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March 23, 2022
How to Grow Your Amazon Brand for a Successful Exit
by Benitago (Multiple 8-figure native Amazon sellers, now acquiring other brands!)While not many entrepreneurs start a venture thinking about how to successfully exit it, planning your exit from your business should be among the things you think of when your business starts to take off. Doing so does not imply that you intend to sell your business in the future—it simply ensures that your business is ready for sale if you ever need to make that decision.The end goal of making sure your business is attractive to Amazon FBA aggregators is to maximize your profits by streamlining your processes. But how do you do that? Read on to find out how you can grow your brand for a successful exit.
Part 1: Preparing Your Business to Start Selling on Amazon It's important to start evaluating your processes early on in your business's lifespan. Here are some things you should consider.
1) Private Label or Proprietary ProductsBefore you start selling on Amazon, take a step back and decide whether you want to follow the private label route or sell proprietary products. While it may seem like your sales records should be the only factor for success, that's not true.Many—if not most—aggregators prefer private labels. The biggest reason being that they're able to minimize the possibility of oversaturating the market and lowering the cost per product acquisition. At the same time, it's easier and less risky to manage private labels than proprietary products. You'll be able to control all aspects of your brand, including costs and quality.Bear in mind that Amazon aggregators aren’t interested in reseller business, so choose wisely.
2) Registered Trademark or PatentRegister your brand with the United States Patent and Trademark Office (USPTO). Why? If you own a trademark or patent for your brand, you'll be able to prevent others from using it. This is important when an aggregator is trying to acquire your business, as they're unlikely to buy a company that doesn’t own all the rights to its products and processes.Registering your brand gives you legal protection from a competitor or a third party who may try to use your brand or sell your brand’s products. Most importantly, the USPTO allows you to take action against anyone who violates that trademark. The best time to register your brand is before you even start thinking about selling it. This way, you're protected against resellers. To help you scale your sales potential and exit multiples, sell patented and trademarked products. Tip: Amazon now created IP Accelerator, which allows you to apply for a trademark and get approved for Amazon Brand Registry (which gives you a lot of selling privileges) without having to wait until the trademark is approved.
3) Account HealthYour account health will make or break the sale of your business. Most buyers prefer accounts that would not require too much time and energy to be put to rights.Maintaining account health is more than just removing products with poor performance. It's about ensuring there are no negative notes in your account, such as flagged products, bad reviews, or open disputes. To prevent this, work on establishing a good relationship with Amazon from the start, avoiding bad reviews, banned products, etc. It's a good idea to take a closer look at the Amazon TOS. The guide walks you through everything you need to consider to ensure that your account health rating (ACR) is impeccable.
4) Ensure Product ComplianceAmazon has a long list of product compliance rules you should be aware of before you start selling your products. For example, if you sell products that need to be certified for safety, make sure they are. Avoid selling weapons or any other kind of regulated product on Amazon. If you decide to sell them, make sure you have all the necessary paperwork.Research your products’ ingredients. If they're natural or organic, update your listing and add them to the Amazon Verified Ingredients List. Again, this is something you should do before you start selling.
5) Learn How to Manage Your FinancialsIf you have a business that generates decent profits, you need to learn how to manage your financial records. This will show potential buyers that you're financially stable and capable of meeting any obligations. If and when you decide to sell your business in the future, buyers will look at your financial records first. Your records should reflect everything from the cost of production to the profit margin each time you run a sale or discount.For example, your books should represent your ACoS each month. In this case, you should keep in mind that a monthly ACoS of 60-70% when you first start is completely normal. However, as your advertising strategy becomes more efficient, it should drop to around 20-30%.
Part 2: Scaling Your Amazon FBA Business to Be Exit-Ready Now that you've dipped your toes into selling on Amazon and know what to do when starting your business, it's time to scale!
1) Focus on Growth Instead of Launching New ProductsAs an Amazon business owner, you have many responsibilities, and one of the biggest is determining which products to sell on Amazon.If you're focused on growth and trying to cover as much of your market as possible, it's easy to go overboard with the number of products you're adding. This can lead to many risks and potential problems for your business in general.For instance, adding more products doesn’t guarantee more sales. When this happens, you’ll be stuck paying for additional warehousing and inventory fees. Not to mention, you might need to sell the excess inventory at a loss further down the road.When it comes time for an acquirer to take over, they'll want a stable business with plenty of growth potential. As such, it's important to breathe and take stock of the products you already have.Instead of adding new ones, think of ways to improve your current product list, especially if you're earning a decent profit from them. This way, you can avoid making mistakes and minimize the risk of overstocking inventory that might not sell.
2) Invest in Seller Tools Such as ManageByStatsIf you're serious about scaling your Amazon business, invest in high-quality seller tools. By doing so, you'll be able to monitor and analyze the performance of your products more easily. ManageByStats’ tools can help with the optimization of your product listings. It won't cost you much, but it's a worthwhile investment that’ll make a massive difference in how well your business performs. ManagebyStats was the first software we ever used at Benitago and has been key to measure our KPIs and profitability to grow on Amazon.ManageByStats helps Amazon sellers with the following:
- Streamlining review requests and implementing an advanced email auto-response strategy using their SellerMail feature.
- Creating a detailed view of your PPC spending, including bids, campaign boosts, and more, through their advertising manager.
- Their product listing optimization tool helps you catapult your sales and conversions. It also makes it easier to ensure your copy is designed to convert viewers into buyers.
A suspended Amazon Standard Identification Number (ASIN) is a red flag for any Amazon business. Most aggregators avoid businesses with any suspended ASINs, as it can be a tedious process to remove them. Amazon aggregators are especially strict when it comes to suspended products because they're easy to spot and cause buyers to question the authenticity of an Amazon seller. If you have an active ASIN suspension, the best way to address it is by contacting the Amazon seller suspension team. You'll need to draft an Amazon seller suspension appeal letter. Here's how you do it:
- Address Suspended ASINs
- Identify the cause of the suspension.
- Admit your mistake.
- Express the immediate action you plan to take to correct the issue.
- Explain what you plan to do to prevent the root cause from happening again.
4) Prepare a 1-Year Exit PlanAt this point, you'll want to be as prepared as possible for an acquirer to take over your business. This means developing a plan on how you'd like things to proceed after the acquisition. Here's what you should do:
- Set clear objectives.
- Write down a list of product categories you have a chance to dominate.
- Include a clear timeline of when you'd want to make your exit.
- Think about what your plan is after you exit. For example, consider whether you want to stay in the business after the exit or make a clean break.
5) Streamline Your BusinessNo Amazon buyer wants to handle a complicated business. In addition, it can be time consuming for them to manage. As such, it's important to streamline your business processes.Make sure that every aspect of your business is as simple as possible. Think about keeping your products in the same category and using the same brand name. This way, the buyer won't have to go through a lot of trouble to keep your business running smoothly. Here are a few tips for keeping your business operations simple:
- Reduce your stock-keeping units (SKUs).
- Don't sell on marketplaces that don't perform well.
- Ensure that your storefronts display only relevant SKUs.
- Establish clear guidelines for your SOPs for business processes.
6) Reviews and RatingsOne of the most important metrics for your Amazon business is reviews and ratings. This is because it's one of the ways to establish how genuine you are as a seller. Reviews show potential buyers that you're an authority in your industry, and this can inspire buyers to trust you. As such, if you're selling high-demand products, focus on providing outstanding customer service and engaging with your buyers.
Part 3: Getting Ready to Sell Your Amazon FBA BusinessNow that you're ready to make the jump from being a hands-on business owner to selling your business for a profit, there are a few things you need to consider before starting the process.
1) SDE and EBITDAYour seller’s discretionary earnings (SDE) and earnings before interest, taxes, depreciation, and amortization (EBITDA) are two of the top metrics aggregators look for before buying a company. This is because they reflect the value of your business and allow them to see whether or not you're worth investing in.Ensure that your SDE is large enough to give you a great margin while still making the business profitable. If you have too much debt, it's preferable to refinance so that your SDE can cover all incoming payments.The best way to calculate your SDE and EBITDA is by using profit accounting software that can handle calculations in real-time, such as Quickbooks Online and Xero.
2) Identify Add-BacksAdd-backs play an essential part in the sale of an FBA business. They are expenses that the former owner had that the new owner won’t have to pay. A business's value is greatly enhanced by adding these costs, which boost its net profit and thus its final sale price. In a nutshell, failing to comprehend eligible add-backs is akin to squandering money. Here are a few types of add-backs that you can apply:
- Personal expenses.
- Owner salary.
- Business expenses.
- Lawsuits, severance, and compensation.
3) Inspect Your Supply Chain and LogisticsBefore you approach potential buyers, it helps to make sure that your supply chain and logistics are optimized. This can include everything from ensuring your fulfillment process, shipping operations, and warehouse can handle large shipments, to making sure your packaging and labeling are suitable for Amazon.
4) Prepare SOPsTo make sure that your business runs as smoothly as possible, create SOPs and a clear plan for operating your business. The more organized you are, the better it is for your buyer. You might also want to consider hiring a full-time manager, as this will make the transition much smoother. In addition, make a list of every employee in your organization and their contact information so your new owner can reach out to them if needed.
5) Buy-Out the Second OwnerIf your business is co-owned by anyone, it's a good idea to buy them out of their shares before you sell your business. This helps save time and eliminates the need to split revenues when selling your company. You can typically buy them out with a combination of cash and debt.
6) Employ a CPA with Experience in Amazon FBAYou must hire a certified public accountant who focuses on FBA businesses. When you sell your business, the accountant who helps facilitate the deal needs to be able to handle all of the bookkeeping and financial statements.
7) Increase Margins and Get Rid of Products That Aren’t SellingJust before you put your Amazon business up for sale, it’s a good idea to take one last look at it and find any potential kinks in your system. For example, you might have some listings that aren’t doing as well as others. Before you sell your business, you might want to consider changing the listing price of these SKUs to give them a chance to sell more or get rid of them entirely so that only top-performing SKUs are visible when an aggregator takes a closer look. By the Benitago TeamAbout: Benitago was started by 2 computer science students, Ben and Santi, from their college dorm rooms. They grew multiple brands from 0 to 8 figures and are now using their experience and data driven approach to acquire and grow brands on Amazon. Benitago can give you a free business evaluation in 24 hours, just reach out to Kris, our head of business development, at email@example.com.