Estimating your Amazon Seller Account's worth may be tricky, especially if you are new in Amazon. In this article we will discuss how to calculate the value of your account after a year of trading.
Amazon is the World's largest market place. It attracts in average over 4,81 billion visits per month (Amazon data 2022) and this makes it 4 times larger than eBay,12 times larger than Etsy or AliExpress. It is quite literally a supermarket on super space steroids!
Once you are fully set up and are you are lucky to be trading with good reviews, the Amazon sales simply snowball and tend to multiply month on month. It takes some time but definitely worth it. 💪🏼
Let's unravel a simple way to calculate your Amazon FBA business's value with an example.
The Formula
Business Valuation = Average Net Profit (previous 12 months) x Multiple
Average Net Profit (previous 12 months): This is simply your total net profit for the past 12 months, divided by 12. It's like taking a panoramic snapshot of your profitability, accounting for any seasonal trends or sales fluctuations.
Multiple: Let's take the realistic scenario what you may be seeing after a year. The multiple is typically in the range of 2.0 to 3.0 for most FBA businesses. It is worth noting that in 2+ years it can easily be 25.0 to 30.0. It flexes based on factors such as the age of the business, brand power, growth patterns, diversity of products, and more.
Business Valuation Example
Imagine an Amazon Seller account, just a year old, bustling with 20,000 EUR in monthly sales and celebrating a net profit of 7,000 EUR per month.
Average Net Profit (previous 12 months): As this business is just one year old, the average monthly net profit remains at a robust 7,000 EUR. If your profit is below 1/3 of a sale price - speak to your Amazon account manager as it won't be sustainable on the long run. No business can last long without a healthy profit.
Choosing a Multiple: Given the business's youth, a multiple of 2.5 seems realistic, assuming a strong brand and optimistic growth trajectories. A gentle reminder: fresher businesses might be seen as riskier by potential buyers, and hence, a lower multiple might be selected.
Plugging these numbers into our formula, we get:
Business Valuation = 7,000 (average net profit) x 2.5 (multiple) = 17,500 EUR
So, this vibrant Amazon Seller account would be valued at around 17,500 EUR after a year. Boom! 💥
Selecting the Ideal Multiple
It's essential to be objective and realistic about your business's assets and liabilities. Higher multiples are typically granted to businesses showcasing sturdy growth, diversity in products, an influential brand, and a healthy bunch of positive customer reviews. There are few ways to get positive reviews on a new account to start the snowball effect.
If you rely too heavily on a single product or face seasonality or sluggish growth, you might have to settle for a lower multiple.
Always remember, the multiple isn't just a number but a reflection of perceived risk and future growth potential of your business. You want it to be highest, the buyer wants to have it at the lower end to pay less. The reality is in the middle.
NOTE: This article provides a simple roadmap for valuation. We recommend you consult with a professional advisor or a business broker for a thorough and accurate valuation, EBITDA valuation, considering all the variables that may impact your business's value.
Happy trading,
Audrius