Amazon & Marketplaces

How to Sell an Amazon Marketplace Business

Most Amazon sellers have enough on their plates keeping their businesses running and maintaining sales and profits. But no matter how long a merchant lasts on Amazon, there may come a time when that seller wants out: no more purchase orders to replenish inventory, no more customer returns, no more customer emails.

So now what?

To exit an Amazon seller account successfully, a lot of legwork is needed beforehand. An exiting merchant will need to figure out what, exactly, he is selling. What are the unique assets? What is a fair price? What will Amazon think?

… no matter how long a merchant lasts on Amazon, there may come a time when that seller wants out …

Amazon Policy

The most important step of the process is to understand Amazon’s policy, which states, “If the ownership of a business changes for any reason, the new owner needs to establish a new seller account.” Yet the policy also states, “Seller accounts generally are not transferable.”

Note the word “generally.” It is key. It leaves a lot of maneuvering room for any merchant interested in selling his Amazon-based business. During my tenure at Amazon and afterwards, I have seen many Amazon merchants successfully transfer their seller accounts after bringing on another business partner, and eventually selling out their remaining share to that other business partner.

In fact, I have seen this process occur in less than four weeks, when a seller sells her account to another unrelated individual that wants to be running an Amazon.

On the one hand, Amazon understands that an existing seller may have built up extensive product reviews and customer feedback that is valuable to a new seller that wants to get onto the Amazon marketplace without having to spend the time — and without having to develop the processes and expertise — to replicate this sort of input from customers.

Yet Amazon also wants each seller to earn the right to win the Buy Box. This is typically proven by initial strong operational performance — fulfilling orders on time, though this can be quickly earned simply by using Fulfillment by Amazon.

… Amazon also wants each seller to earn the right to win the Buy Box.

Amazon wants each new owner of a seller account to start from scratch and prove itself based on its own performance, rather than the performance of the previous owner. This avoids a new, poorly performing seller taking over an account with Buy Box eligibility and stellar sales history and feedback.

But it is this Buy Box eligibility, sales history, and strong feedback that help make a seller account attractive for purchase. Well-worded purchase contracts of seller accounts now require training from the previous owner and terms to compensate the buyer in case of rapidly changing performance. This protects the buyer, to help ensure that the historical performance of the seller is likely to continue.

With respect to Amazon and its policies, sellers often use experienced brokers, who guide accounts through the transfer process. Beyond that, an Amazon merchant should consider what it is actually selling.

What Are You Actually Selling?

A prospective buyer is presumably looking for a predictable future profit stream. The buyer will pay, as a purchase price, a multiple of those anticipated profits.

So if an Amazon merchant sells a consistent amount of product from reliable suppliers — and complements this with high customer feedback and the ability to list on relevant product categories with Buy Box eligibility — the business may have value to a prospective buyer.

A prospective buyer is presumably looking for a predictable future profit stream.

In fact, for a well-run Amazon seller account that has a strong history of profitable sales, proper operational processes in place, a clean bill of health from Amazon’s seller performance team, and exclusive or semi-exclusive access to high-demand products, it is not uncommon for that company to be sold for a price between 2.2 to 3 times its annual gross margin, plus the cost of resalable inventory.

And if that seller’s products are its own private label products, manufactured through stable partnerships and ripe for further product expansion, the seller account might sell for an even higher multiple.

However, a general merchandiser without exclusive or semi-exclusive sources of product will not likely obtain a decent multiple, given how competitive Amazon is becoming, and given how margins are continuing to be compressed on non-unique items.

For the selling merchant to receive a material amount of cash at closing — 80 percent to 100 percent of purchase price — plus a clean exit with few-to-no terms requiring the merchant to stay on, much preparation is needed to improve the assets for sale, and to get the maximum value from those assets.

No matter the price you negotiate, you likely are selling only the Amazon-based business — access to suppliers and products, historical Amazon performance, covenant not to compete in same space for a certain number of years — rather than a legal entity, such as an L.L.C., partnership, or other corporation.

Preparing a Seller Account for Sale

While the sale of each Amazon account involves different dynamics, the following five steps are critical.

  • Gross margins determine price. The price you receive will largely be driven by your gross margins. Now is the time to remove any unnecessary overhead costs — such as unnecessary equipment, buildings, employees, travel expenses.

Next, develop a carefully designed profitability analysis of each SKU that you carry. Remove unprofitable SKUs from your catalog, or make them profitable by negotiating better supplier terms, or increasing prices, if possible. And get rid of any stale inventory, which can be a major obstacle to a sale.

  • Ensure reliable product sources. Secure contracts to lock in access to products you source. A smart prospective buyer will want to know that it will be able to continue to source your products without disruptions. These contracts help to reduce risks that the new owners will get cut off from your suppliers. If you cannot obtain the contracts, expect to formally introduce the new owner to each of your suppliers.
  • Get your accounting books in order, including at least the past three years of sales and profits. Remove hidden or unexpected liabilities, such as unpaid sales taxes, customs taxes, or unpaid supplier invoices. Cleaning these up now will help avoid future surprises — and hence lawsuits from new owners.
  • Document all of your business processes, including sourcing, inventory replenishment, day-to-day operations, accounting, sales taxes collection and remittance, and any solution-provider relationships you have. All of this helps close the transaction, as well smooth the transition to the new owner.
  • Consider hiring both a lawyer and a broker experienced in the sale of Amazon seller accounts. They understand the special terms to address the ever-changing market for Amazon seller accounts. They will help you with proper nondisclosure documentation with prospective buyers, and otherwise help ensure confidentiality.

The right broker will be able to arrange for proper legal, accounting, tax, and due diligence support. Unfortunately, there aren’t many brokers (or lawyers) who are experienced in the ways of Amazon. So take the time to locate the right person. Don’t jump at the first broker who tells you he can get you a high selling price.

For any well-run Amazon seller business, the first four steps will be in place throughout the seller’s history, rather than implemented solely for a sale.

James Thomson

James Thomson

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