Just before the pandemic started, something was brewing in the world of small brands selling on Amazon. A growing number of well-funded companies were buying up successful small sellers. Then, when everyone was stuck at home and buying even more from Amazon, the idea of consolidating brands took off.
The companies, called Amazon aggregators, buy resellers with decent annual revenue and employ expert e-commerce marketing and efficient business systems to create even greater profit and revenue.
Whether you are a startup seller or an established company, you have probably thought about your exit plans. Would you sell to a larger competitor? Do you want to grow enough for a private equity firm to buy? Or maybe you want to run a nice cash business for a while, with little desire to take your e-commerce business to the next level.
You should put “sell to an Amazon aggregator” on your list of possible options. According to one study, Amazon aggregators raised over $12 billion in 2021, which dwarfs the $1 billion raised the year before. These firms are using the cash to buy and elevate Amazon brands with good growth potential.
If you have a private-label business focused on selling on Amazon — or if you are thinking of starting one — you should understand what Amazon aggregators are. You need to know the advantages of selling to one, what they’re looking for, and how to maximize your value to the market. And that is exactly what this article will cover.
What Are Amazon Aggregators?
Amazon aggregators succeed by bringing economies of scale and domain expertise to Fulfillment by Amazon (FBA) businesses. Where you may have a team of four or five to manage your e-commerce business, Amazon aggregators have hundreds or thousands of employees who can take your brand to the next level.
Consolidators of e-commerce brands vary. Some seek any successful FBA brand, while others have industry-specific or geographic constraints. Though most are based in the U.S., there are several Amazon aggregators in other countries. A few look at sellers on other e-commerce platforms like Shopify and Walmart.com.
Despite variances, aggregators tend to focus on brands selling through Amazon in the U.S. They identify the right companies using readily available ranking data from a brand’s Amazon sales history.
In most cases, Amazon aggregators use Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) or a metric developed for small retailers, Seller’s Discretionary Earnings (SDE), to determine the purchase price. They generally pay a multiple of one of these metrics, called the valuation. Last year, many aggregators paid decent multiples of two to four times EBITDA for Amazon sellers.
Usually, you receive a lump sum at the time of the purchase and then regular payments for the rest of the amount owed. These payments over time are called an earnout, and the amount and timing depend on how well the brand you sold does.
5 Advantages of Joining an Amazon Aggregator
Here are five advantages that we see to help you make that decision:
1. You Get Money for Your Brand Now
Remember that old saying, one bird in the hand is better than two in the bush? Well, that applies to selling your Amazon FBA business to an aggregator. You might make more money in the future, but you will definitely make whatever price you negotiate if you sell to them now.
2. The Amazon Aggregator Can Grow Your Brand Faster
Amazon aggregators make money because they know how to work the Amazon selling platform. They will invest in pay-per-click (PPC), more professional product images, and SEO for your listing. There is a lot to Amazon listing optimization, and they have dedicated time and expertise into getting the most out of, and keeping up with, all the ways you can get a product in front of more customers.
You may ask yourself, “After I sell, why do I care if the brand grows?” Well, their ability to build sales ties directly to how much they will pay you. If your sale includes an earnout provision, you can see much more money over time as the sales of your former products go up.
3. You No Longer Have To Deal With Running Your FBA Business
You may like working with your team to source and promote your private-label products. But, if you are like most entrepreneurs, you may miss the building stage fun and get tired of the day-to-day grind of dealing with all those details. Supply chain headaches are a great example of something you may never want to deal with again. And once you sell, you can take a break or focus on your next entrepreneurial conquest.
4. Make More Money Over Time
Even if your brand is doing well, you may have hit a plateau and need a bigger team and more money to get your products to the next level. When you sell to an FBA aggregator, they bring all their expertise to the table to increase revenue and profit margins.
But remember, you need to negotiate an earnout deal with strong incentive payments so you benefit if they do well with your brand.
5. Once Your Earnout Is Done, Market Fluctuations Are No Longer a Risk
When Amazon aggregators roll up companies, they take on the risk associated with selling in the Amazon Marketplace. If you were lucky enough to catch a fad, you don’t have to pay the price when the trend goes away. The same goes for future supply chain issues, inflation, recession, and other market fluctuations. Changes in the ecosystem are something they have to deal with, not you.
What Are Amazon Aggregators Looking For
- A Brand With Products Customers Want: You have to start with products that people want to buy. That goes back to good market research and product development. They want a brand with products that fill a need in the marketplace and deliver value to customers.
- A Private Label That Uses FBA: Amazon aggregators focus on the selling part of the full product development, manufacturing, and sales process. They are not interested in third-party sellers because they don’t want to take on manufacturing or all the details of shipping and supporting the product. When they buy a private label seller, they only have to order from the existing manufacturer. And with FBA, all the logistics, warehousing, and support are handled by Amazon.
- $1 Million to $5 Million in Annual Sales: These numbers can vary across the market. Most Amazon aggregators pursue smaller sellers who have proven a need in the marketplace but have room to grow bigger.
- A Profit Margin Between 10-20%: Amazon aggregators want brands that make a good annual net profit but also have room to increase the profit margin. They search for companies in the 10-20% margin range. By using their skills at Amazon Marketplace selling and reducing costs through shared services, they can improve that profit margin.
- Manufacturing Partnerships They Can Work With: The last thing an acquirer wants to do is swap out manufacturing suppliers after buying a brand. So they select companies with a clean supply chain and a partnership with a reliable manufacturing partner they can easily assimilate into their system.
- Consolidation Strategy Fit: Every Amazon aggregator has a set strategy on what product category, selling profile, history, supply chain, and brand image they are looking for. Some want to add new brands with only one product. Others seek a variety of SKUs. Some may focus on one vertical like supplements, consumer electronics, or personal care products. If you decide to sell, work with Amazon aggregators aligned with what you have to offer.
Partner with Experts to Maximize Your Value
The best way to maximize your sale price is to maximize your value. And the best way to do that is to partner with experts like the team at Gembah. We can help you with market research, product design, finding a manufacturing partner, and even adding products to your portfolio.
If you are just beginning your product journey, start your project with us. If you already have products and want help with any part of getting those products to market, or introducing new ones, contact us, and our experts will start adding value right away.
