When you explore different online business opportunities, one of the first recommendations you’ll find is selling through Amazon FBA because it is the most prevalent way of making money or Amazing Selling Machine review Before moving forward, first we need to have a better understanding of FBA and exactly what it is about. Fulfillment by Amazon (FBA) is a program where Amazon fulfillment centers handle storing, packing, and shipping orders along with returns and exchanges. E-commerce planners are also looking into it for its benefits.
You can send your products to these centers with selling fees and monthly costs. The rest of the work of shipping, customer service experience and tracking is handled by the team. This results in allowing you to scale your business.
How to Value an Amazon FBA Business
In order to value an Amazon FBA business you need to look at its financial picture. You need to study the aspects that contribute to its valuation and define the suitable multiple. For other Amazon’s businesses the Seller’s Discretionary Earnings (SDE) is used to determine the net income. FBA businesses are also valued using a multiple of seller discretionary earnings.
About SDE
SDE is basically the profit that is left to the business owner after all the goods have been sold and the operating expenses are subtracted from the revenue. In this method owner compensation can be added back. A new owner could also elect to eliminate or reduce. This will help discover the right earning power of the business. There’s a proper formula to SDE. In order to value an FBA business, you first need to calculate its SDE and then create a multiple to apply to it.
The multiple that you will apply to it is very important and is affected by loads of factors related to the business. Those factors are sustainability, business’s transferability, and scalability.
Factors affecting the multiple
- Financials
- Operations
- Customer base
- Niche
- Valuation matrix
To find the earnings multiple
Your FBA business is more likely anywhere between 3.5x – 6.0x the business annual profit. It is a wide range. Let’s take an example to make you understand the concept. For instance if you are making $100k in profit every year then the potential value range will be $350K – $600K that is a huge number. The multiplier is affected by the factors that are mentioned above.
It is further affected by some particular factors as well
- Age of the business
- Owner involvement
- Concentration
- Revenue trends
- Control of product
- Seasonality
What makes an Amazon FBA business more valuable
- Best seller rank
- Brand site
- Suppliers
- Lead times
- Terms
- Operations
- Product mix
- Advertising
- Amazon associates
- Competition
How to make your FBA business more attractive to consumers
- Use FBA to broaden your customer potential base
Prime customers are the big Amazon spender because they spend about $1,300 a year and an average Amazon customer spends $700 a year. Numbers are too high in Amazon prime customers. By using FBA you basically offer the customers to use their benefit of prime shipping.
By offering prime shipping you are attracting a totally new audience who are willing to almost double the average. By increasing the traffic you are technically increasing the chances of converting the sales. , Ecommerce planners have also speeded up their work in analyzing customer discernments to optimize the experience.
- Use Amazon’s trusted names to attract customers
FBA handles storing, packing, and shipping orders along with returns and exchanges. And this has increased customer’s trust on the product and its reliability. You can use FBA to cash in on Amazon’s well-established levels of customer service and contentment. Since FBA is doing most of the work, there will be fewer burdens for you and more work for FBA which is a good thing. This results in allowing you to scale your business.
- FBA can be used to buy the elusive buy box
The algorithm on which Amazon works mostly prefers FBA sellers. The “buy box” is basically a box next to listings that gives the option to customers to click “buy it now” or “add to cart” rather than going through a list of sellers offering the same thing. To win the buy box all you have to do is to use your stats as an FBA seller.
- Use FBA to rise your product’s search placement
This is also very important because every time a customer types the name of the product in the search bar it will be shown in a list of other similar products. Customer will think that those products are more related than products on the other page of results. Another profit of using FBA is that the FBA sellers are tend to rank higher in the results. Key is to use the right keyword and this will make your product stand out among the others.
While the other sellers who don’t use FBA are relying only on keywords to help them get noticed. If you look deeply into the facts you’ll know that FBA is a better approach on Amazon if you really want your business to be successful. Ecommerce planners have also speed up their work in analyzing customer discernments to optimize the experience.