Should You Buy an FBA Business?

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FBA Business

Are you considering buying an FBA Business? It is well known that selling on Amazon is very profitable for those business owners who decide to go one step further. However, there are many who, instead of starting from scratch, decide to buy a business that has already an established name.

Fulfillment by Amazon (FBA) is the go-to solution for millions of Amazon sellers. Simply because the retail giant handles customer service, stock management, and shipping and delivery logistics for a monthly fee.

This leaves you free to step up your advertising game. Not to mention, you’ll improve your brand presence and seller performance in the marketplace.

But should you start your own FBA business, or is it better to buy an established FBA store? In this guide, we’ll discuss the pros and cons of both scenarios, when it’s better to start from scratch and how to buy an Amazon FBA business.

What Is FBA?

Fulfillment by Amazon (FBA) allows sellers to use Amazon’s complete supply and delivery logistics. This means you’ll be free from dealing with stock management and shipment.

You just pack and deliver your stock to an Amazon warehouse. Then, upload your item listings into the marketplace. And when a user buys a product, Amazon deals with packing, shipping and customer service.

The FBA program grants sellers the following benefits:

  • All your inventory will be Prime-eligible
  • Better customer ratings thanks to Amazon’s guarantee
  • Increases the chance to win the Buy Box
  • Amazon handles Customer Support
  • Items arrive on or before the set delivery date

By using FBA, you’ll only pay specific fees for storage space and Amazon fulfilled orders:

  • Shipping is $5.26 for large products
  • Storage is $0.69 per cubic foot
  • Professional rate is $39.99 per month

Should I buy an FBA Business?

Purchasing an FBA business can give you an edge in the marketplace. You’ll be starting up with an up-and-running store that’s already making a profit.

The process is very straightforward. Look for a profitable FBA business on platforms like Thrasio and Empire Flippers.

Buyers have to consider the capital risk when looking for the best investment. An Amazon FBA business price regular value is at 2 to 4 times its yearly EBITDA.

So, if you’re looking for an FBA business that earns $10,000 net profit per year, you’d invest $20,000-30,000 to purchase it.

Once you select your best fit, contact the seller and start drawing up a deal. It’s also a good idea to sign a letter of intent.

Now, it’s time to do some due diligence on the Amazon FBA store. Be sure to dive deep and flush out any discrepancies. Then, adjust the deal accordingly.

If you’re not sure about what to look for in an FBA business, here is a list of the due diligence key points to review:

Profits and Losses

This should be the first criteria to examine. Look into the financial overview to review the business’s net profit or find inconsistencies. It is also a good indicator about sales trends, seasonal and growth opportunities. 

Account Health

Make sure the FBA business has a good standing in the marketplace. Amazon expects sellers to meet specific criteria. Failure to do so results in account suspension. 

Look out for the following metrics: 

  • Order Defect Rate below > 1%
  • Pre-Fulfillment Cancelation Rat:  2.5%
  • Late Shipment Rate: > 4%
  • Valid Tracking Rate: <95%
  • Invoice Defect Rate: > 5%
  • Inventory Performance Index: > 350

You should also keep an eye on service-related metrics. These are Customer Service Dissatisfaction, Contact Response Time, and Seller Feedback. 

Another great sign of an account’s health are customer reviews. Positive reviews mean the FBA business has earned the users’ trust. 

Lastly, look at the Conversion Rate to know the number of views a specific product listing is attracting.

Suppliers

Suppliers are one of the most critical aspects of Amazon business. They play a major role in determining the success of your business. 

Investigate the seller’s agreements with suppliers. Is it an exclusive relationship? What are the terms and unforeseen costs?

Every agreement should include the following criteria:

  • Quantity Price Breaks
  • Lead Times
  • Manufacturing standards
  • Materials costs

Also ensure all legal aspects are covered. Request GMP Certificates, Quality Management Certifications and Safety Data Sheets. The supplier’s process should meet all FBA regulations.

Accounting Records

Review the seller’s historical account records. Make sure all accounts are set up properly. This will help you make an accurate valuation to buy the Amazon FBA business. The accounting records will also make you aware of any tax liabilities.

Amazon Fees

Sellers owe Amazon different referral fees, depending on their business model. For example, professional FBA sellers are charged a $39.99 monthly fee. And individual sellers must pay a $0.99 fee per item sold. 

All these fees should be accounted for in the business’s financial records. Make sure the seller is not inflating its profits.

Build an FBA Business

Starting up an FBA business takes time and effort. It may take you from 3 to 6 months to see profitable results. It takes a lot of grunt work and commitment.

Think you can (or want to) face the challenges and setbacks? Then you’re ready to build an FBA business. To get started, check the following criteria:

  • Capital. Jungle Scout states that new sellers spend close to $ 3,836 to start their Amazon stores. You need startup capital to manage your inventory, orders and marketing strategy. 
  • Experience. If you’re new to FBA, it’s best to research the market. Talk to real FBA sellers to plan your Amazon Journey. Learn their own setbacks so they can avoid the same pitfalls.
  • Competition. Look at the competition. Note their prices, item quality and customer reviews. This’ll give you good ideas to plan out your business strategies.
  • Product demand. Research the best items you can sell in the marketplace. Make sure there’s ample demand and low competition for your products.

The previous steps will help you cater your startup strategy to deliver great experiences in the marketplace.

Now, you can start setting up your Amazon FBA business. Here are the steps to do it:

1. Create an Amazon Seller Account

You can choose between a Professional and Individual account. As we mentioned before, you’ll pay a $39.99 monthly subscription fee, but there’s no limit to the items you can sell.

The Individual account is best when selling fewer products. It has no subscription fee, but you’re charged a $0.99 fee per item sold to Amazon.

2. List Your Products on Amazon

Log in to your Seller Central account and go to “Inventory” at the top of the screen. Here, click on “Add a Product”.

Search your items using product names or barcodes. Once you select them, submit the following data:

  • Selling Price
  • Condition (acceptable, good or new)
  • Product description

3. Convert Your Items to FBA

Select “I want Amazon to ship and provide customer service for my items if they sell.” This is the product FBA option.

Now you must convert your eligible-FBA items manually.

Go back to “Inventory”, select “Manage Inventory” and “Actions”. Here you can select “Change to Fulfilled by Amazon” for your products.

4. Set Up an FBA Shipping Plan

Seller Central will prompt you to set up a shipping plan when you select the “Convert &  Send Inventory” option. Here’s what you need to do:

  • Notify Amazon if you’ll send “Individual products” or “Case-packed products”.
  • Select the items you want to store at Amazon’s warehouse.
  • If need be, add more packs to the same shipment.
  • Prepare to ship from your inventory address.

5. Ship Your Items to Amazon

Once again, go back to “Inventory” and select “Manage FBA Shipments”. Here you can submit the number of units you’re sending out to Amazon.

Print out your brand labels and stick them to each package. Then select whether Amazon will take care of prep and labeling. Now program an Amazon pick-up and your warehouse.

The rest is up to you. Set up a roadmap to expose your brand with advertising and great customer service. Here are some tips to boost your business:

Expose your product with an SEO strategy. Optimize your listings with relevant keywords and place them in strategic places. For example:

  • Include head phrases that identify your product in the title, bullets and description.
  • When possible, use long-tail keywords to write precise descriptions and target niche audiences.

You should also invest in great image quality. Make sure each image clearly says to customers what your product can do for them.

And perhaps most important, delight your customers. Encourage feedback, offer great products at fair prices, and always deliver on time.

Managing an FBA store is not that different from any business. So, if you want to experience the ins and outs of FBA, then it’s best to start from scratch.

Final Thoughts

So, to build or to buy an Amazon FBA business? It all depends on your goals.

Just remember, building any business takes time, effort and commitment. Stick to it and your hard work will pay off.

But if you’d rather invest in an established business, then buying an FBA store is for you. Search for a profitable option within your means.

Then, do your own due diligence and protect yourself from hidden pitfalls. Be as thorough as you can when you buy an Amazon FBA business.

In time, your investment will become a long-lasting source of income!

Author

Esteban is an SEO copywriter at AMZ Advisers, with several years’ experience in digital marketing and e-commerce. Esteban and the AMZ Advisers team have been able to achieve incredible growth on the Amazon platform for their clients by optimizing and managing their accounts and creating in-depth content marketing strategies.

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