On this episode I talk with Coran Woodmass from The FBA Broker.
We used zoom.us to record rather than my Mac skype recorder as for some reason we couldn’t add each other – the quality of this audio isn’t as great but was cool to try.
We discuss:
- How and why Amazon listings and sales has exploded
- Some owners are selling themselves but it’s far better to protect yourself through a broker and to access their buyer pool unless you are super experienced
- The FBA Broker has a minimum requirement of $100k-200k SDE / cashflow (annual net profit) and the site can’t be selling a super generic product, it needs to be defensible to competitors.
- If an FBA site does offer super generic products then you have to be super aggressive in launching new products.
- FBA sites will need to offer the buyer direction for where to go next with product development
- For them to list a business it needs to be growing steadily and ideally have multiple channels of income, not just FBA
- Multiple sources of traffic and multiple sources of income is the holy grail
- Private label as a business doesn’t necessarily mean super generic products, it can be generic (off Alibaba or Ali Express) or unique. Look for patents.
Amazon FBA tips
- Multiples for super generic products can be as low as 2x. Average is 3.5x.
- Coran gives advice if you are starting from scratch in terms of the FBA business model as an inventory based business which requires a team
- Long term you will need something that is patented and proprietary and a big enough niche that you can build a website around that you can drive traffic from to Amazon – if more than 30% of your income is outside Amazon a buyer will really value that
- Big opportunity of buying separate FBA businesses, consolidating and selling for a much higher multiple
- Discuss whether it’s better to start with FBA or a content site, depends on your capital (as will need to reinvest everything at the start) and skill set.
- If you have less than $20k possibly better to start with an affiliate site, see what you’re selling on Amazon and then look to create your own product later.
- Talk about the various AMZ SaaS options available
- Coran’s wife Leanne is experienced in Amazon selling and project management and is now working full-time on the business too
- FBA businesses are most interesting for private equity and executive buyers looking to own and even get involved in the business as it’s a physical business they can actually hold.
- There are also two ways to make a return on capital, 1) from buying the business cashflow and 2) the ongoing returns from inventory in getting economies of scale where you can buy more inventory to get a better margin
- Most private investors would prefer a totally passive option in terms of innovative online asset funds that is a growing market. However a lot are happy with some time investment in the product business, being educated by the seller.
- Discuss seller financing – FBA market as a whole has a high list price. In the $100k-$1MM, 70=80% of private investors looking to use their own cash (plus some smaller private equity firms looking at buying multiple businesses $500-$1MM). $1MM – $5MM is a black hole in terms of capital; rare for private investor to have over $1MM liquid! Therefore typically a third down in cash, a third in debt like an SBA loan or lines of credit and final third is some seller financing.
- Due to nature of FBA a lot of sellers do not have any assistance running the business other than contractors, i.e. the day to day is just the seller and can be run on 5-10 hours a week, as Amazon deals with the fulfillment, logistics and first layer of customer service. However new buyers do lean towards businesses that have teams and if the business is 7 figures+ then it is essential to have a team as the buyer does not want to be involved.
- Most repetitive parts of FBA are customer service and dealing with suppliers.
- The FBA Broker’s minimum listing is now around $200k. Other factors that come into play are products (if just have 1 product the multiple would definitely be lower and buyers would be nervous, especially if the traffic was only internal with Amazon, 5 products plus is much better) and age of business (most of these ecommerce businesses that include FBA have been around 7 or more years). One product line shouldn’t make up more than 30% of the business.
- First public sale of amazon dependent business was end of 2015 so it’s all very new.
- It’s definitely a sellers market with the buyer pool continually growing.
- FBA specific private funds are now starting to launch. The biggest issue on the fund side is getting competent operators on board who can rank products and who understands the ecosystem.
- Public funds is the next possibility but track record is one of the hardest things to figure out along with how to buy and run things at scale plus the dealflow problem if you raise too much capital you can’t deploy, i.e. how deploy enough of that capital for the return to be any good on the total.
- With these funds we will likely see part of their return on capital from liquidity events (as well as free cash flow).
Wrap up time
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