Amazon FBA Due Diligence Guide

When buying an Amazon FBA business, performing due diligence is key. I share my 6 step framework that I’ve used across multiple acquisitions to understand strengths, weaknesses and red flags.

Buying and selling Amazon FBA businesses has exploded in popularity over the last 2-3 years as aggregators such as Thrasio have made headlines as some of the fastest-growing companies in the US.

If you’re interested in buying an Amazon FBA business though, you should be performing extensive due diligence.

Due diligence is the process of understanding and verifying every aspect of a company’s operations. Due diligence covers all aspects of the business – from P&L verification, and supply chain, to even identifying potential growth opportunities or threats to a business.

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What does a Good Amazon FBA Business Look Like?

Throughout this article, we’ll go through and describe exactly what you should be looking for in due diligence. However, let’s start by describing what a great Amazon FBA business looks like.

A good FBA business to acquire has the following characteristics:

  • Strong position in a growing niche market
  • Growing revenue and profit year over year
  • High unit margins
  • Low operational complexity (<10 SKUs)
  • Strong moat against the competition (reviews, IP, etc)
  • Many paths to expansion

At its core, a good Amazon FBA business spits off cash and grows quickly with a low time commitment. Using Amazon for fulfillment allows sellers to rapidly scale up without additional logistical complexity as their business continues to grow.

However, it’s unlikely that a business like the one described above will be put on the market or available for sale at a reasonable multiple. That’s the purpose of due diligence – to uncover the strengths, weaknesses, and potential deal breakers of any proposed acquisition.

6-Step Amazon FBA Due Diligence Framework

Data Prerequisites

Before going through the full due diligence process, make sure you have access to the required data.

If going through a broker, they should have a lot of this documentation prepared for you in the business listing or confidential information memorandum (CIM). Be sure to request:

  • View-only access to the Amazon Seller Central account
  • Full P&L for the last 3 years
  • Documentation on the supply chain describing the process and terms
  • Any SOPS used in the business

This information will give you enough to get started and then you can always request more information/access as you uncover more and have questions.

1. Niche Due Diligence

An Amazon FBA business lives and dies by the category/niche it is in. As most operators know, it is much easier to operate a business in a stable or growing market than in a declining one. You can be a great operator but if the demand for your products is declining, it will be difficult to grow.

When evaluating a niche, we look at three core factors: market size, trends, and competitors.

Market Size

Market size is important because it determines the potential ceiling for your business. Using tools such as Helium10 and Jungle Scout, lets you estimate the potential revenue in a niche. Looking at the overall market size also allows you to judge the potential for product expansion in the category.


While the market size is important, the trend of a market is equally important. Consider using tools such as Google Trends to evaluate whether a niche is declining, stable, or growing. A declining market indicates that there is less growth potential for a business and is a potential red flag for any acquisition.


One of the core factors when evaluating a market is determining the quality of competition. Amazon FBA businesses can be very vulnerable to competitors undercutting their prices and taking away market share. Whenever you’re evaluating an acquisition, look through the top 3 – 5 competitors.

Are they actively adding new products and performing optimizations? Or do their businesses look stale and outdated? 

Note: Are you competing against Amazon’s products? Competing against Amazon Basics products can be hard and in most cases, would be a deal breaker. Amazon prices aggressively and gives these products priority placements that regular sellers can’t win.

Answering all of these questions is essential to evaluating the overall market and determining whether or not you should go through with the acquisition.

2. Financial Due Diligence

Financial due diligence is the process of verifying the numbers stated on the profit and loss statement. Because businesses are often listed as a multiple of the seller’s discretionary earnings (SDE), every line item, expense, and add-back directly affects the potential acquisition price.

Source of Revenue

At a high level, understand where the business makes the majority of its revenue. Most Amazon FBA businesses have 80-90% of their revenue from Amazon. The remaining revenue is typically made up of Shopify and/or wholesale orders.


When looking at the P&L, always ask how is revenue trending? How is net profit trending over the last 3, 6, and 12 months? If revenue stays the same but net profit is decreasing, understand why that is. Is it because of increased advertising spending? Lower pricing?


At the end of the day, your gross and net margins are the lifeblood of the business. Higher-margin businesses allow for more mistakes and are typically easier to operate than low-margin businesses.

According to a study by Jungle Scout, a typical Amazon FBA business runs on a 16% to 20% net margin. Benchmark a prospective acquisition against these numbers. Is the net margin higher or lower?  

It’s important to look at the gross and net margins over time as well. If revenue stays the same but margins start declining, that indicates increased competition and could be a threat to the longevity of the business.

Summary: Most Amazon FBA businesses have 80-90% of their revenue come from Amazon. They typically have net margins in the 16-20% range. While evaluating their financials, look at both the raw numbers and trends over the previous months/year.

3. Amazon Due Diligence

For every potential deal, you should get full-view access to the Amazon Seller Central account.

Account Health

Account health is the first thing to check before proceeding with any due diligence. In an Amazon FBA business, you will be taking over control of the Amazon account. If the Amazon account gets suspended or canceled, your business could be irreparably ruined.

To check the account health, go to Seller Central -> Performance -> Account Health. You must be logged into Seller Central to see the page.

You’re looking for healthy policy compliance with no violations. If there are any violations, that is a significant red flag and should be discussed with the potential seller before proceeding with the acquisition.

If the business utilizes seller fulfillment (otherwise known as Fulfillment by Merchant), there are core targets that each Amazon seller must hit as well. These include:

  • < 1% Order Defect Rate
  • < 4% Late Shipment Rate
  • <2.5% Pre-fulfillment cancel rate
  • >95% Valid tracking rate

If a business does not hit these metrics, it may not be able to use Fulfillment by Merchant until the issue is resolved.

Listing Metrics

The core of an Amazon FBA business comes down to its product portfolio. On Amazon, two key metrics should be monitored for the business as a whole and each product

  1. Sessions – traffic to the listing
  2. Unit Session % – the number of units purchased/number of sessions. Essentially the conversion rate.

Both of these metrics can be found in the Business Reports section of an Amazon Seller account. Across the account, you want to see sessions as stable or increasing over the last few months/year. This indicates the products are growing in popularity.

The Unit Session % can vary wildly between different products based on the category, price point, product attributes, and more. For this metric, context is king. Use data such as Brand Metrics reports showing the Unit Session % in comparison to competitors in the same space.

Review Structure

Reviews form a strong moat against the competition on Amazon. For each of the top-selling listings in the product portfolio, you should evaluate the review quantity and the star rating of each listing.

The quantity of reviews is how many reviews each listing has. This represents a barrier to competition in the space.

The star rating is also essential to the success of your Amazon listings. Data from Pattern indicates that conversion rate goes up by 12% when moving from a 3.5 star rating to a 5 star rating. Any product below a 4 star rating should be heavily investigated prior to moving forward with an acquisition.

Summary: Account health is the first thing to check in a prospective acquisition. If there are any issues there, it is an immediate red flag. Good listing metrics and a strong review structure are essential for long term success on Amazon. A declining conversion rate and poor star ratings are potential yellow flags to be investigated further.

4. Advertising Due Diligence

In an Amazon advertising study performed by Jungle Scout, 97% of Amazon sellers said that they use Amazon PPC to drive traffic to their listings. For most Amazon FBA businesses for sale, advertising is one of the biggest expenses on the P&L.

To evaluate advertising effectiveness, there are two primary aspects I look at:

  • Total Advertising Cost of Sales (TaCOS)
  • Campaign Structure

Total Advertising cost of sales is the ratio between the ad spend and overall revenue. A standard private label Amazon FBA business tends to have a Total ACOS in the realm of 5 – 10%.

If lower than that, there could be an opportunity to experiment with different ad strategies to increase overall revenue. If the Total ACOS is high, there may be some optimization needed to increase efficiency and net profits.

The campaign structure refers to the actual campaigns in the Amazon ad account. A standard campaign structure for 1 product is shown below:

  • Sponsored Product auto campaign
  • Sponsored Product manual campaign (broad match)
  • Sponsored Product manual campaign (exact match)
  • Sponsored Product manual campaign (product targeting)

Tip: Ideally, 80% of the spend is going towards manual campaigns. Manual campaigns give you more control and consequentially, greater efficiency over your ad spend.

A poor campaign structure can lead to increased advertising cost and reduced efficiency.

5. Operations/Supply Chain Due Diligence

Whenever you’re dealing with a physical products business, performing due diligence on the supply chain and logistics side of the business is essential. I like to start out by understanding the flow of products from inventory order to being sold on Amazon.

Start out with the suppliers:

  • How many suppliers does the business have?
  • Where are the suppliers based?
  • What are their lead times?
  • Are there any payment terms?

Tip: Your lead times and payment terms heavily influence the amount of cash you’ll have to keep on hand to maintain/grow the business. Reducing the lead time as much as possible and getting generous payment terms from your suppliers can increase your free cash flow allowing you to invest more in growth.

Most Amazon FBA businesses rely on suppliers based on China. And although lead times vary based on the products/category, a typical lead time may be anywhere from 20 – 40 days from inventory order to products being placed on a container ship.

From there, you need to understand where the inventory goes. 

  • Does the supplier ship it straight into Amazon FBA warehouses?
  • Does it go to a 3PL first and then to Amazon?
  • How much inventory is stored at the 3PL vs at Amazon warehouses?

The majority of FBA sellers in the past would ship straight from their suppliers into Amazon’s warehouses saving on costs. However, the introduction of restock limits has forced many sellers to maintain a presence at a 3PL.

Inventory management at Amazon is also essential. For every seller, Amazon calculates an Inventory Performance Indicator (IPI) score which dictates how much inventory you can store in Amazon warehouses. If your IPI < 400, you may experience strict restock limits limiting the amount of products you can send into Amazon.

During any due diligence process, make sure you know the IPI score and the current restock limits for the Amazon account.

The last factor when evaluating inventory management is to determine any out of stock periods. Having out of stock products directly affects the overall revenue of the business and presents an opportunity to increase revenue for a new buyer.

While these periods should be clearly annotated on a P&L, ask every seller:

  • Have they been out of stock of any products in the trailing twelve months?
  • If so, for how long?

You can then use this information to estimate revenue if they had been in stock.

Summary: Evaluate the supply chain side of an Amazon FBA business by focusing on lead time and payment terms. In the Amazon account, take note of the IPI score and restock limits. Poor inventory management can severely hamper growth in an Amazon FBA business.

6. Valuation

Most Amazon FBA businesses are valued on a trailing twelve months multiple of Seller’s Discretionary Earnings (SDE). SDE is a metric that represents the total earnings a full time owner/operator would gain from the business. It typically is a combination of net profit shown on the P&L plus any add-backs to the business.

Tip: Add-backs are typically one-time expenses that a new owner will not incur. An example would be a business trip for a conference. Carefully evaluate each add-back to the P&L as they can drastically affect the list price of the business.

As a physical products business, most Amazon FBA businesses sell in the range between $100,000 – $5,000,000+. The sale process for these businesses takes longer than a simpler internet based business such as content sites.

According to data from Empire Flippers, the current average monthly multiple for an Amazon FBA business is 37.56x. That has declined from 43.2x in recent months. The typical pricing window for an Amazon FBA business is 12 months. This allows a full picture of the seasonality and stability of the business.

There are multiple factors that influence the multiple of an Amazon FBA business.

  • How large is the business?
  • Is the business growing or declining?
  • What is the workload for the business? 
  • Are there opportunities to expand the business?

A buyer must consider all aspects of the business before deciding on an appropriate multiple to use.

Note: Keep in mind that inventory is not typically included in the list price of the business. Inventory must be purchased separately at cost from the seller. Make sure to have enough cash to purchase the business and inventory.

FAQs about Amazon FBA Due Diligence

How long is the due diligence period?

Most due diligence periods for Amazon FBA businesses last between 30 – 40 days but it can be accomplished in as few as 20 days.

Once the Letter of Intent (LOI) is signed, the due diligence period begins. As due diligence progresses, the Asset Purchase Agreement (APA) is drafted and prepared for revisions. After due diligence is completed, the Asset Purchase Agreement is signed and the business is transferred to the new buyer.

Can I do due diligence myself?

If you have prior experience working on or in an Amazon FBA business, you can perform due diligence yourself. However, there are multiple intricacies involved when performing due diligence on these businesses. Mastering due diligence can also take time.

To fully protect yourself, you can hire experts that offer an Amazon FBA due diligence service to review the business and highlight any red flags prior to the acquisition.

What are common red flags with Amazon FBA businesses?

Common red flags in Amazon FBA businesses include Account Health issues, inventory management issues, and declining sales. If an account has ever been suspended or had IP infringement claims, that is a major red flag and should be investigated deeply before proceeding with any acquisition. Another red flag is the inventory performance indicator (IPI) score. If not managed appropriately, a low IPI score leads to strict restock limits limiting growth. 

Declining sales can also be a red flag for Amazon FBA businesses if the cause is not well understood. It is possible that competitors have taken market share and the business will continue to decline if no action is taken.

Actionable Takeaways

Performing due diligence on an Amazon FBA business can be a time-consuming but essential task prior to acquiring the business. Even though the seller may push for a quick sale, an extensive due diligence process should take time – often multiple weeks.

But after your due diligence process is complete, you should know the exact strengths and weaknesses of the business and understand whether or not you want to proceed with the acquisition.

Due diligence on an Amazon FBA business is complex and one article cannot cover every detail. If you are currently going through due diligence on an Amazon FBA business and looking for more information on what to investigate, below are some additional questions to consider.

  • Where is each product in its lifecycle?
  • Does the brand have pricing power in its niche?
  • Is there an opportunity to develop IP?
  • What is stopping competitors from introducing a lower-priced similar product and stealing market share?
  • Are there opportunities to expand the product portfolio?
  • Are there opportunities to expand off of Amazon?
  • If the current trend of the business stays the same, where would this business be in 1 year? 2 years?

Adequately considering all of these questions takes time but also protects you. If you go through with the acquisition, you’ll know exactly what to focus on from Day 1 onward. 

Due Diligence Services

These firms rely on our M&A expertise

These firms rely on our M&A expertise... ecommerce firm
pearl west amazon FBA acquisition firm
venture kite is a content website investment firm

Hire our team to conduct due diligence on your online business acquisition.

Get a 20-page due diligence report jam-packed with insights.

View all services, or choose your business type below:

Photo of author

David Holmes

David has acquired, grown, and successfully exited 2 Amazon and eCommerce businesses. He now consults for multiple 7-figure Amazon FBA brands, and represents buyers in due diligence.