23 May 2022

Growing Ecommerce Brands for a Profitable Exit

Matthew Walker
Matthew Walker
Growing Ecommerce Brands for a Profitable Exit
Read Time: 8 minutes

If you are growing your ecommerce business specifically to sell it, here is something you need to know about the buyers market: 

Aggregators buy ecommerce businesses with a strong brand, healthy margins, and increasing revenue. 

Why brand? Businesses with a strong brand have built a valuable perception with the customer beyond the product itself, therefore it’s hard for a competitor to replicate. 

Why margins and revenue? The aggregator model is predicated on growing assets year-on-year. To offset debt raised, aggregators want to acquire assets with healthy margins and upward trending revenues that show opportunity. 

This might sound obvious. Yet, at The Fortia Group we have been approached to sell profitable reseller businesses with no brand, and businesses with great brands but negative trending revenues. There is little interest in the market for either (there are exceptions – contact us today to learn more).

A downward trend spells risk. And, in the current market, there is no appetite for risk. 

In this post, we will discuss six ways to build a sustainable brand and position your business for a profitable exit. We will start by looking at the current market. 

Are you growing your FBA brand for a profitable exit? Contact our team today; we work with FBA owners to prepare them to exit, even 1 to 2 years out. 

Using Brand to Combat Increased Competition | Quick Market Overview

As a result of Covid restrictions, the experience economy shrunk, and consumer behavior has shifted to former economies: buying goods and services. 

Ecommerce has gained greater market share with big consumer packaged goods (CPG) companies investing more in online offerings. This includes Amazon who have increased their ad budgets. As a result, AmazonBasics is gaining traction, growing listings with some of the lowest prices in the category.

The ecommerce boom has attracted a new generation of sellers, many of whom are selling duplicates of the same product. This saturates categories and creates a race to the bottom, as the only competing factor is price.

That said, increased demand and a spike in ecommerce business owners has seen a rise in selling costs both on- and off-platform. 

  • On-platform: Rise in PPC costs and FBA fees (most recent, 5% fuel and inflation surcharge). 
  • Off-platform: Supply chain issues have risen around a lack of raw materials and transport options. Coupled with increased demand, this has led to increased supply chain costs – and has resulted in longer lead times from manufacturer to 3PL/FBA warehouse. 

As the eCommerce Covid bump levels out, we can see demand has still grown since pre-Covid. However, the market share to ASIN ratio has decreased in a majority of categories. With almost no barriers to entry for new brands, market saturation and low brand loyalty amongst consumers are inevitable. 

In the end, saturation will render sourcing an undifferentiated product from a platform like Alibaba far less successful than during the pandemic. However, it will also decrease the opportunity in the category overall.  

Let’s look at six ways Amazon sellers can build a sustainable brand, have an exit plan, and attract the right buyers when it comes time to sell.

#1 Create a Strategic Plan for Your Amazon FBA Business 

Know your customer value proposition – why is someone buying your product versus other similar products. This could include: 

  • Patents on product design
  • Great reviews, ratings and ranking
  • First mover in a market or niche
  • Better relationships and rates with manufacturers, logistic providers and 3PL

Are you struggling to articulate your value proposition? There are many principles you can use to assess your business model’s strengths and opportunities against your competitors (all are acronyms like SWOT, PESTEL, SOAR etc). 

“Lowest price” is not a sustainable value proposition. Private label owners (especially in the US market) do not have the economies of scale to compete with a big CPC, the recent influx of Chinese sellers, or even AmazonBasics on price. 

Identifying your value proposition and using content to educate your buyer as to the advantage of your product in the marketplace, allows you to grow revenue and scale. 

Ecommerce Exit Strategy:

Be sure when you are looking into patents, to register trademarks both where it is sold and manufactured. Bad faith filings on trademarks can become an issue when you go to sell your business.  

#2 Financial Planning for Brand Growth and Exit

The more in-depth your financial plan, the better. 

Knowing your P&L and all line level detail allows you to make business decisions based on data. This way you can make informed decisions when it comes to combating unforeseen headwinds like increased supply chain costs, long lead times, increased operating costs and reduced FBA space. 

Note: Most of the players in the logistics value chain (eg. manufacturers, freight forwarders) are also looking for stability. Longer term agreements are becoming more commonplace with brand owners. Having the financial latitude to plan further in advance will make your business more attractive to buyers.

Ecommerce Exit Strategy

If you are looking to sell your ecommerce business in the near future, you should understand that a potential buyer will analyze your historic revenue by many factors. These include overall revenue and margin trends, marketplace and geography, source (paid/organic), SKU/parent ASIN and sales channel. 

For this reason it’s important that you have: 

  • Accurate accounts whether from using a software or a book-keeping service. Note: Accounts rendered on an accruals basis is better for tracking inventory and gross profit margins in the long term. 
  • All Seller Central data is rendered in a cohesive narrative that tells the story of your brand’s success. This should include all OPEX costs, add-backs – so your net figure is SDE level. 

#3 Build Brand Equity

Amazon is very successful in shoe-horning brands into a mold (commoditizing), as all brands in their marketplace have to use the same listing pages and advertising templates. As previously noted, this makes certain categories susceptible to saturation. 

That said, there are a number of ways to differentiate your brand using: 

  • Star ratings
  • High quality review volumes
  • Subscribe and save (SnS)
  • Strong Best Seller Ranking (BSR)
  • Strong ASIN performance against KPIs like clicks, conversions etc,,
  • Retail pricing stability
  • Educational brand content (A+ and AA storefront)
  • Engaging brand content (listing video, AA sponsored Brand Video, AA Storefront Video)
  • Off Amazon social media presence and following

Furthermore, it’s important to register with Amazon’s Brand Registry. This requires an attending trademark, and takes about one to two weeks.

Tip: If your brand name is too general, you can try for a design trademark. An IP accelerator is really helpful in getting that set up. 

Registering with Brand Registry gives you access to multiple tools that help you grow your brand like Brand Analytics for keyword research, and Sponsored Brand Ads for video content. 

#4 Master the E-Commerce Fundamentals

The key is to look beyond a simple checklist but rather to revisit each aspect of your business regularly. This should be done in the context of your strategy, while acknowledging the movement of the market and changing customer behavior. 

“If you want to treat Amazon private label like a passive income and not keep a close eye on the competition, you will eventually be pushed out and your market share will be taken. Amazon is such a dynamic marketplace – you need to always be on your feet and ready to pivot at a moment’s notice.” Rick Haria, Rymora, Exit Guide for Amazon FBAs

For example, in high repeat categories (with a large subscribe and save base), you have to keep a close eye on your stock. Going out of stock is not only penalized by a marketplace like Amazon, it will also drive your customers to competitors. Furthermore, to regain lost organic ranking, you will need to aggressively spend on AA PPC – which is a drainer on net profits. 

Furthermore, if you are not actively overseeing your quality assurance (QA) and your supplier begins to cut corners, you could lose your star rating.

Tip: Investing in good video explainers is a great way to clarify how customers can get the most from your product. This will potentially save you money in customer service and returns, and with shipping rate hikes, this can become very costly. 

Ecommerce Exit Strategy:

Supplier quality and conditions become critical when you choose to sell your ecommerce business. In a recent exit, the aggregator organized an audit of the brand’s manufacturer. The factory failed inspection and the deal was stalled for months, until a new supplier was sourced. A factory audit only costs $700, and ensures the exit process is not delayed later on. 

Exit Guide for Amazon FBAs – Everything you need to know to successfully sell your Ecommerce business today [Free Download]

#5 Investing in the right Tools and Technology 

There are so many tools for keyword research, A/B testing, crowdsourcing opinions, analyzing markets and competitors, that an informed decision is possible, but time consuming. 

It’s important to factor in the time investment as well as the monetary expense when integrating new tools. To get the most actionable data (patterns and trends) from any tool, you need to diligently record your learnings over time.  

Here are two resources to help you choose the right tools for your business:

Tools, Tech and Data for Profitable FBA Brands

In this one hour webinar, you will hear CTOs from some of the world’s leading aggregators discuss the tools they use to accelerate growth across their portfolio. 

Growing Brands through Smart Operations

Over the course of an hour, leading marketing operators share trends and inside tips to maximize your marketing efforts. 

Tip: A simple way to organically build a review moat is a call for feedback on your listing pages – and it’s free.  

#6 Exploring New Sales Channels

Expanding into a new market can be complicated. It can involve legal and tax regulations, possibly new partners and vendor relationships. However, if your business is primarily US based, expanding into Canada, EU and UK is more straightforward (certain categories excepted). These new markets can be less competitive, and where the ASIN is the same you can migrate your listing reviews from the US, so you don’t have to start from zero. 

Over the last three years, traditional brick and mortar retailers have started launching FBA-style marketplaces eg. Walmart. Many of these platforms have merchant support, less competition than Amazon, and are used as a proof of concept testing ground, before launching in-store. 

Note: If your product were to qualify for in-store retail, you would save on pick, pack and ship. And, in the case of Walmart, your product could potentially feature in 4000 locations across the US (this would present certain logistical challenges, but the upside could be worth it). 

Ecommerce Exit Strategy

Rather than relying on a single channel for distribution, diversifying – even validating other markets – is attractive to potential buyers when you choose to exit.

Selling Your Amazon FBA in 2022? | Partner with The Fortia Group

If you are thinking of selling your online business in 2022 (FBA or DTC ecommerce), here are two ways we differentiate from brokers and get you the offer you deserve:

  1. Exit Strategy: We prepare an eCommerce business for sale (Exit ready). While the components of each business are similar, at The Fortia Group we provide a personalized plan for your FBA business. Our exit team works with you to get every aspect of your FBA business presentable.   
  2. When the time to sell your business is right, we run a professional auction for your brand. We have >130 potential aggregators, PE firms and family owned strategics that are looking to acquire eCommerce assets. We aim to achieve multiple offers for your business. This gives the owner better options with regards to payout, deal structure, and deferred components.

Is it time to exit? The first step to a profitable sale of your ecommerce business is to schedule a free valuation

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