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Those interested in FBA and Amazon selling will find that there are two possibilities of entering the marketplace: establishing their own shop on the online marketplace or buying an existing storefront from another seller.
The second option seems comfortable because the supply chain, the listings, the clientele, and the storefront already exist. In turn, just like with any other business, there are a few things to look out for when purchasing an established Amazon business.
In this article, I’m going over 5 tips that will help you ascertain if the business you’re interested in is worth it, and if buying an existing business is the right choice for you.
Tip 1: Find an Amazon business for sale in your price range
The first step toward buying an Amazon FBA business is to find one for sale in your price range. There are a few websites that list E-Commerce businesses for sale:
Simply search for “Amazon FBA”, “Amazon business”, or “Amazon seller account” and browse the offerings.
In general, Amazon FBA businesses are priced at about 25 times their monthly revenue. To buy an Amazon store with a net profit of $2,000 per month would, therefore, require an investment of about $50,000. This rule of thumb applies to marketable businesses, stores that are at least 24 months old and in full swing.
In contrast, new sellers establishing a new Amazon business need a startup capital of around $4,000 for inventory and marketing strategy. It then takes around 3 to 6 months for the Amazon store to pick up and earn regular revenues.
Tip 2: Check the financial records
The first thing you should do when considering buying any kind of business – not just an Amazon FBA store – is check the financial statements and records. With Amazon businesses in particular, you should concentrate on three aspects:
- Profits and losses
- Accounting records
- Costs and fees
First of all, you should look into the financial overview and review net profits. It’s important to check for inconsistencies, as these can be good indicators of extreme seasonalities, sales trends, and growth opportunities.
Next, you should check the accounting records of the Amazon business in question. Make sure that all accounts are set up correctly, that there are no hidden tax liabilities, and that the business is accurately valued. An Amazon FBA accountant like hellotax, can give you an insight into the tax liabilities associated with an existing Amazon business or help you take care of VAT duties once you have purchased one.
Lastly, look into the costs and expenses associated with the store you’re interested in buying. As with any business, there will be expenses concerning used software, freight and transportation, promotion and advertising, storage, and maybe payroll. However, as it is an Amazon business, there might be other costs as well. Check for Amazon referral fees, Amazon FBA storage and fulfillment fees, and Amazon advertising fees. It is also recommended that you recalculate the Amazon-specific fees for different product categories accounted for in the business’s financial records, to make sure that the profits are not inflated. If the fees are incorrectly listed, the expected profit of each sold and shipped item will change drastically.
Tip 3: Do your due diligence
The due diligence process for the purchase of an Amazon FBA business differs from the process for the purchase of other businesses. Make sure to look at:
- Seller Account Health
- Suppliers and Supply Chain
- Inventory and intangible assets
- Standard operating procedures
Seller Account Health
The health of an Amazon seller account is one of the most important things to consider when buying an existing E-commerce business hosted by the marketplace. That’s because Amazon requires their sellers to meet specific requirements. Accounts can be suspended if the metrics are not met. You should look for low Order Defect Rates (< 1%), Pre-Fulfillment Cancelation Rates (< 2.5%), Late Shipment Rates (< 9%), Invoice Defect Rates (< 5%), and a low Inventory Performance Index (< 350). A high Valid Tracking Rate (> 95%) and Conversion Rate are also advantageous.
Furthermore, you should check the service-related metrics, such as customer service dissatisfaction, contact response times, seller and product feedback.
Keeping all these metrics in mind does not only keep an account from being suspended but is also important in order to keep the business viable.
Suppliers and Supply Chain
Another important factor for Amazon FBA businesses are the suppliers and the supply chain of the store. Before purchasing an existing store you should look into the existing supplier agreements and get an idea of what the workflow will look like.
You should discuss quantity prices, lead times, manufacturing standards, materials costs, and more either with the seller or future suppliers directly. You also need to make sure that all legal aspects, e.g. FBA regulations or safety requirements are in order.
Inventory and intangible assets
Next, you should get informed about the existing inventory and intangible assets a seller account possesses. The inventory does not only represent an asset. If it is stored by Amazon you will be liable for storage fees as soon as you buy an existing store – no matter if the products sell or not. If the inventory is for sale you should discuss whether or not you will be paying the full retail price or the wholesale price the original owner paid.
Intangible assets, however, generally represent an advantage for the buyer. Intangible assets in the case of an Amazon business can be trademarks, domains and websites, social media accounts, and mailing lists. If these assets are for sale or included in the sale price, you should do further research in order to determine if they are valued correctly.
Standard Operating Procedures
Lastly, a standard operating procedure with high-quality documentation and implemented processes makes taking over an existing Amazon business much easier. Focus on how orders are processed, if certain third-party programs or software are necessary, how orders are fulfilled, and where products are sold. Some businesses sell their products on other platforms in addition to Amazon. This diversification practice decreases risks but also increases the complexity of processing.
Tip 4: Research the business
No matter how good an existing business’s financials and account health look like, it is always important to research the market when taking over a store.
First of all, you should be looking at the products and competitors. Assess the risk of highly seasonal products or the risk of products being replaced. Research the competitive advantage of the existing product spectrum and potential competitors. How do their reviews and rankings look like, how do they fulfill their orders, and what do their key metrics look like?
Next, you should research Amazon FBA fees and their development. These are gonna apply no matter which store you buy. It’s important to understand how they work, for which services and process steps they apply, and how to minimize the costs in order to keep your net revenues as high as possible.
Lastly, you should look at advertising metrics. In a saturated marketplace such as Amazon, you will need to advertise your products in order to make sales. Part of that can be done on the platform itself. In order to be successful, you should know how to read the Amazon advertising data, what CPC; ACoS and more mean, how you can increase your sales with promotions and giveaways, how to read trends and keywords, and how you can determine the profitability of an ad campaign. This will not only help you to set realistic goals for the Amazon business you think about purchasing, but also help you run the store successfully once you bought it.
Tip 5: Know how the business transfer works
Once you have completed your due diligence and negotiated the price and terms of the sale, it is time to transfer the business. Just like with any other business, money and assets will need to be transferred first. However, since the sale concerns an E-Commerce business, there is more to do.
On the marketplace platform, the charge and deposit methods and accounts will need to be changed. The first is necessary for Amazon to charge fees, while the second is where profits get deposited.
Furthermore, the owner’s tax information needs to be updated. Make sure to know which numbers are necessary, so you can continue the newly acquired Amazon FBA business without interruptions.
Lastly, the account name, the associated e-mail address, and the log-in information need to be changed. The account name will be reflected in the Amazon database and signify that the business is now under new ownership.
With these last few steps, the business transfer is done and you’re the new owner of an existing Amazon FBA store.
To buy or not to buy? That is the question. Establishing a new Amazon business is connected with lots of research and work – but so is buying an existing Amazon store. However, if you decide to go the latter route, you will be able to analyse months of existing data, learn from mistakes, and perfect the business model. With these 5 tips, the purchase of your new business should go smoothly and lead to success in the E-commerce world.