Many Amazon sellers start their businesses hoping to sell them off for significant profits in the future. While Amazon businesses have higher ceilings and can sell for more than six times their annual profit, there’s a lot to consider and avoid to boost their value. We discuss in this blog mistakes to avoid when selling your Amazon business and best practices to increase your brand value. Let’s jump into it!
Before we get started, if you’ve just landed on my blog for the first time, my name is Ian Smith, and I run an Amazon Marketing Agency called Evolve Media.
What We Do at Evolve Media
We help Amazon sellers optimize their Amazon listings with photos, videos, and copy to get their listings converting as high as possible through product photoshoots, video shoots, on and off Amazon marketing, Email Marketing, and Google Ad campaign management.
To book a free strategy and consulting call with us, visit emaamz.com.
If you’re a DIY Amazon seller and want to optimize your Amazon listing on your own, we’ve got a powerful Amazon listing checklist for you at zonchecklist.com. We broke down all of the different sections of an Amazon detail page and created different sales strategies for each area of a listing. You can check these items off as you and your team implement the different sales strategies.
Now, back to the blog.
5 Mistakes to Avoid When Selling Your Amazon Business
This blog is an adaptation of our interview with Jon Elder from Black Label Advisor. They are an Amazon Agency offering consultancy services for new and established Amazon sellers. We discussed the critical mistakes to avoid when selling your Amazon business with Jon. Here are five tips from our conversation about how to sell an Amazon business for a higher multiple.
1. Avoid Revenue Stagnation
Whether it’s an individual, private equity, or aggregator trying to buy your business, one of the crucial factors to measure is how your business has grown over the years. Buyers want to see consistently increasing revenue. They expect a consistent cash flow with no stagnation whatsoever. Having a business that is not steadily growing implies that you’ve given up on your business and that reduces your buyer pool and multiple drastically. A consistently strong growth record of about 50% year-over-year average can boost your multiple big time.
The key to building a steadily growing business is to stay focused on adding value to your business. Most Amazon sellers relax on good practices since they intend to sell their business. You must constantly innovate with new and existing products, improve your end-user experience, and maintain your margins dealing with other sellers.
Your Amazon business multiple is the number your annual profit amount is multiplied when selling your business. For example, if your business has a yearly profit of $100,000, your multiple is how much your business is sold for divided by your annual yield. It can also be used to judge the value of your business. A business worth eight multiples is worth eight times its annual profit amount.
2. Avoid Confusing Financial Statements
Keeping all your financial statements under a single umbrella when you have multiple Amazon brands is crucial. Run your businesses on Amazon under one LLC to give your buyer a complete overview of the assets they’re acquiring from you. Remember, selling your Amazon business does not only include the actual business on Amazon. It also includes every asset, such as design patterns, trademarks, and customer lists.
Having all these in one place makes it very easy for a potential buyer to come in and look at your financial statements and have a quick and easy understanding of how well, stable, and healthy your business is. Naturally, during due diligence, where a due diligence officer is reviewing your financial claims, they will go into your Amazon account and verify everything you say during the interviews. It also helps keep your financials neatly aligned with your Tax records, making convincing your buyer easy.
Amazon will not separate the data from your multiple brands for you. Any revenue you’re making on Amazon is labeled to a single financial report. So if you have to get a separate Amazon account to prevent your future business financials from getting mixed up, you must make a business case with Amazon. However, they may or may not approve of that.
3. Avoid Account and Listing Suspensions
Sellers who wish to sell their business in the future must also do well to avoid account and listing suspensions. Buyers looking to purchase your Amazon business always factor this in their evaluation of your business. An Amazon business that has been suspended or its product suspended in the past loses out on potential buyers. Keep your Amazon business in line with best practices and Amazon Terms of Services to avoid suspensions. Also, avoid all gray and black hat strategies that help you sell more and drive more traffic.
With increased competition in the Amazon ecosystem, it can be hard to do right. And sometimes, these suspensions are not within your control; they just happen and don’t make sense. Regardless, try your best to avoid product suspensions and issues with your account.
4. Avoid Having One Home-Run Product
You also need to avoid building your business around a single product. Buyers have a good interest in businesses with an even revenue spread among their listings. Your business should have products that contribute very well to your revenue, those that barely do, and average product revenues. Not that any of this has to be forced, but that’s expected with most businesses. They have a bell-shaped curve that shows the best and least performing product listings at either curve’s tail.
This is important to convince the buyer that you have innovated across your brand’s entire catalog. A flagship product that carries about 80% of all sales isn’t an ideal business. The failure of that product collapses the business as a whole. If you have a business like that, cross-sell your other products with customers and get them to try the other products in your lineup. And if you only have a single product under your business, then put off trying to sell your business for a little bit, launch other products, and diversify that revenue.
5. Avoid 90-10 Split
Finally, most aggregators or buyers are moving from the 90-10 split, where Amazon contributes 90% of your revenue, and 10% is from Shopify. Now, a more diversified source of revenue helps boost your multiple. Buyers want to see a diversified balance between e-commerce and offline retail shops. A business that generates business from Amazon, Shopify, Walmart, Target, etc., is, therefore, the ideal option.
Most of these buyers realize that buying a brand that’s 99% reliant on Amazon is risky. The more you have a diversified source of revenue, the more attractive and ideal your business is to buyers. Which, in turn, boosts your multiples. Businesses over-reliant on Amazon can leverage social media’s power to diversify their revenue sources further.
Bonus: Be Authentic
Being authentic is your one-way ticket to building a successful business, whether on Amazon or not. Sellers must avoid the usual and create content that resonates with their brands and audience. Don’t be a faceless brand; tell your brand stories and form your own opinions. This is helpful for shoppers to associate with and purchase from you.
These are some of the crucial mistakes to avoid when selling your Amazon business. Avoiding them can be challenging, but they are a sure way to earn more if you’re building an Amazon business to sell. They are also helpful in generating more revenue, increasing your conversion rate, and building a successful brand on Amazon.
We hope you found value here. If you want to discuss these, reach out on a FREE consulting call, and we’ll be available to help. We also have a FREE Amazon Listing Checklist that should boost your conversion rates. Thanks for reading!