It’s a great time to be in the Amazon FBA space. If you’ve been selling on Amazon for a while and are now looking to grow and scale your business, there are plenty of things you can do to take your business to the next level and add value to it.
Alternatively, if you’re looking to sell your Amazon storefront altogether because you feel like you’ve made the most out of it, you will want to make sure you add as much value to it so that you can sell it at a good high price when the time comes.
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How to Calculate the Value of an Amazon FBA Business?
A very important part of increasing the value of your business is to first know how much it is worth so that you can plan your course of action accordingly. Some of the crucial metrics to be used during your business valuation are SDE (Seller Discretionary Earnings) and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
SDE is fundamental to calculating net income and therefore fundamental to business valuation. The expenses under SDE include Amazon fees, cost of goods, shipping costs, advertising costs, etc. However, it can be used only when the revenue lies in the bracket of $5-$10 Mn or lesser.
SDE = Revenue – Expenses + Add-backs
EBITDA is used for the valuation of businesses whose revenue exceeds $5-$10 Mn. It is based on your sales revenue and future business projections provided your business proceeds to grow at its current pace. The value of your Amazon FBA business can also be measured by analyzing net assets, excluding liabilities, and analyzing cash flows, excluding any risks.
You can calculate your business valuation using this basic formula:
Amazon FBA account value = annual profits X (multiple of 3-4) + cost of inventory
Ways to Increase the Value of Your Amazon FBA Business
Eliminate Underperforming Products
Take a look at your product catalog and analyze it to see how each SKU is performing. This is important because it lets you decide what products to retain and continue selling and what to discontinue.
At the time of valuation, a buyer looking to purchase your business is going to be interested in looking at a few SKUs that are generating high revenue instead of a large portfolio of products.
If there is some amount of stock that you’re finding hard to get rid of at the time of selling your business, it could act as a hindrance to the process. Therefore, it is important to rid yourself of all the products that are underperforming and contrate on the ones that are bringing you only good profits as this is key to increasing the value of your FBA business.
Expanding your product catalog by adding new products to it works very well towards increasing the value of your FB business. However, adding any and every product is not going to help, you have to choose new ones very carefully.
While adding new products, they don’t necessarily have to be brand new types of products. They should be ones that are suitable to the audience that you’re already catering to as it puts you in a good vantage point.
You should sell products that belong to subcategories of your main category or those that are complementary or related to your main product line. Also, look at products that have good demand all year round. Demand and supply are important factors and you should focus on expanding your catalog with those products that are capable of increasing your profits consistently. This undoubtedly increases the value of your business.
Formulate Solid Marketing Strategies to Add Value to Your Brand and Business
Promoting your brand the right way is important to enhance its business value. Effective marketing of your brand works towards improving brand loyalty among customers as well as growing your customer base.
When we talk about marketing, we’re not referring only to on-site marketing with the help of Sponsored ads. Sellers must utilize all different platforms available for marketing including YouTube, Facebook, etc so that a good brand presence is established on as well as off Amazon. It will help you gain more customers and build a sense of loyalty amongst your customers while adding value to your FBA business.
Branding, Exclusivity, and High-Quality Products
If your business offers unique products to customers, it gives you an edge over your competitors which in turn gives you an edge with buyers as well.
Unique products can become Amazon’s best sellers and the best way to increase the value of your business is to expand your product portfolio to include high-quality, unique products.
Besides selling unique products, another thing you can do is to build your brand name. We have already discussed earlier in this article that marketing your brand aggressively on different platforms gives your value a boost.
If you’re a brand owner, another method is to register your brand on the Amazon Brand Registry as this builds your credibility and protects your brand and its products from fraudsters who make copies of your products. This kind of protection and consolidation increases your business value threefold.
Check out this video to know about the Amazon brand registry:
There are several things that you can do to bring your FBA business value up to the highest mark possible. Whether it is to sell your business or to simply scale and expand, data is key and you need to analyze all the possible ways that you can grow your business and then narrow down on the best one.
Conduct enough research, do the right amount of product research before launching new products, develop good marketing strategies and constantly check up on the performance of your business. It’s the only way to stay on track and ensure you’re scaling up the right way.
Arishekar N, Sr. Director of Marketing & Growth at SellerApp, is a specialist in digital marketing, in addition to website keyword optimization for search engines. His areas of expertise include enhancing the organic & paid ranking of web pages on search engines with innovative SEO & SEM strategies and online promotions.