Find out what really makes an Amazon business valuable and which metrics to keep in mind when building your business with the intention of selling it one day.
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The 27 Amazon FBA Business Valuation Metrics That Actually Matter
1. The 27 Amazon
FBA Business Metrics
that actually matter
Bryan O’Neil
TheFBAGuys.com
2. How do we know this stuff?
24 years of combined experience in Online Business Valuations and
Business Brokrage.
In 2018, launched an Amazon FBA Business Valuation tool
First-hand data of over 3,400 Amazon businesses
The largest and most accurate data set that anyone has
3. Overview
Value vs Valuation – Value is not the same as Valuation & ranges vary wildly
The Market – Your business’s market influences its valuation directly
The Business – The majority of valuation metrics are related to the Business
and its health.
The Product – What you sell is as important as how you sell it
Sales and Product Performance – You can have the best product in the world,
but you also need to be able to show that it’s the best.
4. Value vs Valuation
Amazon Businesses have one of the widest deltas of any business valuation
This gap is especially wide for businesses that are 100% FBA
Multiples tend to vary from 1.4x – 5.3x annual SDE (Seller’s Discretionary Earnings)
In a perfect market, turnover and cash flow rule everything
The reality is different and important metrics are plentiful
Great businesses often don’t get a good valuation because of secondary factors
Two components to a business valuation: Market Demand and Business’s Value
Both need to be factored in to determine a realistic selling price
5. The Market
1) Your Primary Market
Some Amazon markets perform better than others
North America almost always wins.
2) Amazon Monogamy
Do you sell exclusively on Amazon or elsewhere as well?
Businesses that also sell off-Amazon get higher valuations
3) FBA or FBM
The market prefers 100% FBA setups due to the simplicity and the lack of “moving
parts”
6. The Business (Part 1 of 3)
4) Your Workload
No-one wants to buy themselves a (poorly paid) job
Businesses with little to no owner involvement hit the highest multiples
5) Employee Count
Number of employees plays a role if you’re doing over $250k in revenue
Too many and too few are both bad. Need to get it just right.
6) Employee Location
US buyers prefer employees who are physically in the US, even if working remotely.
7. The Business (Part 2 of 3)
7) Employee Type
Remote employees valued much higher than office-based
Having an office is great for culture, but reduces the buyer pool geographically.
8) Number of Vendors
A “good” number won’t increase your valuation, but too many or too few can
reduce it.
Having only one vendor poses a threat
Having too many vendors adds additional complexity to day-to-day ops
9) Vendor Location
US and China are mostly preferred
8. The Business (Part 3 of 3)
10) Business Location
Most buyers are based in the US and strongly prefer US-based businesses
Liability and due diligence remain the biggest issue with cross-the-border deals
Being able to get an SBA loan is also a major consideration for acquisitions between
$500k and $2 Million.
11) Separate Company Accounts
Co-mingling the financials of several businesses can be detrimental to a valuation
SBA lenders tend to refuse such deals straight away
12) Business Age
The older the business, the easier it is to predict its future success
Less important beyond 5 years
9. The Product (Part 1 of 4)
13) Inventory Turnaround
Low $ amount in inventory (in relation to profit) is attractive to buyers
Too fast inventory turnaround increases risk
14) Profit Margin
A high margin means resilience against the unexpected
15) Product Diversity
Relying on a single product for more than 80% of your sales is fatal
10. The Product (Part 2 of 4)
16) Product Uniqueness
Unique products increase competitive edge
It’s also indicative of sustainable margins
17) Product Design
Like unique products, a unique design adds a premium to your business
Private label products suffer as competition can do the same
18) Patents and Trademarks
Uniqueness is an asset, but being able to protect it is bankable
Trademarks are increasingly important as they protect against listing hijacking
11. The Product (Part 3 of 4)
19) Total Number of SKUs
Too few SKUs and your business appears risky
Too many and buyers will perceive it as a lot of overhead
20) Percentage of New SKUs
Stability is always good
The longer your current best-performing products have been in existence, the
better
This becomes a little less of an issue in case of a large variety of SKUs
12. The Product (Part 4 of 4)
21) Product Category
Most attractive categories are evergreen and resilient to trends
(Cookware, baby products, gardening tools, etc.)
Least attractive categories are those that are highly commoditized or have low
margins.
(Consumer electronics, automotive parts and video games are all bad)
22) Category Span
Always focus on brand value
A good brand is more difficult to build across various categories
Most buyers want to specialize
13. Performance (Part 1 of 2)
23) Sales Trend
A year-over-year increase in sales is a big value-add
Sales trending downwards can severely damage the business’s valuation
24) Repeat Orders
More repeat orders means more predictability
Higher barrier to entry is also a consideration
25) Seasonality
Seasonal businesses boast much lower valuations due to the increased risk and
capital deployment requirements
14. Performance (Part 2 of 2)
26) Product Review Count
On Amazon, reviews are everything
Product portfolios with a lot of reviews always sell for a premium
The fewer reviews you have, the lower the barrier to entry
Review quality also plays a role. Bought reviews are easy to identify
27) Average Review Score
High review count is only useful if the reviews are positive
A review score of <3.5 generally means a distressed asset and is valued accordingly
15. Give our Valuation Tool a try:
https://TheFBAGuys.com
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More information:
Bryan O’Neil
Founder & CEO
E-mail: bryan@bryanoneil.com
Web: https://TheFBAGuys.com