This is a guest post from Empire Flippers, removing the friction from buying and selling online businesses and have helped people buy and sell over $400 million worth of online businesses.

You’ve put a lot of work into your Amazon FBA business. All those long hours, late nights, and investments — both in time and money — have built a valuable asset that likely represents a large chunk of your wealth.

After so much effort, you need to ensure you secure the best valuation possible when you’re ready to sell your business.

But how to value an Amazon FBA business? And how do you attract high-quality buyers? While every Amazon FBA business is unique, they’re all judged against the same set of metrics.

In this article, we’ll shed light on those metrics and how they shape the value of your business.

How to value an Amazon FBA business

Determining the right valuation for your Amazon FBA business can be tricky. If you set the price too low, you could be leaving money on the table. But if you set it too high, you might scare off potential buyers.

Ultimately, your business is worth whatever someone else is willing to pay for it, no matter how complex of a formula you use.

Therefore, a fair price is one that’s beneficial to both you and the buyer. You need to reap the rewards of what you’ve built, while the buyer needs to feel confident they can make a profit by acquiring your business.

So, how do you figure out that magic number?

Calculating the value of your business

The formula to calculate the value of Amazon FBA businesses is simple, but several factors play into it that require careful consideration.

Valuation formulas differ slightly across the industry, but here’s the one we use at Empire Flippers:

Net Profit x Multiple = Valuation

Net profit plays a big role in this formula because, in most cases, the more money your business makes, the more it’s worth.

Let’s take a closer look at the two most common ways to calculate this variable.

SDE vs. EBITDA

The seller discretionary earnings (SDE) method looks at how much money you, as the business owner, take home. To calculate this, subtract your operating expenses and cost of goods sold from your revenue, then add back your salary:

(Revenue – Cost of Goods Sold – Operating Expenses) + Owner Salary

This will return your net profit.

The SDE method is commonly used for businesses valued at $5,000,000 or less.

Meanwhile, EBITDA (earnings before interest, taxes, depreciation, and amortization) is a more detailed method that accountants use to measure a company’s profitability. It’s usually reserved for larger enterprises over $5,000,000 in value.

Businesses at that size often have complex financial structures with teams of managers and employees in place, so they require a more in-depth calculation.

The key factor here is whether the business is owner operated or “professionally managed.”

Don’t forget about inventory.

When valuing Amazon FBA businesses, we usually don’t include inventory in the sale price because, if the buyer can’t sell the stock, it’s essentially worthless. Plus, perishable items might go bad if they don’t sell quickly.

It also gives the buyer the power to decide exactly how much inventory they want to purchase post-acquisition and if they prefer to exclude any unpopular or declining SKUs.

Therefore, during the sale, inventory is treated as an extra cost for the buyer based on the product’s landed cost.

Note: At Empire Flippers, we don’t charge a commission on inventory costs, but some brokers do. Keep that element in mind when choosing a broker to sell your business.

Pricing windows

When calculating net profit, it’s best to use a rolling 12-month average to account for any fluctuations in earnings or any seasonality your business may experience.

This is called a pricing window, which determines the time frame over which we calculate profits. The length of the pricing window can vary depending on the current state of your business.

A 12-month pricing window is ideal because it provides the most balanced view of a business. For instance, if you sell picnic baskets, a 12-month period takes into consideration seasonal sales fluctuations like a winter slump and summer boom.

That length of time is also attractive to buyers because it serves as a holistic reflection of your business’s performance.

Sometimes though, a shorter window, like six months, is more useful. This often pertains to businesses that have either grown rapidly or faced a steep decline.

For example, they might have experienced a supplier shutdown or a sudden surge in demand. In those cases, the business’s current situation might be drastically different from what it was a year ago, so a shorter pricing period is more applicable.

A shorter pricing window can also benefit new businesses that are just starting out. Their performance tends to fluctuate wildly as the enterprise gains traction and finds its place in the market, so a shorter pricing window may give a clearer picture of how the business is doing right now.

Be aware though, a shorter pricing window is usually associated with instability and uncertainty, so it attracts fewer buyers and results in a lower valuation multiple.

On that note, what exactly is a valuation multiple?

What Goes Into a Multiple?

Now, let’s dive into the other aspect of the valuation formula: the multiple.

The multiple represents how stable, defensible, and poised for growth your business is. The higher it is, the more attractive the business, and thus the greater the valuation will be.

Below are the key factors that influence the multiple, along with a few tips on how to ensure your FBA business ticks these boxes.

Growth patterns

Showing your business’s expansion gives potential buyers insights into its sustainability and enduring appeal. Consistent growth indicates your business is solid and customers like what you offer.

This kind of steady growth reduces risk for buyers, making your business more attractive and dependable.

While fast growth is exciting, buyers want to ensure your success isn’t merely a flash in the pan but something built to last. They’re looking for an investment, so they want a business that has room to grow.

Stability of earnings

Your earnings history tells the story of your business, so it shouldn’t be a rollercoaster ride of peaks and valleys. A volatile earring history is a red flag that usually signals underlying problems within the company.

Instead, buyers want consistency, and a steady stream of revenue is something they can trust.

This is usually achieved through diversification. Relying on one product or revenue source makes your business vulnerable.

Diversify your product catalog and expand into additional marketplaces or different eCommerce platforms to reduce your risk. That way, if one income stream hits a slump, another will pick up the slack.

Protect your brand

The key reason buyers want to acquire an existing business is to leverage the momentum it already possesses instead of having to start from scratch.

If a copycat comes along and steals your thunder, it makes your business a lot less valuable and puts a big dent in the buyer’s plans.

Trademarking your products and registering them with Amazon’s Brand Registry prevents this from happening and makes buyers feel more confident.

Solid supply chain

A strong supply chain is the backbone of a successful Amazon FBA business. That’s why it’s vital to have reliable suppliers in your corner.

Again, you shouldn’t have all your eggs in one basket, so have backup suppliers on call if you run into any issues. Ideally, you should have at least two, preferably in different places in the world.

Leveraging MyFBAPrep’s global prep and fulfillment network is a great start to ensure your products arrive at Amazon warehouses quickly and efficiently while you focus on growing your business.

Owner involvement

A common misconception is that buyers prefer owners who are heavily involved in the business. In reality, most buyers are looking for an investment, not a job; they prefer a more hands-off approach.

To make your business more appealing as an investment, reduce how much time you spend working on it directly.

Aim for less than 10 hours a week, if possible. Automating tasks and outsourcing work to freelancers can streamline your operations and free up your time.

Business age

Older businesses are usually more attractive to buyers because they’ve shown they can survive ups and downs, established their reputation, and built a loyal customer base.

Newer businesses with a shorter history, meanwhile, are riskier and usually valued lower since they lack a proven track record.

If your business is less than a year old, you’ll be hard pressed to find an interested buyer. Online businesses older than three years tend to receive the best valuations.

Consider a broker

Most small to medium-sized Amazon FBA businesses sell for two to four times their seller’s discretionary earnings (SDE).

To put that in perspective, Empire Flippers helped sell more than 50 Amazon FBA businesses in 2023.

The median sale price was $328,930, with an average multiple of 31X. (sometimes shown as 3.1X on marketplaces that use annual multiples).

Keep in mind that buyers will often negotiate a lower price than the one your business initially advertises.

This is another area where an online business broker can save you money in the long run.

Brokers have the knowledge to prevent lowballing and can shield you from being pressured into unfair terms.

Wrapping up —How to value an Amazon FBA business?

Whether you plan to sell your business soon or in the distant future, understanding how much it’s worth is crucial.

An accurate valuation helps you make informed decisions about your company’s future and which business aspects you should focus on to increase that estimation.

Don’t operate in the dark or rely on guesswork. Use our free valuation tool to gain a clearer idea of how much your Amazon FBA business is worth so you earn the sale price you deserve.