• Nate

What Does Perch Look for When Buying a Business?

Updated: Jan 25, 2021

If you are seriously considering or even just toying with the idea of selling your Amazon FBA business, you are probably wondering what buyers might be looking for. As I mentioned in a previous post, there are at least three main categories of buyers out there. Each has a different approach and may evaluate businesses on various criteria.

So, while I can’t speak for what every buyer might be looking at, I can tell you what we look for here at Perch. Here are the four things we look for when considering buying an Amazon FBA Seller business.

Strong Organic Search Performance

We believe that if your Amazon FBA products have a high organic search rank, you must be doing something right. If you’ve got high conversion on key search terms, you have proven that you have a good product/market fit and that you have found relevance in the Amazon ecosystem. I look for page one results and, ideally, listings right at the top of the page for organic search. That factor alone answers a lot of other vital questions about the product’s quality and viability. There are of course competitive niches where a great business may not be at the top of page 1, or a niche where customers like to browse (e.g., apparel) that makes a business still a great fit, but being able to drive organic sales is a must.

Strong Review Base (Quantity and Quality)

Organic search results are all about impressions. Strong reviews are all about getting engagement and conversion. That is why I always look at an Amazon FBA seller’s quantity and quality of reviews. When buyers have options in a competitive market, they want to see a large number of reviews and, of course, they want them to be positive. It is relatively simple. If a consumer is looking at two similar products with similar prices, having better reviews makes the sale.

This is really important for us at Perch when we are considering buying a business. I see reviews as somewhat of a protective “moat.” A high quantity and quality of reviews improve the chances of carrying a business’ success into the future.

A Track Record of Profitable Growth

Of course, I will look at the current performance and revenue of any Amazon FBA seller we consider purchasing. During my analysis, though, it is about far more than how the business is doing at a moment in time. What I am looking for is an upward trajectory, both up and to the right, with growing sales and stable or growing profit margins.

An Amazon FBA seller could be doubling in sales every year, but still not making much in terms of profits. In these cases, their sales may be the result of high PPC spending and low pricing. That may not be sustainable and could make the business less attractive to buyers like us who are valuing a business on the basis of its profits.

On the other hand, we could see a business that is managing to have sky high margins of 40-45% but that comes at the expense of sales velocity, and so it’s losing market share to lower-priced competitors. This is something else that would need a more careful review and might not bode well for the long term positioning of your brand.

Overall, I am looking for a good balance of solid growth and healthy profit margins. None of this is to say that you can’t sell your business if it has plateaued or is even in decline. Here at Perch, we have even purchased distressed business if the other factors add up to make it a good investment.

Focused Product Portfolio

The final factor I look at when deciding if an Amazon FBA seller may be a good investment is whether it has a focused product portfolio. In this respect, Perch is a little different from some of the other buyers.

I might look at a seller with $800,000 a year in revenue, but then see that it comes from dozens of listings. That is a warning flag for me that the relative value to complexity of operations won’t be a great fit. I would much rather see a seller with four “hero” ASINs, having hundreds or even thousands of reviews. That shows me an Amazon FBA business that is genuinely focused and likely to maintain a certain level of success in the future.

This doesn’t mean that you should be afraid to try new things and experiment with additional products. The difference is that once you figure out what is going to work and what isn’t, you invest in the winners and let the losers go.

Many great businesses have some or all of the qualities discussed in this article — the best way to find out whether your business may be a good fit is to have a conversation with Nate or Colby from our acquisitions team.

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