Before 2019, many people did not even know it was possible to buy an existing Amazon business. However, it is perfectly legal to buy or sell an Amazon FBA business and there have been hundreds of successful transactions done over the last couple of years.
Amazon FBA refers to the Fulfillment by Amazon program. Many of the products listed on Amazon are not sold by Amazon – they’re instead sold by 3rd party sellers, people like you and me.
On Amazon, they’ll appear as having Prime shipping and you’ll deal with Amazon directly for customer support. However, the original manufacturer is normally an individual or company using the Amazon FBA program to sell and fulfill their orders.
Many sellers start with an initial investment of $2,000 – $5,000 for their first inventory order and reinvest from there. If the initial product launch is successful, most sellers introduce multiple products and grow revenue year over year. In terms of scale, many sellers achieve a 6 figure revenue run rate within the first 6 – 12 months. As they add more products, they continue to grow revenue into the mid 6 figures and even 7 figures.
Flipping an Amazon FBA Business: Case Study
Over the course of the last 2.5 years, I have personally acquired, grown, and subsequently exited an FBA business. I initially acquired the FBA business on Flippa in December 2019 and officially took over the business on January 5, 2020.
When I acquired it, the total annual revenue was in the $100,000 range. Over the course of 2 years, I grew revenue by over 4x and increased net profit by 5x.
Most FBA businesses are valued based on a 2-3x annual multiple of earnings.
By increasing net profits 5x, I increased the valuation of the business by 10x. While I can’t disclose the real numbers behind the sale, let’s use some example numbers to calculate a sample ROI.
- Acquired: $100,000 revenue, $20,000 net profit = $40,000 purchase price (2x multiple)
- Year 1 Cashflow: $100,000 net profit
- Year 2 Cashflow: $120,000 net profit
Total Cashflow during 2 years: $220,000
Exit After 2 years: $400,000 revenue, $100,000 net profit = $250,000 list price (2.5x multiple)
- Total Investment: $40,000
- Total Value: $470,000
- ROI: 10X
As can be seen above, acquiring an Amazon FBA business can be incredibly lucrative.
What is Amazon FBA?
Amazon FBA refers to the Fulfillment by Amazon program. There are a number of business models around the use of this program including retail arbitrage, private label, wholesaling, and dropshipping
For the purposes of this article, we’ll be focusing on private label. Private label businesses comprise 95%+ of all Amazon FBA businesses that are sold.
Private label refers to the practice of finding a product with high demand on Amazon, sourcing it, and then putting it up for sale on Amazon. Typically, sellers will try to find a simple product on Amazon that is easy to customize and brand differently than existing products. Then they will use a platform such as Alibaba to find a supplier and negotiate their first order. As they receive inventory, they’ll set up the Amazon listing and start selling on Amazon.
Most private label sellers use the Amazon FBA program. In this program, enterprising sellers ship in inventory to Amazon fulfillment centers then Amazon handles all of the shipping to the customer and post-order customer service.
The benefits are two-fold: it allows any seller to have “Prime shipping” and it allows sellers to easily scale up operations without the need for an expensive warehouse or staff to fulfill orders.
Buy vs Build an Amazon FBA business?
The first question to ask when evaluating an Amazon business for sale is whether you should buy or build an Amazon business. One mental model to evaluate this decision is determining the replacement cost of an existing Amazon business.
When looking at an Amazon FBA business, ask yourself these questions:
How long would it take me to introduce the same number of products?
Keep in mind the product development process can be incredibly time intensive. You have to go through product design, sourcing a factory, placing the initial order, and shipping it into Amazon. This process can take anywhere from 1 – 4+ months to go from product idea to selling a product on Amazon.
How long would it take me to amass the same number of reviews?
Many products on Amazon have thousands of reviews built up over multiple years of selling on Amazon. In comparison, new products have 0 reviews – making starting from scratch a hard proposition.
What is my budget for an acquisition?
While it’s possible to start a FBA business for <10k, if you want to buy an Amazon FBA business you’re most likely looking at an acquisition in the 6 or low 7 figure range. Depending on budget, that is not feasible for all buyers.
Where to Buy an Amazon FBA business?
There are multiple brokers which specialize in the sale of Internet based business. Browsing through marketplaces like the below can be one of the best ways to find an Amazon business for sale.
After rising to prominence back in 2015/2016, Empire Flippers has become one of the largest marketplaces for online business acquisitions in the world. Looking through their marketplace, there are dozens of Amazon FBA businesses listed for sale – primarily in the 6-7 figure range.
Flippa is one of the oldest brokerages for internet-based businesses and has one of the widest assortments of any brokerage. In comparison to the other marketplaces on this list, Flippa is an open marketplace which allows any seller to list their business with no due diligence done on listings prior to them going live.
While this gives them the largest number of listings, you’ll have to spend a much larger amount in due diligence to ensure the seller is truthful about all of the numbers and financials in the business.
Flippa is one of the best marketplaces for finding mispriced businesses (diamonds in the rough) but you have to be willing to dig through dozens of different listings to find a quality business.
Although primarily known for its high-profile SaaS deals, FE International is a world-renowned investment bank specializing in the sale of Internet based businesses like Amazon FBA. Prospective sellers work closely with the FE International due diligence team prior to listing in order to verify financials and decide on a valuation.
FE International typically has an extensive due diligence process which can take longer than similar brokers.
Quiet Light is another well respected internet business brokerage that primarily focuses on businesses in the $200,000 to $250,000 to 7 figure list price range. One of the best aspects of Quiet Light is that all of the advisors there either own their own business or have successfully exited an Internet based business. This gives them experience and perspective from one potential seller to another.
Similar to FE International, Quiet Light prepares an extensive confidential information memorandum (CIM), on every business for sale – giving you more than enough information to know whether to move forward or not with the acquisition.
Website Closers is a franchise investment bank that lists a number of different Amazon FBA businesses for sale. Although they are one of the oldest business brokers with more than 20+ years of history, they aren’t as well known in the online business space as Empire Flippers or Flippa.
Website Closers is known for having a wide variety of listings in different industries and different price ranges making them a good choice to expand your search to.
A private sale can be one of the best ways to find an Amazon FBA business. Amazon requires that sellers list their company information on their Amazon seller profile. Using that information, enterprising buyers can reach out directly to Amazon sellers in different categories to inquire about whether they would be interested in selling or not.
Going through with a private sale typically takes longer than going through a brokerage because you have to convince a seller to sell, verify all of the financials, and go through the escrow process.
However, going off-market is one of the best ways to find a good deal on an Amazon business for sale.
How To Value An Amazon FBA Business?
Amazon FBA businesses are typically valued at a multiple of seller’s discretionary earnings (SDE). Consequently, there are two main parts when determining how to value an Amazon FBA business: what is the trailing twelve months SDE? And what is an appropriate multiple to use?
Determining the Seller’s Discretionary Earnings (SDE)
Determining the seller’s discretionary earnings (SDE) may not be as easy as it seems. SDE represents the net benefit to the owner of the business – so it includes owner salary but also add-backs such as business travel and one-time expenses that a new owner may not incur.
When analyzing a FBA business for sale, it’s important to look through every add-back on the profit and loss statement. Remember, that a $1,000 add-back represents $3,000 of the list price at a standard 3x annual SDE multiple.
Determining the Multiple
Determining the appropriate multiple for an Amazon FBA business can be difficult. This is where the advice of an experienced broker comes into play. According to data from Empire Flippers, the average multiple for an Amazon FBA business in 2021 was 3.6X SDE. This is up significantly from 2019/2020 due to increased interest in acquiring Amazon businesses for sale.
The multiple depends on many factors including business age, business size, gross/net margins, growth trend, and more.
The older the business is, the higher multiple it is likely to get. This is because an Amazon FBA business that has been in business for multiple years typically has more reviews and a longer selling history on Amazon making it more stable.
With regards to size, the bigger the business, the bigger the multiple. Most Amazon businesses that have less than 200-250k in SDE see a lower multiple in the 2 – 2.5x annual range. Above >250k in SDE, Amazon aggregators start to take notice – pushing the average multiple up to 3x.
The multiple also depends on the gross and net margins of the business. The higher net margins you have, the more money you can reinvest in growth. Higher net margins also allow freedom to make more mistakes without going into breakeven or unprofitable territory.
The overall trend is one of the biggest factors in determining the multiple of a business though.
A business that is rapidly growing year over year and month over month demands a higher multiple to account for the growth. A business that is slowly declining will get a lower multiple or perhaps, not even sell.
You should also investigate the category the business is in as well. A business in a rapidly declining category will not receive a high multiple.
When determining an appropriate multiple ask yourself these questions:
- How old is the business?
- How big is the business? Does it provide enough cash flow to support growth?
- What are the gross and net margins?
- Is the business growing, stable, or declining? Is the overall category growing or declining?
On Time Frame: Trailing Twelve Months vs Shorter Time Periods
While typically Amazon FBA businesses are evaluated on a trailing twelve month (TTM) basis, there are a couple of exceptions. If the business is rapidly growing over the past 3-6 months, a seller may opt for a shorter time period to account for that growth. In cases like this, special due diligence is required. Is the growth likely to continue or is the seller just trying to cash in quickly?
How To Evaluate an FBA Business For Sale
When considering buying an Amazon FBA business for sale, it is essential that you conduct a thorough due diligence process. During due diligence, you want to go through every aspect of the business and uncover any red flags that may impact the business moving forward.
1. Amazon Account Health
The first thing a prospective buyer should always check is the Amazon account health. This is the “standing” of the account in Amazon’s eyes. You can see the account health here.
Amazon FBA businesses have one major shortcoming – if Amazon decides to suspend or cancel your account, there are very limited options on how to get your account back. Making sure the account health is solid is essential.
How is the business doing over the last 3,6, 12 months? Are revenue and profits trending up, staying the same, or are they steadily decreasing?
Be sure to look at the trends of the business and the trends in the overarching category using tools like Google Trends.
3. Amazon Listings
One of the most important aspects to evaluate are the Amazon listings. Does each listing have a good overall product rating? A 4.0 star rating or above is considered the minimum requirement to compete successfully on Amazon.
How many reviews does each listing have? There is a big difference in acquiring an Amazon business that has 200 reviews vs 2,000 reviews. A large review count and a high average review rating leads to higher conversions according to data from Pattern.
4. Growth Opportunities
Most prospective buyers look to acquire a business with a growth thesis – aka how can I grow this business after I buy it? Thus, when evaluating a FBA business for sale, look at all possible growth opportunities.
Can you revamp the Amazon listings? Can you cut advertising costs increasing net profit? Can you introduce new products?
“Perfect” Amazon FBA Business Metrics
Considering the due diligence criteria listed above, what does the perfect Amazon FBA Business look like? In my opinion, the perfect Amazon FBA business has:
- Perfect Amazon account health
- 5-10 products with no 1 product accounting for >20% of revenue/net profit
- IP protection and 1,000+ reviews on Amazon for each product
- Positioned in a growing category
- Revenue and net profit are up year over year and trending positively in recent months
- The seller has 3 potential products in the pipeline and plans to introduce them soon
- Potential to eliminate 50% of ad spend due to inefficiency
- Potential to reduce COGS through switching suppliers
A business like the above has a strong foundation. It has multiple products with a moat around them in a growing category. There is the potential to introduce new products in the future to grow revenue further.
But this business also has easy wins. These easy wins are important for prospective buyers because they can implement a new advertising strategy 1-month post-acquisition and immediately increase net profits
Now it’s important to remember that no Amazon FBA business for sale will hit all of the characteristics above. But essentially the ideal business to acquire is one that has a strong foundation but also multiple easy wins for a new buyer to take advantage of.
How To Transfer An Amazon FBA business
In 90% of cases, when you buy an Amazon FBA business you will be taking over the Amazon account used to run the business. After you sign the final agreement, log into the Amazon account and change the following:
- Change the contact information
- Retake the tax interview
- Change the credit cards and bank accounts associated with the account
This process is fairly simple but in some markets like the EU, it can be more complicated. There is also a way of transferring the existing listings from 1 account to another account. This is typically not recommended but the process for doing so is described in this article about transferring a FBA business.
FAQs about Buying Amazon FBA businesses
How much does it cost to start an Amazon business?
Most Amazon businesses can be started with an initial investment between $2,000 – $5,000 dollars. The majority of this money (60-80%) will be spent on the first inventory order and shipping those products into Amazon so you can start selling. The rest of it will be used to develop the Amazon listing including photographs of the product and the written description.
How much does it cost if I want to buy a FBA business?
If you want to buy an Amazon FBA business for sale, a typical acquisition price is from $100,000 – $3,000,000. Most acquisitions of FBA businesses are in the 6-7 figure range. On brokerages such as Flippa, there are FBA businesses listed for anywhere from 30-90k. However, these businesses are very small for a FBA business and as such, are typically riskier than a larger acquisition.
Can I purchase an Amazon store?
Yes, you can purchase an Amazon store. Amazon businesses are able to be transferred easily between a buyer and a seller providing the appropriate process is followed. You can find Amazon store’s for sale on brokerages such as QuietLight, Empire Flippers, and Flippa to name a few.
Why do people sell their Amazon FBA business?
People sell their Amazon FBA businesses for a variety of reasons including medical emergencies, burnout, retirement, change of pace, or financial security. Medical emergencies are rare but represent a forced seller – somebody who has to sell their business because they cannot physically continue running it. However, a more common reason is simply burnout.
Typically, an entrepreneur can sell their Amazon business for 3x annual profit. For many sellers, it then becomes a question of – do I continue to run this business for the next 3 years or do I sell it now for a lump sum? It can be tiring running an Amazon FBA business making the option of selling very enticing.