Experts Tips For Buying An Amazon Business
Amazon has become the largest eCommerce platform reaching a net worth of 1.65 trillion US dollars. Amazon’s market capability to capture a massive volume of customers and their original service provision has enabled them to dominate the online eCommerce market in this competitive era.
Amazon’s eCommerce platform has built-in traffic, a dominant advantage for businesses operating in Amazon. The most challenging question that arises in entrepreneurs’ minds is whether they should start their own business or buy an existing one on Amazon? In both scenarios, entrepreneurs have to put significant effort into boosting their business under immense competition.
Starting a business from scratch needs entrepreneurs’ effort to get established in this highly competitive environment. Moreover, innovation and massive investment are required to make your business run on Amazon from scratch. For this reason, most of the entrepreneurs choose to buy an existing business on Amazon to minimize their effort and staring their own business.
Investing or buying an Amazon business is highly profitable if you use competitive and innovative strategies. Look at Amazon’s impressive investment value statistics from 1997 to 2021.
Things to consider when buying an Amazon business
Here are the few things that must be considered while buying an Amazon business:
1. From where are their products coming from?
Before buying an Amazon business, you must consider where their business products are coming from. Or in a simple way which type of business they are operating. Mainly there are three types of business in the Amazon industry:
- Private label
The private label business is manufactured and sold under a specific retailer name. The perfect example is Kraft, which manufactures its product under Planters Peanuts. Private label business can increase your profit margins as you only have to pay for the product cost, and the rest of the activities are handled by the end retailer. More importantly, the operating expenses of private label businesses are also low as the products enlisted in the category are of low manufacturing cost with the bulk of orders. It reduces the shipment cost of the product.
Private label businesses on Amazon have their own unique branded products. Private label businesses are precious in the Amazon platform and carry significant market share worldwide.
2. Purchasing directly from suppliers
All don’t need to sell a new product on Amazon. You can also sell your products by purchasing directly from suppliers or wholesalers. Here you have to be acknowledged that your inventory should be huge for making higher profits and managing control over prices. It has also had lower risks of failure as you are directly dealing with leading suppliers or brands. Therefore, an Amazon business linked with wholesalers and suppliers can also be helpful for you to attain more significant profits.
3. Arbitrage business
Arbitrage business involves taking advantage of the price difference between two markets and selling it on Amazon or any other platform. Here you can buy discounted products from retailers and sell them on Amazon. Arbitrage business is not considered valuable on the Amazon platform as they require a lot of effort to run business and lack competitive advantage. Therefore, you are not advised to buy an Amazon business linked with arbitrage.
4. Age of business and sales history
Before buying an Amazon business, you must analyze the age of existing business and history. An excellent running company will always show consistent growth over a more extended time. You must look for a business on Amazon that is established and maintains efficiency.
You must be aware of the seasonality of the products as it can create volatility in your sales. Several risks factor can arise here:
- Insurance of the business is fundamentally essential to save you from future danger. The product can be replaced by new technology or better innovative products. You must check whether the product is trendy or its sales will fade away in the future.
- You should also consider whether the seller’s account was suspended or not? By checking into the market analytics growth of that business, you can observe where the data is missing of sales. The point where information is missing illustrates that the account has been suspended.
- Insurance of the business is fundamentally essential to save you from future danger.
Checking the business growth analytics and its sales history will give you an overview of business feasibility and profitability.
5. Review of the product quantity and quality
This category is applied to private label storefronts. Nowadays, most shoppers of different ages look at the reviews to buy their products. Fig 3 below illustrates the different age groups percentages that consult reviews for every purchase.
6. Analyzing the costs of selected business
Before investing in any business, it is fundamentally essential to analyze and research the costs of the selected company. It would help if you studied how that business operates and the prices that can be faced for business stability, inventory management, payrolls, and many others.
Having complete knowledge of the business will make you confident in making a purchasing decision. Before buying an Amazon business, getting in-depth knowledge about the selected company will make you run that business effectively on the Amazon market.
7. Asking about reasons for selling
Asking the business seller about why they are selling their running business is very important for your safety. There can be many reasons that can be kept hidden from you. You must ask this question after completing research of your desired business to invest in.
It can be possible that they are selling their business due to hidden dangers in the future or if their interest is switched to some other business. Acknowledgment of reasons will make you aware of the leading causes of that business selling. You can quickly analyze the seller’s reasons for selling the product if you have researched entirely about that business.
8. Inventory expenses and costs
The business you will buy will have a small or large inventory stored in their warehouses. It is vital to ask the seller, are you paying for that inventory what the seller has paid, or are you bearing the total retail price of that inventory? You must analyze and calculate these statistics.
The business’s inventory to be purchased should leave you in profit as was enjoyed by that business previously. Any additional expense required by the seller must be analyzed and calculated before buying that business.
9. Diversification of business
Diversification of a business is significant during risk assessment. Diversification means whether the business has unique products that gain a competitive advantage or are also being sold elsewhere besides the Amazon platform.
Companies that promote and sell their products on other platforms, including Amazon, encompass more financial worth and stability. For instance, if the selected business you are going to purchase sells their unique product on Shopify, they will enjoy more profits and less risk of eradication from the market. Amazon has authoritarian policies under which you can sell your product, and abiding by these policies can harm your business.
Suppose that diversified business has demand on other eCommerce platforms and is currently operational for sales, including Amazon, then they are worth buying. If your Amazon account is temporarily or permanently suspended, diversifying your business off Amazon will save you from considerable risk.
10. SOPs existence
SOPS of business are important to consider while purchasing that running business. SOPs are standard operating procedures that should be part of every running business or organization to show their professional approach. If a business is good, it will always have standard and outstanding SOPs.
Research conducted by Montrium explained that SOPs promote consistency, reduce errors and enhance communication within a business or organization. If SOPs are great, you can purchase Amazon running a business. If the business runs under great SOPs, it will grow financially and ensure stability. For this reason, checking existing SOPs of running an Amazon business is very important.
From Where You Can Find An Amazon Business To Buy?
To ensure authentication, you should consult a professional broker to purchase an Amazon business. If you are dealing with the seller yourself, it can be problematic due to a lack of experience.
A professional broker will act as a third party between you and the seller. It should be clear that hiring an experienced broker is not a cheap deal because they can charge you high prices for deal confirmation with the complete authentic procedure. But they will ensure that there must be no conflict between you and the seller related to costs and transition of the business.
They always assist sellers and buyers with the complete information of their desired business. These brokers answer every detail the purchaser and seller require to make a good deal between buyer and seller.
Good brokers will always ensure that you know what is happening and guide you step by step for your assistance.
Buying an Amazon business can be a great profitable deal for you if you follow the above-listed steps that must be considered before making a purchase decision. Amazon is the world’s largest ecommerce platform that can provide you extensive incentives if you operate under their platform.
If you want to buy Amazon business, conducting research on that business and analyzing above listed steps is fundamentally important for a good decision. If you follow the above-listed steps, you will land on purchasing great Amazon business.