There seems to be a never-ending growing interest in selling Amazon businesses and there’s no end in sight. However, Amazon sellers continue to be underwhelmed by offers in the marketplace. Why does this keep happening? Unfortunately, the vast majority of Amazon sellers are not properly optimized to sell. In fact, many are in a bad position to sell but are left wondering “why?” It’s important to break down what makes a brand on Amazon attractive to buyers and what scares them away.
Historical Sales and Forecast
Let’s be honest, buyers care about your profit more than anything else. At the end of the day, the multiple you will receive for your business will be mainly based on this financial data. Buyers will typically want to look at the last two years of tax returns and see a breakdown of the seller’s SDE (Seller Discretionary Earnings). Going deeper, the potential buyer will also want to see the net profits of each product currently being sold on Amazon. From a 30,000-foot view, buyers want to see a strong 50-100% YOY growth in terms of revenue and strong historical net profits for the business. All trends need to be moving in the positive direction. Any retreat seen on paper and buyers will not want to touch the business. They will also look at your internal forecasting financials for the next five years. Yes, these are estimates, but an astute buyer will know if your estimates are fantasy or realistic. Buyers want to see a growing, thriving business. It’s important to ensure this is the case before listing an Amazon business for sale through a broker.
Strong Brand Presence
By far, the most important factor that buyers are interested in when looking at an Amazon seller’s business is their brand presence. Sellers need to understand that buyers are not simply looking at their brands as selling on Amazon alone. They typically have aspirations to expand into markets like Walmart, direct to consumer websites, and big box retail. So, establishing one’s self on Amazon a category leader is vital to acquiring a strong buyer. Things like professional photography with models, strong video production, and enhanced brand content are very important to buyers. Also, seamless branding across the board is important. Ensuring that all logos, font type, and brand story are aligned is very attractive to a buyer and will help drive up the multiple for an Amazon business.
Healthy Revenue Spread
One of the worst things an Amazon seller could do is rely on a home run product and have a catalog of products selling a fraction of its revenue. This is simply just too risky for most buyers. Buyers want to see a nice, even, revenue spread across all your product lines. Reason being a buyer wants to hedge against cash flow being disrupted. If there is strong revenue across the board, if one product goes out of stock or experiences margin compression, the overall revenue for the business will remain strong as all the eggs were not in one basket. When a seller is thinking about positioning to sell in the future, it’s vital to strategize a bit and add new product lines if necessary.
Intellectual Property Protection
One of the biggest challenges any seller on Amazon will face is copycat sellers and hijackers attacking their product listing and forcing the seller to inevitably reduce the selling price. Therefore, causing net profit compression. Thankfully, one of the most powerful tools to combat this is something called a design patent. Design patents protect your unique designs and ideas but not the original idea itself unlike utility patents. Take radios for example. A radio is a common technology and is not protected by law for the original inventor of it. However, if you happened to stumble across a unique idea to design radios and start selling something truly new in the market, filing for a design patent would make sense. Once the design patent is in the seller’s hands, it would provide ultimate protection from other sellers attempting to copy the design idea. If a copycat seller attempts to sell the same design on Amazon, all the design patent holder has to do is submit this infringement claim to Amazon and they will remove the infringing seller. Buyers of Amazon businesses love design patents because it affords them extra assurance that their business is protected for the long term and is a hedge against competitors trying to copy their products. A recommendation would be to file for design patents on the top grossing products and use that as a selling point when negotiating with buyers during an exit.
Sellers can take great solace knowing that if the above strategies are used in their business, that not only will they see larger multiples offered by potential buyers, but will see a higher rate in offers in general. Selling a business after years of hard work deserves a lucrative offer. Instead of relying on one’s emotion, focus on business fundamentals and ensuring the business is optimized for the largest exit possible!