You need something and you need it fast, so what do you do? Where do you start?

For some of us our first instinct, besides going in-store, is to check online. Fast online shopping is a lot more dependable than it used to be. There are a lot more services available that get products to customers as soon as possible but Amazon takes it to the next level. The platform provides businesses a place to sell products online. It’s simple, customer-friendly, and useful.

So what’s the deal behind businesses on the Amazon platform?

On today’s episode of Deal Closers - A Tech & Internet M&A Discussion, I had a chance to talk again to Jason and Ron from websiteclosers.com about Amazon and its business model for other businesses.

[02:02] It turns out that several eCommerce companies turn to the platform to drive sales. Why is it profitable to become an FBA (Fulfillment By Amazon)?

The algorithms on Amazon are going to promote a particular product that’s shipped in two-day shipping or prime shipping over one that isn’t;
If you’re an FBA, it means that they are controlling shipping and they know it’s going to get there in one or two days;
FBAs are easy to operate.

[06:18] What are the two different kinds of FBA sellers?

Those who have their own brand and their own products;
Those who sell other people’s products.

[06:55] Why people choose Amazon as a platform to sell their products?

They can get rich fast;
It’s a lifestyle choice;
The platform has so much growth left, and people notice that.

[07:45] In terms of your end of working within FBA business, how might that be different than other businesses you work with?

It depends on where the FBA business is located – if it’s international, the banks are not going to be involved in those deals, so it takes a little longer to sell the business;
How big the company is, impacts the valuation of a deal, the buyer pool and the time to get the deal closed;
From a diligence perspective, FBA companies are super easy to sell because you’re not faking any of the numbers, it’s all coming straight through the Amazon Platform.

[11:04] How might the valuation process of an FBA company be unique?

We don’t look at them as “FBA Companies”. Rather, we look at them as any eCommerce company, as a brand – we’re selling the brand;
Their only uniqueness is that if they are concentrated on one particular product, it can be a problem and a risk profile because there are buyers out there that get concerned if something happens to the product;
When you have a company that’s highly diversified from a concentration standpoint, that really helps and can impact the valuation;
Also, something that impacts valuation for FBA companies is growth. You want a company to be growing nicely, year over year. You want to go to the market when you are growing, not when you are on a downtrend;
If you have a highly competitive product – how are you competing on the Amazon platform, what makes you different from others?

[17:05] When people are looking to sell their Amazon business for profit, what’s the biggest mistake you see people make?

Not paying attention to their financials;
Not building a foundation and a team;
Thinking that just because they have this great selling product, they’re set.

Resources:

websiteclosers.com

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