FBA businesses have been one of the most significant businesses ventures available to entrepreneurs in the past ten years because of the ease of ownership and operations. Compared to several other E-Commerce businesses, FBA businesses sell products on the world’s largest online auction site/retailer — Amazon. That said, there is a lot that one should consider before deciding to pull the trigger on making a purchase.
Properly evaluating an FBA business is key to purchasing a successful store in the desired niche. Ideally, the store has been up and running profitably for some time. If not, there should at least be potential. However, the behind-the-scenes work that creates a successful FBA business is what one should consider before making the purchase. Here is your quick guide on FBA due diligence: how to evaluate an FBA business.
Understand the Business’s Suppliers
In any business dealing with suppliers, it is of utter importance to understand agreements and terms with them. An FBA business is no different in this regard. Here are a few key factors to be considered:
Lead Times:
FBA businesses rely on product turnover in rapid fashion. Furthermore, the product the FBA is selling is likely outsourced — not made in-house. When looking at buying an FBA business, understand how long it is going to take for the supplier to deliver the products. This holds especially true for products that sell rapidly. Without having the product in stock, there is no money to be made. The faster the product can be delivered from the supplier, the better.
Margins:
It should go without saying that the cheaper a business can produce or source the product, the higher the margins will be on sales. Are the product(s) the desired FBA sells sourced at a reasonable price from their suppliers? If not, understand if it is possible to work with the supplier for a better price or see if it is possible to drop the supplier altogether. The better the cost per unit from the supplier, the more money the FBA will make.
Competition
If you know anything about FBA businesses, you likely know that it is vital to have a niche market product. This will allow the company to excel in one particular, less competitive market. Still, Amazon is large, with so many retailers that there will almost always be competition in any niche. Understanding how the business preforms in that niche are essential to determine the possibility for future growth.
Evaluating this metric can be performed in many ways, but the simplest way to do so is going through and finding the business’s competition on Amazon. How well do they perform and how is the quality of their product? Merely going through reviews from their sales can be a great indicator as to the potential for another business’s possibility to excel. A competitor who has a low product review count on the product your desired FBA is looking to sell should be possible to beat out.
Another aspect that is important to consider is the price. It should go without saying that people want the best price possible for the highest quality product. Look at the competition’s pricing and compare it to the reviews they receive. If the competition is selling their merchandise at a better price and is of high quality, the odds of another FBA finding success in that same niche is unlikely.
While there are other aspects to be considered when evaluating an FBA business, these are among some of the most important. Ensure that you research the business as much as possible before deciding to pull the trigger. Doing due diligence is vital to the success of the business, so make sure to follow these steps to help evaluate an FBA business before making that purchase.
