I've been running an ecommerce business for 3 years now and get good sales from Amazon, but have been investing every penny I've earned back into more inventory. I feel it might be the time to cash out soon and use the funds to start a new business and do it bigger. But I don't know where to even start with finding out how much my business is potentially worth. And I don't want to listen to business brokers give me a sales pitch disguised as a "free valuation", at least not until I've made up my mind.
A good starting point for determining valuation is 3x your annual profits. That said, you may find a 1 - 2X variance up or down depending on the type of product(s), the category or categories you sell in, your total number of SKUs, etc.
If you're after just an overall idea, then most FBA businesses sell at around 2.5x - 3.5x SDE, with SDE standing for Seller's Discretionary Earnings or your Net Income + any discretionary or one-off expenses.
There's much more to it, though, and a lot of metrics will end up impacting the actual valuation. Is it mostly a single-product business? Expect the valuation to take a hit. Have you been steadily growing both your top and bottom line each year? Expect it to increase.
You may want to give https://thefbaguys.com/amazon-valuation-tool/ a go. Valuation tools are notoriously incorrect but this is a good exception in this regard ... as it's limited narrowly to just FBA businesses and can, therefore, take into account the metrics that apply to FBA businesses specifically.
Also - when you talk to a GOOD broker, they won't deliver you a sales spiel or convince you to sell earlier than you should. Many (most) of them will, but there are still a few decent people left in the industry who are happy to suggest you what's in your actual best interest, not what makes them a quick commission.
I won't repeat the same info as the previous experts already provided. I will add to it that in order to even get accepted in their marketplaces, your business must have at least 12 consequtive months of sales and show either a steady income for those months or a growing income. The more categories you have ungated will add more trust and more value to your business. The more successful ASINs, the better for your valuation.
Also remember that the business you sell must allow the new owner a way to continue sourcing the products as you do now and the buyer will most likely have you sign a non competition agreement baring you from selling in the same niche or selling on Amazon all together for a number of years.
The price you get is for the business only and does not include inventory. So you need to sell them the inventory separately if they want it.
If you would like some comments from a business broker I would share the following with you.
1. If you are looking to sell your business and are motivated to sell, look at things from a buyers perspective. If you are only willing to sell to meet a set of criteria that works for you it will be hard to find a buyer and ultimately close the sale of your business.
2. Your opening paragraph says you have been running your ecommerce business for 3 years and getting good sales from Amazon but you've been investing every penny back into the business. If your plan is to sell the business and then start a new business and do it bigger wouldn't it be best to keep your current business and make it bigger and better seeing you know it so well and have learned so much?
3. There are different metrics to value a business. A critical metric is how much the owner keeps after all his expenses or what is called Sellers Discretionary Earnings. This is one of the most important metrics as a business with lots of gross revenue doesn't mean its worth anything. For example, if you have a business with $1 million in gross revenue and expenses of $1.2 million to run that business its not too attractive unless the buyer is taking out a competitor. If you have a business with $1 million in gross revenue and expenses of $500,000 that's worth a lot more.
4. Most buyers need to get a loan to buy a business. A lender will not loan to a buyer if the business isn't making money as it can't service any debt the buyer takes on.
5. A good business broker will always charge for their business valuation. If a seller doesn't want to pay for my business valuation then they don't see any value in the information and skills it takes to be a successful business broker. Plus a good business valuation necessitates asking lots of questions which takes time and knowledge to handle correctly.
Before I give you the worth of FBA keep in mind that we are in a pandemic world of 2020, therefore there can be considerable differences in the prices that I will put forth.
Shares of Amazon, the world's largest online retailer, rose 5% in after-hours trade. While rival brick-and-mortar retailers have had to shut stores during government-imposed lockdowns, Amazon hired 175,000 people in recent months and saw demand for its services soar. The company said revenue jumped 40% from a year earlier to $88.9 billion. Amazon had forecast it might lose money in the just-ended second quarter because it expected to spend some $4 billion on protective equipment for staff and other expenses related to Covid-19. It did just that - and still earned $5.2 billion - double its net income from a year prior. Amazon's shares have risen by more than 60% this year, adding to the wealth of Bezos, its biggest stockholder. The S&P 500 is virtually flat. Online store sales jumped 48% to $45.9 billion in the second quarter. Meanwhile, merchants paid Amazon more to fulfil and sponsor their products to reach the company's loyal customers. That resulted in a 52% and 41% jump in seller services revenue and other revenue such as from ads, respectively. Amazon's cloud services also saw higher demand as companies switched to virtual offices in the pandemic. Revenue from Amazon Web Services (AWS), which sells data storage and computing power in the cloud, rose nearly 29% to $10.81 billion. Still, that fell just short of analysts' estimates of $10.95 billion, according to IBES data from Refinitiv. The cloud business of rival Alphabet's Google meanwhile was up over 43% year over year.
Let us face it, anytime you hire a middleman to handle a headache for you, it is going to be more expensive than taking care of that headache on your own. Amazon FBA is no different. With Amazon FBA, there are two basic fees you will need be aware of: 1) storage fees and 2) fulfilment fees. Amazon charges a monthly fee to simply store your products. Like renting a warehouse, you pay this fee whether your items sell. It is simply the price you pay to keep your items somewhere other than in your basement. Here is a quick look at what you probably expect to pay to have Amazon store your items:
1. Standard-Size Products: $0.69 per cubic foot
2. Oversize Products: $0.48 per cubic foot
1. Standard-Size Products: $2.40 per cubic foot
2. Oversize Products: $1.20 per cubic foot
This is Amazon Monthly Storage Fees (June 2018). Note, this is an estimate, not a fixed price. Amazon FBA prices tend to shift around (especially during the holiday season), so check to see what rate Amazon FBA is currently charging before you sign up for anything. If you go to the trouble of renting warehouse space, there is a good chance that you’ll have to pay around $1.10 per square foot. At first glance, this looks more expensive than the FBA deal shown above, but remember, Amazon’s prices are per cubic foot. In a warehouse, you can stack items without having to pay for more square footage. Hypothetically, you could stack 8+ cubic feet of items in one square foot for that same $1.10/sq ft price tag. With Amazon FBA, 8+ cubic feet of standard-size products would cost $5.52.
Of course, most warehouse storage is not quite that efficient, but the point is, you get a lot more cubic footage for your money with a warehouse than you do with Amazon FBA. In addition, a warehouse usually does not hike their rates during the holiday season. Amazon, however, does. So, if you plan on selling during the holiday season (like most retailers do), you can expect to pay a lot more for Amazon FBA than you would for a warehouse. In addition to their storage fees, Amazon also charges a fulfilment fee every time they pick, pack, and ship an item for you. Here is a quick approximate of what you can expect to pay for fulfilment:
Amazon Fulfilment Fees (June 2018)
1. Small (1-lb. or less): $2.41
2. Large (1-lb. or less): $3.19
3. Large (1-2 lbs.): $4.71
4. Large (over 2-lbs.): $4.71+ 38¢/lb. over 2 lbs.
5. Small Oversize: $8.13+ 38¢/lb. over first 2 lbs.
6. Medium Oversize: $9.44 + 38¢/lb. over first 2 lbs.
7. Large Oversize: $73.18 + 79¢/lb. over first 90 lbs.
8. Special Oversize: $137.32 + 91¢/lb. over first 90 lbs.
For Apparel items: Add 40¢ per unit. The Fulfilment Fees per unit Includes: Picking, Packing & Shipping orders + Customer Service
Here again, keep in mind that these prices tend to fluctuate some, so you will want to keep an eye on what the current Amazon FBA rates are. These rates are also specific to Amazon FBA items that you sell through Amazon. Product that you sell through your website or some other channel will cost a lot more to ship through Amazon FBA. As a rule of thumb, if you are primarily selling items through Amazon, Amazon’s fulfilment fees are hard to beat. USPS priority mail packages under 1-lb have about the same delivery window as Amazon FBA, but they cost $6.70 or more and you must pick, pack, and deliver it to the post office yourself. Amazon FBA takes care of the whole pick, pack, and shipping process for you and only charges $2.41. If you deal in volume, you can usually negotiate discounted prices with shipping carriers, but even then, you’d be hard pressed to find a cheaper way to pick, package and ship your items. However, everything changes if you do a substantial amount of sales outside of Amazon. Unless you’re dealing in truly huge product volumes, you probably can’t afford to pay for both a warehouse and Amazon FBA, which means you’ll be stuck paying more to ship products you sell outside of Amazon than you would if you were shipping them on your own ($7.90 (FBA) vs $6.70 (USPS) for 2-day shipping on a 1-lb item). If all these calculations are giving you a headache, Amazon has a Fulfilment by Amazon Revenue Calculator that you can use to calculate the cost and possible revenue from using FBA for individual items. If you want to run these calculations for items in bulk, you can use Synocentric’s bulk calculator to evaluate up to 20 items at a time for free (or more with a paid subscription).
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath