Would you like to be your own boss? Or maybe you’re looking to generate some extra income while keeping your full-time income like I did? However, maybe you’re worried you don’t know how to start an Amazon business from scratch?
Depending on how you answer those questions, buying an existing Amazon FBA business could be an option for you.
An Amazon FBA business is a business that uses Amazon’s FBA (Fulfillment by Amazon) service to store, package, and ship products to customers for you. The benefits of using Amazon’s FBA service include:
-You don’t have to worry about storing inventory or shipping orders to customers
-Amazon takes care of customer service and returns
-You can use Amazon’s marketing and promotional tools to reach more customers
I’ve bought several Amazon businesses that I’ve merged into my own business, and most of them have been successful, so I have a lot of insight into how best to do it.
Why Buy an Amazon FBA Business?
There are various reasons to buy an Amazon FBA business, but perhaps the best reason is that an existing business already has positive reviews, both for the product(s) being sold, and the FBA seller account associated with those products.
It takes time and advertising expense to generate reviews, so buying an existing Amazon business means you don’t have to spend your time and money to get these reviews, since it’s already been done for you.
Also, an Amazon FBA business is a relatively easy business to run. By relatively, I mean specifically the time and skills required aren’t as great as running a hair salon or landscaping businedd, for example. If you have a willingness to learn and follow the instructions provided by Amazon, you can be running a real Amazon business quickly.
Another reason to buy an Amazon FBA business is that you can acquire and build your own brand. When you have your own brand, you can build a loyal following of customers who will buy from you. This can lead to future sales opportunities such as selling products from your own ecommerce site or selling your products to brick and mortar shops.
Lastly, when you buy an existing Amazon business, you can acquire a product that is actively selling and generating revenue.
The research process to find a product that will sell well is difficult, and there are no guarantees you’ll be successful. Buying an existing Amazon business with a successful product removes this uncertainty.
How Much Does an Amazon FBA Business Cost?
On the low end, an existing Amazon FBA business can cost as low as a few hundred to a few thousand dollars. For this price range, expect to only get an existing Amazon seller account with some positive reviews but no branded products, little to no inventory, and no intellectual property, such as trademarks.
On the high end, an Amazon business can cost well into the millions of dollars. For this amount of money, expect large businesses with fully-realized brands, including employees, product website(s), custom packaging, trademarks, supplier relationships, and sales of hundreds to thousands of units per month.
How to Find an Existing Amazon FBA Business For Sale
Online marketplaces are where most people look for an Amazon business for sale. There are a number of online marketplaces that sell Amazon FBA businesses, such as:
These marketplaces let you search for businesses by price, profitability, industry, location, and several other criteria.
These marketplaces also help facilitate the purchase process, and they have a history of successfully matching sellers to buyers, so they are trustworthy places to buy an existing Amazon business.
However, just because a business is listed for sale, doesn’t mean it’s worth buying. How do you know which business is worth buying and which isn’t? Let’s talk about due diligence.
How to Evaluate an Amazon FBA Business
When evaluating an Amazon FBA business, proper due diligence is very important. While there are a number of key factors to consider, making sure you properly and thoroughly evaluate all of them is of paramount importance.
I can’t overstate how important the due diligence process is in buying an existing business. For every business I’ve bought, I’ve rejected dozens of others, because they fail in one or more of the steps of my due diligence process.
Here are the factors I look at to properly evaluate an Amazon business:
- Evaluate the product(s) being sold (sales history, number and quality of reviews, competing products)
- Evaluate the profit and loss sheet of the business
- Evaluate the effectiveness of advertising campaigns
Evaluate the Product Being Sold
Evaluating the product is the first step of your due diligence process, and the most important. This is also the step where you’ll weed out most of the businesses you evaluate, because they won’t pass this first stage of evaluation.
To evaluate the product being sold, I go to the Amazon listing page for their product(s). I look for how many ratings the product has at the top of the page, then I go to the bottom of the page to see if there are any bad written reviews.
Most businesses fail this test, because if the product has very few ratings, say less than 50, or lots of bad written reviews, with an average star rating below 4, I immediately stop evaluating and decide this business isn’t for me.
The reasoning for this is if the product has very few ratings, that means it doesn’t have a lot of buyers leaving ratings, which implies a low sales volume. Since a steady volume of past sales is one of the primary reasons to buy an existing Amazon business, a lack of ratings is a major reason to pass on buying it.
Also, if the product has lots of 1, 2, or 3-star written reviews, customers aren’t happy with the product, which is not a problem you should have to deal with if you’re paying for an existing business.
In the screenshots below, the top image shows a product with 875 ratings with an average of 4.4 stars, which is what you want to see from a buyer’s perspective.
The bottom image shows a product with only 22 ratings, with an average of 3.7 stars, which is a product I would avoid.
If there are a good number of ratings, and the written reviews are generally positive, the next thing I look at is the product’s sales history with a software tool called Keepa.
Keepa allows you to see the complete sales history of the product, and it shows how the Best Seller Rank has changed over time, how ratings have grown over time, and also any gaps in sales history, where the product may have gone out of stock.
Below is a screenshot of Keepa charts showing first a good sales history, and then a chart with bad sales history. The green line represents the Best Seller Rank, and lots of up and down movement means lots of sales. The other chart doesn’t have nearly as much movement, showing relatively fewer sales.
Lastly, I look at competing products in the same product niche and their ratings, reviews, and sales history. I consider it a red flag if there are many other sellers with hundreds or thousands of positive ratings compared to the product I’m reviewing. Ideally, you don’t want to purchase a business selling a product in a super-competitive niche where you have no hope of ever catching up in terms of ratings and reviews.
Only when a product clears all these steps successfully, meaning it has:
- enough ratings
- positive written reviews
- a good sales history
- and low competition
do I move on to the next evaluation step: reviewing the profit and loss sheet for the business.
Evaluate the Profit and Loss Sheet
The profit and loss sheet for a business shows its revenue and expenses over a given time period. This is typically shown in spreadsheet format, with sales at the top, expenses next, and profit at the bottom. The profit is derived by subtracting all the expenses from the sales. A very simplified version of one of these sheets is shown below.
When you’re evaluating the profit and loss sheet, there are several things to look for. Obviously, the profit should be a positive number most of the time, and if it isn’t positive for a particular month, you should look at the expenses for that month to determine why.
As a rule of thumb, an Amazon FBA business should have profit around 20% to 40% of sales. However, it’s important to note that individual months can fluctuate depending on the time of year, if the product was in stock, and if advertising spending changed.
In the example I provided, I purposefully included a low-profit month at Month 6, because you will often see this on profit and loss sheets. The typical reason is the business owner ordered more stock of their product that month, which is a large single expense. Therefore, during that month, profit was much lower than usual.
When evaluating Amazon FBA business expenses, one of the key expenses to review is advertising. Inexperienced Amazon sellers often spend WAY too much on advertising, and this can dramatically lower their profits. If you see a large advertising spending expense, you should ask the person selling the business to justify this expense. Also, this could be an opportunity for you to increase the profit of the business by lowering spending on advertising.
Speaking of advertising…
Evaluate the Effectiveness of Advertising Campaigns
Advertising can be a huge expense for an Amazon FBA business, and if the advertising campaigns aren’t effective, it’s unfortunately a wasted expense.
As part of your evaluation process, make sure to ask the seller of the business to provide a report showing the advertising campaigns’ statistics for spending, sales, etc. This information is easily attainable by the seller, and will help you decide if the advertising expense is justified.
The screenshot below is an example of the information you want to see concerning advertising campaign effectiveness. Pay attention to ROAS, which stands for “return on advertising spend”. This figure is the ratio of sales to ad dollars spent, so the higher the value of ROAS, the better.
All of the above factors should be considered when evaluating an Amazon FBA business. It is monumentally important to do proper due diligence before committing any money to buying a business.
If you’ve read all this, and it seems like there are a lot of steps to properly evaluate a business, and that it seems difficult and complex, you’re right! It’s a lot of work to ensure you have a clear understanding of what you’re buying. Only by doing this work can you be sure you’re getting a good deal.
Remember, it should be hard for a business to clear all these hurdles, because you should only commit money to a business worth buying!
How to Negotiate the Purchase of an Amazon FBA Business
There are a few things you’ll need to keep in mind during the negotiation process. First, you’ll need to have a clear understanding of what the business is worth. To do this, you need to take into account:
- the business’s sales, expenses, and profit, all found in the profit and loss sheet
- evaluating the business’s competition, which you do in the due diligence phase
- the value of the business’s inventory and physical assets
- the value of intangible assets, such as trademarks or branding
Most Amazon businesses are valued as a multiple of their monthly earnings, typically 20 to 40 times, depending on what the seller thinks their business is worth. For example, if as shown in their profit and loss sheet that the business has an average monthly profit of $1,000, then a reasonable selling price may be $30,000.
I say may because the business may have other assets, like inventory, which will be added to the purchase price. For example, if there are 500 units of the product that are part of the sale, and the units cost $10 each, the purchase price will be $5,000 higher to compensate the seller for the cost of the inventory you’ll receive as part of the business sale.
Speaking of other assets, many Amazon businesses own their own brand on Amazon, which requires having a trademark for that brand. The cost of obtaining a trademark can be $1,000 or more, and can take as long as a year to process through the US Patent and Trademark office. A trademark, then, is valuable, and adds to the value of the business you’re considering buying.
Once you have a good understanding of the business’s value, you’ll need to start negotiating with the seller. It’s important to be clear about what you’re willing to pay, and to be prepared to walk away if the seller isn’t willing to meet your price. Remember, in order for a business to be worth buying, you need to purchase it for a reasonable price. If it will take many years to earn back the purchase price, it’s probably not worth buying.
Finally, once you’ve reached an agreement on price, be sure to document everything in writing by utilizing a purchase and sale agreement. The purchase and sale agreement should:
- explicitly state what is being sold
- list who the seller(s) and buyer(s) are
- provide the date of the transaction
Using a purchase and sale agreement will help protect you in case anything goes wrong after the sale is finalized.
Most online marketplaces have a purchase and sale template you can utilize to ensure a properly documented transfer of the business.
By following all of these steps, you’ll be in a good position to know what an Amazon FBA business is worth, successfully negotiate a reasonable price, and properly document the transfer.
Bottom Line
If you’re looking to get into ecommerce without having to start from scratch, buying an existing Amazon FBA business may be right for you, as long as you keep a few things in mind:
- First, make sure to do your due diligence and research the business thoroughly
- Secondly, be sure to negotiate a reasonable price for the business
- Lastly, properly document the sale with a purchase and sale agreement
While most Amazon FBA businesses you evaluate won’t be worth it, if you follow the advice I outlined above, you’ll eventually find something worth purchasing.
Want to read how my own Amazon FBA business has evolved since I started in 2015? See this post.
Curious to know the pros and cons of Amazon FBA? See my post comparing them here.