Investing in an Amazon Fulfilled By Amazon (FBA) business is becoming an increasingly popular trend. Traditional investors realize that a lot of money is to be made by investing in e-commerce brands built on platforms like Amazon and eBay, which make up close to two trillion dollars combined. Amazon FBA businesses, in particular, have been experiencing a gold rush. Lots of investors are flocking over in hopes of joining on time.
Acquisition of an Amazon FBA business offers some significant advantages, such as being more predictable than other investments with less risk involved. However, this isn’t to say that there is no risk involved. Let’s go ahead and explore more on why the FBA gold rush is happening, how it is impacting the market, and what the future entails.
Rows of shelves with goods boxes in huge distribution warehouse at industrial storage factory.
What Is An Amazon FBA Business & Why Are People Flocking To Them?
An Amazon FBA business is an e-commerce company that utilizes Amazon’s fulfillment and warehousing services to sell its products. Large traditional investors are eyeing these businesses because there is a lot of money to be made by acquiring and growing the company with an influx of capital and a unique growth strategy. It is easy for aggregators to establish predictability with this type of investment and net a much higher return than traditional investments.
The micro-acquisition space is unique when compared to any traditional investment class since business owners have complete control to impact and grow the asset from day one.
Usually, when people are purchasing from a third party seller when products are bought on Amazon. The business handling these purchases are typically small 1 – 5 person businesses. Although the potential may not seem quite there for an entrepreneur to get in, consider that half of Amazon’s $386 billion revenue came from third-party sellers for Amazon in 2021, according to a recent JungleScout industry report.
Thrasio, for example, recently made headlines when they raised their total funding to more than a billion dollars to acquire FBA businesses. In addition, there are many other companies that are focused on solely buying Amazon FBA businesses. Perch, for example, has raised $900 million so far to acquire and operate FBA businesses. With this sort of money being moved, it is only suitable for the rest of us to take notes and consider what actions should be taken.
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How To Aquire An Amazon FBA business
Right off the bat, many people who are hearing about this new gold rush might initially wonder how people get into this business in the first place. First, they will need to have capital ready to invest. Next, they should identify which Amazon FBA businesses are a good fit for their investment portfolio and finally have some plan of action to grow the business.
After all, the last thing needed is to make a financial decision involving lots of money that ends up being regretted. Consider what type of ROI to expect, the growth trends, the current profit level, and so on. Be sure to value the business appropriately before making an offer and joining the Amazon FBA industry. Usually, one can buy an Amazon FBA business directly from the owner or through a vetted business broker.
What Is An FBA Aggregator VS. A Broker?
When selling an FBA business, one will likely enlist the help of an Amazon FBA broker or potentially sell with an Aggregator. Amazon FBA aggregators will usually only acquire and grow, seldomly selling their assets. This is in contrast to a broker, who is a middleman and connects both buyers and sellers. Both of these types of people could give a better deal, depending on the circumstances. It is advised to talk to both and see where the most money can be made.
Why Is The Market Exploding for FBA vs. Other Businesses?
The market is gaining so much traction due to a variety of factors. There are many reasons why the market is growing so dramatically. Amazon’s stability and future growth projections look very promising, with not much risk of competitors taking over their share of the space. The other factor being, it has become a lot harder to start from scratch on Amazon when competing with a five-year-old established brand; thus acquiring a business can have a much wider moat comparatively.
Not to mention, it is very likely that the online market for sales will only continue to increase as time goes on. Prominent investors are starting to notice that they can get an ROI within 2 – 3 years and even faster with a proven growth strategy. In most cases, the convenience and level of customization available with the online market are a lot more preferable than shopping locally.
Physical products seem to have a high level of demand still over digital products. Given that shipping and handling are no longer much of a waiting game due to the swift shipping times with Amazon Prime.
Thinking of Buying An Amazon FBA Business?
The e-commerce industry is one of the most lucrative markets in the USA. Investors recognize this by pouring billions into businesses they buy outright with Amazon’s FBA program. One of the main reasons the market is so strong is because Amazon’s FBA structure has proven to be a success while acquiring e-commerce businesses built on Amazon are becoming more common.
Given current trends, it is easy to guess that this is a great time to get into FBA businesses due to the rise of smart and institutional money in the market. If you are an Amazon FBA business owner and want to exit or sell an Amazon FBA business, now might be the best time to do so.
