Our previous article discussed what to consider when acquiring an Amazon FBA business relating exclusively to the Deal, specifically the Deal Structuring & Valuation, Due Diligence & the Transition Period. This week we will review the core components that need to be considered when acquiring a business relating to the fundamentals around Managing & Operating an FBA business.
When acquiring an Amazon FBA business, it is fundamental to understand the many hats required to be worn in order to be a successful Amazon FBA business operator. The vast majority of Amazon FBA business owners operate the business in a very lean manner, specifically, the Founder will manage the bulk of the day to day and be supported by 2 or 3 Virtual Assistants (primarily focusing on Customer Service). The result being when acquiring an FBA business initially the new owner will be the Head of Marketing, Head of Product Design, CFO and Supply Chain Director (there are many others but these are the core areas). We’ll analyse each of these primary roles.
A key component of success when acquiring and scaling an Amazon FBA business is the ability to manage the Amazon related Digital Marketing strategies effectively. Specifically, a fundamental understanding of SEO and PPC Advertising is crucial, as well as a detailed knowledge of other related topics such as Brand Registry, A+ Content and off Amazon advertising strategies (if appropriate!). It depends what type of FBA owner you would like to be, if the strategy is to follow the previous owner's 'lean operations’ model, then your expertise need to go beyond fundamental understanding (as you will need to manage the advertising campaigns and direct freelancers on how to design A+ Content). Alternatively, delegation and engaging with experts is a useful strategy, but choose wisely!
Similarly, when acquiring an FBA brand a core consideration is new product launches, i.e how to mechanically design and then launch a new product. This along with international expansion is arguably one of the most obvious growth opportunities. For FBA brands the core considerations when deciding new product launches are the following: 1) brand fit, does this product enhance the current catalogue?, 2) is this solving a problem, how is the product solving a customer requirement or provide a gap in the current range? 3) Data & Analytics, there are multiple tools that provide detailed data on specific data points such as search volume and forecast revenue of competitors, a data driven approach married with a marketeers eye is crucial. This is the key to success when considering purchasing an FBA business, do you have a blended skillset / mind?. The final consideration is economics, the DTC / FBA business model is notoriously cash flow heavy. By launching unprofitable products or those with tight margins will result in an eventual strain on the cash flow position once or if sales velocities improve. Regardless of what type of owner you become, understanding unit economics is crucial.
Linked to this is the CFO hat, this isn’t just from a strategic perspective but also in relation to practical day to day decision making. Everything is intertwined, for example, one of the cardinal sins when operating an FBA business is running out of stock. CFO head needs to be on when determining inventory planning, indexed against cash flows and determining advertising budgets (which in theory would increase sales velocity and in theory require more cash for stock). When considering acquiring an FBA brand, if your skillset is not with the numbers, we would strongly recommend engaging or partnering with a numbers focused individual or team.
The Supply Chain Director element is also a key consideration, is this an area yourself or your team has expertise? Aside from Inventory Management as previously mentioned, supplier relationships are crucial and the decision whether to manufacture the products in the far east or in the west have an array of connotations (primarily on cost). Furthermore, the operating model is an important component for consideration, the current Founder may have a traditional supply chain: manufacturing -> 3PL Provider -> FBA warehouse. Is there an alternative? Would it make sense to acquire your own warehouse? Send directly to Amazon from the supplier? What impact would this have on the P/L?
The final key consideration is the utilisation of Automation tools and Delegation. With Amazon FBA being an online business, there is a vast array of SaaS tools that can aid any incoming owner with a slick operation removing the manual tasks. For example, Helium10 is a great tool aiding product & keyword research as well as listing optimisation and Perpetua is a well regarded PPC tool. Here is a great list by Smartminded relating to the best Amazon FBA Seller Tools. Delegation is also a key decision, as previously mentioned, the vast majority of FBA business owners manage their businesses themselves with the assistance of 1 or 2 Virtual Assistants (VAs). Whilst hiring personnel is an option, it is not necessarily crucial to success, we would always recommend engaging with trusted growth partners or accelerators to aid in the heavy lifting. For example, a London based firm called eVenturing provide a full 360 service offering taking a true holistic approach to Amazon Account Management. Specifically, their team manages all things from SEO, PPC to Supply Chain, Cash Flow planning and International expansion.
There are many more considerations when deciding whether to acquire an Amazon FBA business, we have covered the core areas on the Operations & Management side. We at Chapter International aid buyers and sellers to either acquire or exit their Amazon FBA & DTC brands. If acquiring a brand is something that you are considering in 2024, please contact us for a confidential conversation. Our team can provide guidance across the full process and assist you in deciding what type of business is right for you.