unstable and some of the Western world is still sitting at home, the eCommerce world as a whole seems to be experiencing growth and prosperity.

Many Amazon sellers dream of an exit, and some are already getting ready to sell their business. Even if the dream realization is still a long way off, there are several principles to consider, right from the start. In this article, we have decided to concentrate on a number of frequently asked questions that we encounter every day, to help you understand the sales process.

Below are 5 common questions about exits on Amazon:

  1. What will the buyer purchase? My listings, or my entire Amazon account? Perhaps my company altogether?

Most buyers do not buy shares in the seller’s company and prefer to purchase the assets held by them: the Amazon store, the trademark, the website, supplier relations, etc. Therefore, most transactions include the transfer of ownership of these assets from the seller to the buyer.

Most buyers will prefer to buy the entire Amazon store rather than the individual listings, for various reasons such as the complexity of moving listings from store to store, retaining feedbacks and promotional campaigns, taking advantage of favorable payment terms afforded by Amazon to older accounts, etc.

2. Is it even possible to transfer an Amazon account in its entirety?

Certainly! Although it is important to know how to conduct this process. As long as it is done with Amazon’s approval and blessing, you can transfer ownership of the account. The same goes for changing the bank account associated with an Amazon store, credit card details, etc. The process should be done with Amazon’s approval to avoid unnecessary and costly suspensions.

3. Who is a typical buyer?

Most buyers are e-commerce companies, who want to “absorb” additional brands.

For the past two years, we have also seen Venture Capital firms or Private Equity funds, which have identified a promising economic opportunity for such investments. These funds usually have an “executive arm” — an agency (internal or external) that manages the accounts themselves after the acquisition.

Private buyers – these are usually either active Amazon sellers or new players who want to enter the eCommerce platform, some with backgrounds from tangent fields.

Recently, large retail companies have also shown interest, realizing that entering the eCommerce business can be done relatively quickly through the acquisition of an existing Amazon store.

4. What is my Amazon Store Worth?

The standard formula for calculating an account purchase price includes a multiple on the annual profit (SDE) for the last 12 months, plus the inventory value:

Account value = SDE X (multiple of 2 to 4) + Inventory Cost

The annual profit in this field is called SDE – SELLER DISCRETIONARY EARNING, which means the profit that will be left for the store owner after deducting all direct expenses, excluding wages. In general, the SDE can be calculated as follows:

SDE = Revenue – Amazon Fees – advertising costs – Cost of Goods – other direct operational costs

In other words, it is customary to look at pre-tax profit after we have deducted from the revenue all expenses directly related to the store, including Amazon fees, commodity and shipping costs, advertising costs, direct labor cost, etc., but not including the store owner’s rent, car expenses, etc. This profit will be added to profits from additional sales channels other than Amazon, to the extent that such channels exist.

The multiple – in order to calculate the Amazon store value, as mentioned above, the annual SDE will be multiplied by 2 to 4. As a rule of thumb, the average market multiple for a successful store is approximately 3.

Example for calculating an Amazon store value:

  • The store turnover is $4m
  • The SDE profit is $1.2m
  • Let’s take an average multiple of a successful store – multiple of 3 for example.

In this case the value of the store will be:

US $1.2M X 3 + Inventory Cost = US $3.6M + Inventory Cost

5. How do I determine what the multiple is?

In order to determine the multiple, and consequently the value of the store, it is customary to examine and weigh a variety of criteria, such as:

  • Is the store’s revenue and profit on a monthly and annual uptrend? Is this a growing account?
  • Account Size – total sales and profit
  • Percentage of profit from sales and ROI (Return on Investment) in the account
  • The number of reviews and the average score
  • The number of years of account activity – the older the account, the better
  • Product uniqueness and market competition
  • The variety of products in the account and the distribution of sales between them – Is the account mostly based on one or more products?
  • In which markets is the account active? Only US? Are there any sales on other business channels besides Amazon?
  • Growth potential inside and outside Amazon
  • Are the account and sales effected by seasons? Do most sales come within a few months or are they similarly distributed throughout the year?
  • Registered trademark – a brand that is protected and registered.
  • The complexity of the business and manpower required to manage the account
  • Is there an exclusivity to the production of the products?
  • Vendors – payment terms, delivery times, number of vendors, are there alternative backups, etc.

These are the 5 most frequently asked questions in the field of Amazon exits, and important principles to follow.

And one last tip to conclude with:

Whether you’ve started the sale process or just started preparing for it, never act like you’re selling soon: continue to launch products and invest in your business, assuming it doesn’t sell any time soon. A “neglected” business whose owners stopped investing in it will usually experience a decline in sales, and nowadays, it is more difficult to sell a business in decline. Run the business as usual, until the money is in your pocket.