What makes a good Amazon Acquisition for an FBA aggregator?

Jan 19

The FBA aggregation is trending on Amazon, which might be due to the statistics you have not yet come across. According to the report of Empire Flippers, in the second quarter of 2020, there were over 43 Amazon FBA businesses sold. These businesses had a total monetization of $42,500,473.60. Also, there were over 51 businesses sold in the first half of 2021 at a total of $69,079,854.22. It shows a clear trend of the inclination of investors towards the FBA aggregation. There had been over 19% rise in sales of FBA businesses which resulted in an over 63% increase in total sales volume.

Source: Empire Flippers

The total sales of the FBA businesses are considerably high, which results in market attractiveness. Many FBA acquirers like Thrasio and Perch have made billions of dollars by making profitable investments in the FBA businesses.

There are vast opportunities that these aggregators are exploring to make investments that can result in increased profit for their investors. It can also be challenging for them to evaluate the businesses before adding them to their portfolio critically. These aggregators can bring enormous resources and opportunities for your business which is why you should consider selling your business to them.

There is a need to understand the common facts which attract the FBA aggregators. These FBA aggregators are not interested in every business; rather, they are looking forward to making the best choice for themselves. The following factors appeal to the aggregators and fulfill their expectations.

High profits

According to a report by Amazon, the surveys conducted by different companies reveal that an average FBA seller makes money between $1,000 to $25,000 in a month's sale. The average profit margin of the seller is around 10 to 20 percent as the Amazon FBA seller, which means that they make $100 to $5000 in a month. It can be a good amount to earn for an average start-up.

Source: Amazon Reboot

Amazon FBA aggregators are looking for businesses with high-profit margins to add to their revenues. FBA businesses save money by outsourcing some of their operations like inventory, delivery, and packaging to Amazon at a low cost. It helps them gain a competitive advantage in the market and increase their profit margins.

It can be said that a profit margin of 15% can be a good baseline for the Amazon aggregators, which will encourage them to invest in a business. Still, a business should increase its profit margin as high as 30% to make itself more appealing to the aggregators.

Qualified status as FBA account

Not every Amazon account needs to be an FBA account. The account can also hold the Amazon FBA private label or use any internal fulfillment solution. What's important in this case is to improve the brand's flexibility and develop a qualified status of your account to make it more attractive for the aggregator. If the business had poor reviews, low profits, and immature status, it is unlikely to gain anyone's attention.

Sustainable demand

One important thing that the aggregators consider is looking for the brand whose demand is steady. For example, if there is a fashion brand focused on fads, then it is likely that its profit margin will fall in the future due to reduced demand. There is a need to profit with a durable trend that will stay in the market for a long time.

According to a report by Statista, the most sold product category is electronics which comprise over 44% of the sales on Amazon. The second-largest category for sales is clothing, shoes, and jewelry which contributes to 43% of sales at Amazon. It means that the investor is most likely to purchase in these market segments that have a high demand in the market.

Customer satisfaction

For any business, customer satisfaction and loyalty are very important. If an FBA business has a repeated customer base, then it is likely to make more sales in the long run. It is one reason why the Amazon aggregators lay a high emphasis on this parameter.

One indicator of customer satisfaction can be the product's rating on the brand account. The customer can give a rating from 1 to 5 to the brand after purchasing its product. Does the question emerge: What type of rating will be more appealing for the aggregators? If you are trying to sell at a higher price, you need to have a rating of 4+. Otherwise, the aggregator will not be interested in your product.

One reason why the rating is considered more important by Aggregators is that it helps them determine the customer loyalty, retention, and success rate of the business for the future. Therefore, it can be the first thing that the aggregator might look at while evaluating your FBA business. Thus, you better need to work on improving your ratings.

Variety of SKUs

One thing that is ignored by most sellers but is recognized by the FBA aggregators is the SKUs offered by the business. Few aggregators prefer to have the multi-SKU business as they can cross sell within their product category line. It means that a brand needs to sell more products and expand its niche to attract large FBA aggregators. FBA sees the SKUs as business opportunities that can help enhance their sales, which is why they are considered important for them. You should keep expanding your niche and keep offering more SKUs to get at the top priority for Amazon aggregators.

Ethics

Even if your sales are exceptional, but the way in which you are achieving high sales is unethical, then you might lose the game. Many sellers use the black hat tactics, which violate the Amazon rules. If an aggregator accidentally purchases such a brand, it can be exposed soon and cause negative PR for the business. For that purpose, the aggregators look into how the business increases sales before purchasing it.

It can also include buying a business that strictly follows the terms and conditions of Amazon. For example, if the business is not following these terms and conditions, the account may be blocked in the future, causing huge losses to the FBA aggregators.

Primarily Amazon sales

A business can have multiple channels through which it generates its revenue. The FBA aggregator can appreciate this multi-channel strategy, but they usually target businesses with predominant saturation of more than 70% on Amazon.

Thus, if you are thinking of selling your business to an FBA aggregator, you need to make your business compatible with all these strategies. An amazon aggregator is not only looking forward to acquire the business which seems to be profitable; rather, it would be looking at several other factors which can result in long-term success of the aggregator and business. It includes the factors like qualified status of the brand, stable demand in the market, high customer satisfaction and loyalty, variety of SKUs, strong business ethics, and major saturation in Amazon platform. These factors determine the long-term success of any business in the marketplace of Amazon which have intense competition. Hence, sellers need to develop strategies to enhance these factors for their business.