Putting a Value on an Amazon Company

Over 2 million people sell on Amazon via their Seller Central platform, making each one of those accounts an asset that has value and can be sold. A business owner should have an accurate understanding of the current and future value of that company to plan an effective exit strategy. 

In small business transactions, earnings remain a primary factor in getting business value of Amazon seller accounts. A high gross sales figure isn’t always equivalent to a large Amazon business value — profit is generally king, and the higher the profit, the better the Amazon business values. 

When talking about how to value an Amazon business, bear in mind that net profit isn’t the only consideration. We will discuss the various considerations during the appraisal process of Amazon FBA businesses.

Understanding Amazon’s Business Ecosystem

From a small online bookstore started by Jeff Bezos in 1995,  Amazon has become a tech giant that built its own ecosystem. Today, it encompasses ecommerce (Amazon.com), entertainment (Prime Video), B2B distribution (Amazon Business Seller Program), payments (Amazon Pay), cloud services (Amazon Web Services or AWS), and more. 

The company’s strategy focuses on catering to various customer needs, developing innovative in-house technology, and commercializing it, as demonstrated by Amazon Web Services (AWS). 

The ecosystem adopts a long-term approach through encouraging customers to stay within the platform, such as how Alexa integrates with smart devices like security cameras and smart glasses. 

This interconnected approach strengthens Amazon’s market presence across diverse industries, making it a tech and e-commerce titan.

Key Factors in Valuing an Amazon Company

Profitability is the main driver that affects Amazon business valuations. However, business brokers also look at other aspects that are bound to affect the sales price and marketability:

• The sales price will depend on the popularity of the industry.
   
• Those based in the U.S. and without issues in compliance and accounting will get a better valuation
   
• A track record that shows stability commands a good value.
   
• A business is given a higher valuation when it reaches consumers beyond its borders.
   
• Minimal-to-autopilot involvement will surely attract buyers.
   
• Ideally, it’s advisable to have a good number of product categories.
   
• Offering specialty items and proprietary products. Also having unique supplier relationships makes an Amazon business appealing.
   
• Positive, and most of all, authentic product reviews are increasingly important.

Unique Considerations for Amazon Companies

In an Amazon business, an asset sale includes everything involved in the transaction, such as the Seller Central account, website, business relationships, customer service, and operations. During the sale, the buyer will only acquire the assets, leaving the seller with the company’s liabilities.

Who’s going to purchase your Amazon business? The typical organizations that make such purchases are the following:

• Fellow Amazon Sellers: Existing sellers expand by purchasing additional businesses or product listings, often with minimal extra workload.
   
• Career Switchers: Professionals, often from finance or engineering backgrounds, looking for flexible, low-hour business ownership.
   
• Boutique Private Equity Firms: Small firms raise $2-$10 million to acquire and scale Amazon businesses.

Due Diligence Process

When acquiring a company, part of “how to value Amazon business” is due diligence — an important phase for the buyer that determines whether a seller account is a worthwhile investment.

This step enables potential buyers to understand the business they plan to purchase. Skipping this step can expose them to unexpected challenges that could create huge roadblocks toward their success.

A comprehensive evaluation can be achieved when buyers focus on several fundamental areas during due diligence:

• Review of accounting methods
   
• Verification of financial statements with third-party sources
   
• Assessment of addbacks
   
• Examination of relevant documentation
   
• Analysis of market trends and competition
   
• Evaluation of KPIs
   
• Inspection of supplier contracts
   

This thorough examination on “how to value an amazon business” helps identify potential risks and ensures a smoother transaction.

Risks and Challenges in Valuation

How to value your Amazon business is a task far too great for a sole business owner. You’ll need business brokers, such as the team from Website Closers, to help.

Firstly, seasonal fluctuations can obscure a business’s typical performance, making it vital to analyze at least 12 months of data and use a trailing twelve months (TTM) approach. 

Amazon’s frequent policy changes also affect valuation, so it’s important to review their impact and assess the business’s adaptability. 

Finally, the transferability of the business can influence its value—consider how easily supplier relationships can be transferred, the brand’s reliance on the owner’s reputation, and the complexity of operations for a new owner.

Tips for Maximizing the Value of an Amazon Business

• Increase income streams: Introduce new products or services, increase customer lifetime value, explore various related industries, and create customer obsession.
   
• Lessen the risks: Perform a SWOT analysis that reveals vulnerabilities, address any single points of failure, and evaluate how dependent the business is on you.
   
• Ensure smooth transitions: Turn your business into a customer-centric company and solidify relationships with suppliers, and build a brand identity that doesn’t solely revolve around the owner.
   
• Hone documentation: Keep your business organized by thoroughly maintaining essential documents like financial statements, contracts, and trademarks, which are vital for showcasing the business’s value and ensuring seamless operations.

Valuation Methods for Amazon Businesses

When talking about the topic “how to value my Amazon business”, we at Website Closers share some of the methods we generally use.

• Earnings before interest, taxes, depreciation, and amortization (EBITDA)
   
• Discounted cash flow (DCF)
   
• Amazon valuation multiples

A broker that focuses on online businesses like WebsiteClosers.com, can be a great step in the right direction to achieving the highest multiple and highest cash at the closing table. And what’s more, everything we do is success-based – so you pay nothing until we’ve closed your company.

Give us a call at (800) 251-1559 or email us at [email protected] to learn more about our process. You’ll be glad you did.