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Four Tips to Increase Amazon Business Value
By Quiet Light
If you’re an FBA business owner, you should always be on the lookout for ways to increase Amazon business value.
It’s important to focus your resources on activities that have the largest impact on your business’s value. That’s true whether you’re growing your Amazon business today or contemplating a successful exit in the future.
In this article, we’ll discuss several aspects of business growth, including:
- How to calculate the current value of your Amazon business
- Why increasing the value of your business is beneficial for you as a business owner
- Different strategies for growing your business value
- How quickly you can expect to see the value of your business go up
How to calculate the current value of your Amazon business
Before we talk about how to increase the value of your Amazon business and maximize profits, it’s important to understand how to calculate the current value of your business.
There are many benefits to having accurate knowledge about the value of your online business. Some of the main advantages include:
- Growing in your understanding of potential business growth
- Being able to have accurate conversations with investors
- Full knowledge of what you have if you decide to sell your business so you don’t leave any money on the table
So just how can you go about calculating the value of your business?
Calculating the value of your business with the SDE Multiple Method
Like many online businesses, your Amazon business value can be calculated using the SDE Multiple Method. This calculation consists of two parts: the SDE and the multiple.
SDE stands for seller’s discretionary earnings, which are the pre-interest and pre-tax profits that your business generates before you account for noncash expenses, one-time investments, your benefits as the Amazon business owner, and unrelated expenses or income. In other words, this number reflects how much money your business makes for you as the owner.
After you have your SDE, you multiply that number by the multiple. For example, if your Amazon business generates $200,000 in SDE and is valued at a 3x multiple, it is worth $600,000 ($200,000 x 3 = $600,000).
At this point, you’re probably wondering how that multiple number is generated. At Quiet Light, we use four elements to determine the multiple, which we call the Four Pillars of Value. These pillars include:
During the business valuation process, a business Advisor looks at every aspect of your business to determine where it stands in relation to the Four Pillars.
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Using the Amazon FBA calculator to forecast profitability
Increasing the value of your business isn’t only about landing a successful exit down the road; it’s also about educating yourself as an entrepreneur. So while growing a successful business absolutely impacts your prospects for selling, it also sets you up for success while you’re still the one with the logins to the seller account.
The Amazon FBA calculator, located in Amazon Seller Central, is an invaluable resource when it comes to calculating the financial viability of the products you sell on Amazon. It’s a free tool that helps you master your costs and optimize your margins.
After logging into your Amazon account, you can use the calculator to compare Amazon FBA versus FBM (fulfillment by merchant), or simply use it to calculate the Amazon fees involved with the FBA program.
As an Amazon seller, you’ll provide details about the goods sold and fulfillment costs involved, and the calculator will show you a real-time cost comparison between different fulfillment methods.
Understanding FBA Fees
The Amazon FBA calculator also takes into account the following Amazon fees associated with your Amazon business:
- Selling plans: The Individual plan, which costs $0.99 per unit sold, is the best plan choice if you are selling fewer than forty units per month and aren’t planning on investing in advertising on Amazon. Meanwhile, the Professional plan costs $39.99 per month no matter how many products you sell and includes advanced selling tools such as APIs and reports.
- Referral fees: Amazon charges a referral fee for each item sold. The amount depends on the product category, with most referral fees landing somewhere between 8–15%.
- Fulfillment fees: Shipping costs depend on whether you choose to fulfill your own orders or use Fulfillment by Amazon.
- Additional Amazon FBA fees: Some sellers on Amazon incur additional FBA business fees due to long-term storage fees or optional additional fees to cover advertising or premium account services.
The costs associated with selling different products on Amazon depend on what selling plan you choose, the Amazon fees you pay, your fulfillment strategy, and a few other variables.
The Amazon platform offers flexible options, which means you get to choose the combination that works best for you and the goals you have as a business owner and Amazon seller. Experimenting with those different options can help you discover opportunities to increase Amazon business value.
The purpose of increasing the value of your Amazon business
Using the SDE Multiple Method and spending time using the Amazon FBA calculator can help you calculate your current business value. But what does it mean to drive that number up and why does it matter for you as a business owner?
Business owners who focus on increasing their business value can experience many benefits both immediately and in the future, including:
- Increasing your earnings potential
- Optimizing your business operations
- Owning a stable business that can endure economic ups and downs
- Receiving a higher purchase price if you decide to sell your business
Increasing your earnings potential
When you focus on business choices that increase the value of your Amazon business, you also increase your income potential. Growing your Amazon FBA business could provide you with extra cash flow that you could use to invest in starting another business.
Or, the ability of your business to earn you more money could mean that you don’t have to clock in as many hours. More financial freedom could leave you more time to pursue your passions and dreams.
Optimizing your business operations
Business owners who have a growth mindset are also business owners who know the importance of streamlined operations. Regardless of whether you own a small business or a large company, businesses with optimized operations are easier to manage and grow.
When you have streamlined operations in place, you’re able to see the bigger picture as a business owner. Getting out of the day-to-day grind of the business allows you to focus on growing your business and increasing business value.
Owning a stable business
As an Amazon business owner, it’s important to plan for circumstances that are out of your control. Businesses that are working to reach their maximum value are usually more stable than those that are stagnant.
Maximizing and growing recurring revenue are just two ways that business owners can increase their business stability and build value.
Receiving a higher purchase price if you decide to sell your business
Growth opportunities are exciting in the present moment, but they also have long-term ramifications. The more your online business value increases, the more money you can receive from a buyer if you decide to make an exit in the future.
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Higher business value gives business owners a better position to negotiate offers and agree upon beneficial deal terms. Growing that final asking price is a great motivation when it comes to building brand value and increasing business value.
Four tips to increase the value of your Amazon business
At Quiet Light, we use the Four Pillars to determine business value: growth, risk, transferability, and documentation. When you’re determining strategies to increase the value of your Amazon business, it’s important to focus on growing in those four areas.
Increase your business’s growth trends
When your business growth trends are up, it indicates a promising future for your business. After all, the main indicator of business growth prospects is historical growth. These growth prospects are backed by historical data and have clear paths to being realized.
Some practical ways you can increase the profit of your FBA Amazon business include:
- Launching new products or offering more services
- Increasing the lifetime value of your customer
- Expanding into new markets
- Improving conversion rates
- Defining your content marketing strategy
Whether you launch a complementary product to your current product listing or win the Amazon buy box, it’s important to remember that you should never boost your SDE by sacrificing long-term growth. So while it’s tempting to slash your marketing budget so that you have a higher profit margin, this will put the long-term performance of your business at risk.
If you’re thinking about selling your business in the future, define a clear path of growth for your Amazon business. If potential buyers can see room for growth, they’re much more likely to make an offer that values the hard work you’ve put into building your Amazon business.
Lowering your business risk as an Amazon seller
Growth and risk go hand in hand, so it’s important to identify risks for your Amazon business. There are different ways to find liabilities in your business, including:
- Running a Strength, Weakness, Opportunity, and Threat (SWOT) analysis with a focus on weakness and threats
- Identifying and eliminating single points of failure
- Discovering your business dependencies
- Figuring out how dependent the business is on you
- Assessing your market position
Think about your current business as if you were a potential investor or buyer. If someone is interested in purchasing or investing in a fulfilled by Amazon business, they’re looking for opportunities with minimal risk. They stand to lose more in the deal than you do as the owner and they might not be as confident navigating those risks as you are.
Mitigating the risks you discover in your business can not only lower your day-to-day stress as an Amazon business owner—it can also boost your business value and instill confidence in customers and potential buyers.
Assuring smooth transitions down the road
Maybe you’re contemplating what a successful exit would look like for you as a business owner. Or, selling your business might not even be on your radar. But even if you aren’t interested in selling your business now, thinking about a potential buyer is a great way to focus on increasing business value.
Improving your business transferability includes growing loyalty with your customers and vendors. It also means growing your brand recognizability without making your Amazon business all about you or driven by your personality.
Remember the Dread Pirate Roberts from The Princess Bride? No one knew the full identity of the famed pirate, but his reputation and success preceded him. The title of Dread Pirate Roberts seamlessly transferred to the next sailor who stepped into that position.
If your business can easily transfer to the new owner, it will be worth more. A potential buyer should be confident they can take the helm and run things smoothly from day one.
Honing your business documentation skills
The story of your business is told through your documentation. So when you’re looking to increase the value of your Amazon seller account, it’s important to keep careful track of data points within your business.
Create a system for organizing important documents like bank statements, merchant statements, tax returns, and licenses. Other documents to keep detailed record of include:
- Supplier contacts
- Employee or contractor agreements
- Trademark registrations
Having an organization system for those important documents makes for a simple retrieval process when you need to access them. But it also increases the value of your business because organized documentation increases confidence in buyers.
What factors impact how quickly the value of your Amazon business increases?
If you focus on growing your business, mitigating risk, improving potential transferability, and creating organized documentation systems, how quickly can you expect to achieve growth?
The answer to that question is going to vary for each professional seller. However, the biggest factor that affects how quickly the value of your business goes up is whether or not you have a strategy to reach your growth goals.
If you identify areas for growth but don’t put together a plan for reaching those goals, you can’t expect to see any growth in your Amazon business.
Reaching your growth goals requires important steps, including:
- Defining your budget
- Setting your goals and how to achieve them
- Revisiting your goals and refining your process
Set your budget
The first step to reaching growth goals is defining your budget. What resources do you have available? These resources include things like financial funding, but it also involves budgeting your time well.
Depending on your budget, you might find that some of your growth goals aren’t feasible right away. But don’t discard those goals. It’s possible that you can revisit them once your budget grows or you have more time available.
Driving the value of your Amazon business doesn’t require an unlimited supply of money or time, though. For instance, you could improve your customer service experience without spending money. You could also achieve goals like growing your customer email list or organizing your business documentation systems.
Outline your goals and implementation strategy
Defining your business goals is just as important as setting up your budget. All of your goals (even the smallest ones!) should align with your larger business growth goals and your values as a professional Amazon seller.
While the overarching goal you have could be something as large as increasing your business value, you could also focus on winning the Amazon buy box or improving your overall Amazon rating.
“Research has shown that you are 2x to 3x more likely to stick to your goals if you make a specific plan for when, where, and how you will perform the behavior,” writes James Clear, the author of Atomic Habits.
Do you know what day you’ll spend time identifying business risks? What time of day will you sit down and organize last year’s tax returns? What location will you work at—your home office, or in a coffee shop?
Having specific, realistic, sustainable, and measurable goals is important. But it’s also crucial to define how you’ll achieve those business goals.
Regularly revisiting your goals
Increasing your Amazon business value isn’t a process that you can start and finish in a long weekend. Because it’s an ongoing process, one factor that determines the speed at which you achieve growth is how often you analyze and refine your goals as you move along the process.
If you don’t revisit your goals and how you’re hoping to achieve them, all of your efforts could just be going down the drain.
For instance, maybe you launch a paid marketing campaign on social media. After setting up the campaign, you pay close attention to how the campaign performs, noting what social media platforms have the largest response and what ads lead to purchases. When you review the campaign after it’s complete, you could discover underperforming aspects of the customer experience.
In this example, even if the campaign “failed” in terms of conversion rates, it could be a roaring success for you since you gained information about the customer journey that you can now use to improve. But you never would have gained those insights without reviewing the goals and processes you have in place.
Growing the value of your Amazon business is an exciting process in your life as a business owner. With increased growth comes opportunities to transform your work-life balance, find financial freedom, and change your financial future.
But in order to enjoy the full benefits of your growing business, you must define your growth strategy. By growing your business, identifying problem areas in your business, and knowing how you’re going to reach your growth goals, you can set yourself up for business success.
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