In many ways, it’s a great time to be an FBA seller. In 2021 alone, 4,000 new FBA sellers brought in $1,000,000 in revenue for the first time.
At the same time, just a few months into 2022, 49% of $1m+ FBA sellers surveyed said that they had already started preparing an exit this year.
With multiples on the rise and brand acquisitions at an all time high, is this the time to cash out? With FBA costs increasing with no end in sight, post “COVID-bump” sales showing a more normalized picture of your business, and Amazon constantly changing their policies (with little to no notice), maybe it’s time to give the keys to someone else who knows how to weather the storm.
The benefits of selling in 2022
The first, and most obvious, benefit of selling now is the size of multiples. In fact, 64% of sellers cited higher valuations as the reason for selling their business. Multiples, which sat around 2-3x just two years ago, have skyrocketed to 4-8x. This coincides with the increase in money deployed into the acquisition space, which went from $1 billion in 2020 to $13 billion in 2021. That money will undoubtedly go somewhere in 2022. The question is: Will it go to you?
There’s also the state of the pandemic to consider. Predictions of when it might end (or at least be declared endemic) are a fool’s errand, but restrictions, on the whole, are loosening in the US. While this is great for the world as a whole, eCommerce growth looks like it is slowing down as a result. The boom that catapulted eCommerce by 10 years was a generational event, but one that is stabilizing, and perhaps regressing a bit as people are able to go shopping in person again, cutting into the profitability of selling online.
Ultimately, however, the biggest benefit of selling your FBA business in 2022 is that you don’t have to stop there. In fact, a life-changing payout could be exactly the thing you need to start the next big entrepreneurial adventure. Selling your current business doesn’t mean you’re giving up on future businesses, especially if you believe things are still on the upswing.
The costs of not selling
At the same time, while eCommerce has been booming in an unprecedented fashion, part of the ensuing slowdown comes from the fact that it’s getting more difficult and more expensive to sell through FBA. Rising multiples face headwinds that are only growing stronger, increasing the risk that they may not go any higher.
A lot of factors have converged to make selling more expensive, the first of which is Amazon itself. This year has seen an increase in fees on everything from fulfillment to general storage to long-term storage. This means that volume or price will have to go up to maintain profits while further cutting into those precious resources that help a brand grow.
This is exacerbated by the second issue, which is the worst inflation we’ve seen in 40 years! Not only has this reduced purchasing power, but ongoing supply chain issues are compounding costs and fulfillment at just about every level. Costs are rising, prices are rising, but wages aren’t keeping pace. All of which is to say that rising Amazon costs are going to require consumers to spend more on your products, but they’re not in a position to do so.
Finally, there’s a proliferation of copycats with sub-quality knockoffs buoyed inauthentic reviews that are stealing market share. Incentivized reviews, in which real customers are compensated for a positive review, create a false sense of social proof that artificially boosts a product up the bestseller list. This then hurts visibility for smaller brands trying to do everything by the book. Meanwhile, counterfeit products threaten to not only undercut legitimate sellers, but also reduce customer trust in the platform itself.
The unique position of brand acquisition companies
There’s no doubt that selling as an individual on Amazon brings increasing challenges, but there’s a reason that 87% of high-earning brand owners want to sell specifically to brand acquirers. With the influx of capital and talent for brand acquirers, there is now an even greater opportunity to see your brand flourish the way you dreamed it one day would while also being rewarded for the effort you’ve poured into your business. Continued brand growth is the ultimate goal, for whoever owns the brand. It simply requires more resources than ever to be able to do that on Amazon.
Now, just because 2022 is shaping up to be the right time to sell your FBA business, it doesn’t mean that the year itself is created equal. For one, different industries thrive at different times, and the most recent quarter affects valuations. Those companies who do reach the black on Black Friday may be looking at a selling window that lasts through March 2022 before needing to wait until early 2023 to sell. On the other hand, a company that peaks in the summer should target the fall to exit.
There’s also a lot of research to be done on picking the right buyer for your FBA business , including the importance of fast speed of close. Selling on Amazon may be getting more difficult, but it doesn’t mean that the effort of growing your brand on Amazon was all for nothing.
The right decision for your brand
Ultimately, the things that make your brand loved and unique also make the factors that go into selling it to an acquirer unique. There’s no one-size-fits-all solution to know the best time to sell. But 2022 is shaping up to have conditions ripe for brand owners to cash in. If you’re ready for your next adventure, contact us today.