An Amazon FBA is a business setup where the seller gets to choose what products to sell, find a vendor, order the products, package, and ship the product to the buyer.
While it has pros and cons, the FBA business is an enticing one. So, if you’ve decided to buy an FBA business, and are wondering how to go about it, you’re reading the right post. Here you’ll see the Amazon FBA business buying process as well as how to perform due diligence.
The Purchase Process
Buying an FBA business is fairly simple. Many brokers serve potential buyers looking to buy an FBA business. These amazon business brokers are reliable and will help you in negotiations and acquisition of a business.
It is important for sellers and buyers alike to perform due diligence and leave a window where they can make changes to the initial proposal if need be.
Performing Due Diligence On FBA Businesses
An in-depth analysis of an FBA business is the same as that of any other business. It is important to check the historical sales of the company, its contracts, and its financial state.
The major difference between Amazon FBA businesses and other traditional businesses is its sales channels that make it more profitable. The FBA business platform comes with a full and complex system with algorithms that you must understand.
For instance, Amazon’s A9 algorithm determines how products rank in search engine result pages, which plays a critical role in the long-term success of an Amazon business.
Based on the specific keyword that a customer makes on Amazon, the A9 algorithm determines the most relevant products. It determines product relevancy by looking into the following:
- Sales history
- Sales velocity
- Conversions
Due Diligence Checklist
Performing a comprehensive analysis of the business you’re looking to buy will help make an informed decision. Consider these suggestions when performing due diligence:
Check the Accounting Records
Accounting records, including the balance sheets as well as profit and loss statements, gives an accurate and elaborate picture of how a company is run. By looking at what a company spends its money on, you’ll get a clear picture of what the company considers important. It is your basis for determining whether buying that company is a worthy investment.
Inquire About the Suppliers
Suppliers are an essential part of any business. Agreements with external merchants play a key role in the success of a business.
When looking into supplier agreements, be sure to dive not only into understanding the contracts but also the lead times and unforeseen costs. Be sure to talk with the manufacturer so you can get an idea of what it will be working with them.
In your discussion, consider the following:
- Lead times
- The Quantity price breaks
- Manufacturing standards
- Material costs
Understand Fee Payments
As mentioned earlier, it is essential to get to know the way the Amazon FBA works. Amazon sellers pay a certain fee to Amazon for listing the product on Amazon. Depending on the type of product, the fees vary.
The main thing to consider is whether the fee payments are accounted for in the company’s income statement. Failure to look into these fees might lead to a highly overvalued business. To know more about these expenses, be sure to look at the transaction data in the payment records.
Consider the Historical Advertising Data
Amazon keeps advertising data for up to 90 days, so it is important to find as much about a company’s advertising history.
Inquire as much information as possible as this information will help you to know about the main keywords for the product. Be sure to look at how past campaigns performed.
Research the Promotion History
Get into the FBA account and check for promotions thoroughly. You can get this report in the fulfillment section and has numerous information on each redeemed promotion. By giving away products at a lower price, sellers are able to get many new customers and sales organically.
Know Your Competition
Another key thing you should know is your competitors. Research your competitors by looking at their product reviews, prices, and who fulfills their orders.
There are many tools you can use to get a wider picture of the competition environment. For instance, Amazon’s A9 algorithm is based on velocity, meaning low-priced products are bound to do better.
Look into the prices to see whether they are manageable and whether they’ll give you a good margin.