Written by McClain Warren, Brand Ambassador and Marketing Director at Ashlin Hadden Insurance
**TL;DR at the bottom
When you enter into a marriage, you have (hopefully) done your homework. You know your partner’s likes and dislikes. Their goals and their fears. Their quirky habits, spending habits, and bad habits. Their relationships with their exes, their parents, and themselves. And all the stuff in between that has convinced you that this is the person you want to spend your future with.
Similarly, when a buyer is interested in your Amazon business, they want to know everything they can about your business before deciding your company is the one they want to spend their future with.
While there are many obvious factors that aggregators look at during the business valuation process (i.e. profit margins, sales history, and account health), some of the other metrics are, well, not so obvious. In this article, we will explore the more ambiguous factors that play into the business-buying decision. By understanding them and then taking measures NOW to resolve possible conflicts or gaps, you can potentially increase the value of your company with relatively little headache.
But first things first…
What is an Amazon Aggregator? (A Short History)
Also referred to as a “roll-up” or an “M&A”, an Amazon aggregator refers to a business entity that acquires and consolidates multiple third-party businesses on the Amazon marketplace. They aim to create economies at scale and operational efficiencies by pooling together various Amazon seller accounts under a single umbrella. The aggregator typically identifies successful Amazon brands, negotiates acquisition deals, and absorbs their products, brands, and customer base. By leveraging their expertise in marketing, supply chain management, and operational optimization, these aggregators strive to enhance the overall performance of the acquired businesses to add to their business portfolio.
M&As have been around way before Jeff Bezos was even born, but Amazon/FBA-specific aggregators didn’t come on the scene as a distinct business model until 2017, with powerhouse, Thrasio, making waves in 2018.
However, the Amazon aggregation “craze” didn’t fully pique until 2021-2022 and that was a direct result of the social and economic circumstances that had been building up. Circa 2021, the world was just coming off the heels of a pandemic that had constrained most of the population to shop online, as well as forced many unemployed families to start their own online businesses.
By the time Covid restrictions had started lifting a bit, the damage had already been done. The trajectory of consumerism that had already taken shape prior to Covid reached a tipping point. Online consumerism had become the norm and there was no turning back.
Amazon had already established itself as the dominating marketplace pre-Covid, but their profit increase of nearly 200% during the pandemic rocketed the entity to world-domination. Naturally, Amazon sellers were experiencing unprecedented profits and aggregators capitalized on this newfound opportunity.
Suddenly, M&As like Perch, HeyDay, and Foundry were coming onto the scene with millions in funding, aggressively purchasing Amazon FBA and private-label businesses at neck-breaking speeds. For a while there, “Amazon talk” had shifted from scaling your business to selling your business.
While the aggregate frenzy has settled a bit since, the craze did leave a lasting impression on many sellers with regards to planning for the future. If you happen to be one of those sellers, it’s vital you understand the “less talked about” factors that influence your company’s value. So, here we go!
1. Customer Lifetime Value and Retention
Customer Lifetime Value (commonly referred to as CLV) represents the projected revenue a business can generate from a single customer throughout their entire relationship.
By assessing a company’s CLV, aggregators gain insights into customer buying behavior, purchase patterns, and profitability over time. A high CLV indicates that customers have a higher likelihood of making repeat purchases, which is indicative of brand loyalty and customer satisfaction. This metric assists in helping buyers evaluate the potential return on investment and estimating the future revenue streams from the acquired customer base.
In that same vein, customer retention rates are just as important. As a general rule (though it is contingent on your products and business model), it costs 5x as much to gain a new customer than it does to keep a current one.
Customer retention also contributes to organic growth. Satisfied customers are more likely to speak highly of your product, recommend your business to others, and leave positive reviews. This can attract new customers and drive additional sales without incurring significant marketing expenses. Furthermore, as customer retention increases, the business benefits from reduced customer acquisition costs, allowing resources to be allocated to other growth initiatives.
Lastly, as you add new products to your catalog, loyal customers are very likely to try these new products out.
From an aggregator’s perspective, acquiring businesses with high CLV and strong retention rates presents not just a good foundation, but an opportunity for continued growth and profitability.
If your CLV/retention rate are low, it’s crucial that you get to the root of why. Usually, the culprit is one (or a combination) of the following:
- Poor product quality
- Poor customer relations
- Lack of customer engagement via marketing efforts, emails, and social media
- High prices/lack of deals
- Weak brand identity or differentiation
Once you pinpoint where the problems lie, you can work out the kinks to increase your company’s desirability.
2.Identifying Market Trends
Amazon aggregators recognize that staying ahead of market trends is essential for sustainable growth. They are well-versed in monitoring consumer behavior, competitive landscapes, and emerging technologies. Here are some key factors they consider:
What is the consumer demand for your product? Aggregators closely track shifts in consumer preferences – analyzing which products are gaining popularity and which ones are losing traction. By identifying emerging trends early on, aggregators can strategically acquire businesses that align with these trends which ensures a higher probability of success.
What niche is your business targeting? Aggregators are always on the lookout for untapped niche markets. They seek businesses with unique products or those targeting specific customer segments that show potential for growth. Recognizing a niche trend in its infancy can provide a competitive advantage. So, if your business is doing just that, this will pique the interest of aggregators.
What technological advancements does your company utilize? The ever-evolving e-commerce landscape brings forth new technologies and platforms. Amazon aggregators keep a pulse on emerging technologies such as augmented reality, voice commerce, or artificial intelligence. They look for businesses that leverage these technologies or have the potential to adapt quickly, enabling them to capture the benefits of the latest market trends.
In short, market trends won’t just increase or decrease your company’s value – it could be a make-or-break situation. If your products are outdated and/or your niche is relatively broad, this will likely lead to a “break”. Aggregators want to know that your business model, your products, and your team are adaptable to continuous changes in the market.
3. Social Media Presence and Engagement
Most of us use social media to avert boredom during Hulu commercials, so a strong social media portfolio may seem like a ludicrous factor when discerning the value of a company. And while it’s not necessarily a make-or-break measurement, your presence and branding on social media platforms usually becomes part of the valuation assessment. In this digital era, social media has become an integral part of businesses’ marketing strategies.
Social media platforms provide businesses with a unique opportunity to connect with their target audience and establish a strong brand presence. Here’s why Amazon aggregators place importance on a business’s social media efforts:
Social media can be a powerful vessel for building brand awareness if you use it correctly. Amazon aggregators recognize that businesses with a robust social media presence can effectively reach and engage a wider audience. A strong brand presence enhances recognition, trust, and credibility among potential customers, making the business more attractive for acquisition.
How often do you engage with your customers? Social media platforms facilitate direct communication and engagement with customers. Aggregators will place more value on your Amazon business if you have built a strong rapport with your customers. This means responding to inquiries, addressing concerns, and fostering a sense of community. Engaged customers are more likely to develop brand loyalty, leading to repeat purchases and positive word-of-mouth recommendations.
Do you collaborate with any influencers? Many Amazon roll-ups take note of businesses that have successfully collaborated with influencers and thought leaders in their industry. Influencer partnerships can amplify brand reach, expose the business to new audiences, and enhance credibility. If you have established fruitful influencer relationships, this demonstrates your company’s ability to leverage social media as a means to drive growth and increase market share.
Driving Organic Traffic and Sales
A well-executed social media strategy can significantly impact organic traffic and drive sales for Amazon businesses. Amazon aggregators recognize the potential of social media to generate tangible results. Here’s how a strong social media presence contributes to business growth:
- Organic Reach and Visibility: Well-crafted content (product showcases, informative posts, engaging visuals, keeping up with latest trends) can attract potential customers, driving them to your Amazon storefront or website. Increased visibility translates to higher organic traffic and, ultimately, more sales opportunities.
- Customer Acquisition and Retention: Social media platforms can act as effective customer acquisition channels. By strategically targeting specific demographics and utilizing engaging content, you can attract new customers and convert them into loyal buyers. Moreover, social media enables businesses to maintain relationships with existing customers, encouraging repeat purchases and fostering long-term loyalty.
- Referral Traffic and Viral Potential: Aggregators recognize the potential for social media content to go viral, generating substantial referral traffic. If your business creates shareable content or incentivizes customers to share your products, this can lead to increased sales, brand exposure, and opportunities for acquisition.
Social Media Metrics When Valuing Businesses
When discerning the true value of your Amazon business, aggregators will take social media metrics into account. These metrics provide insights into the effectiveness of your company’s social media campaigns.
First, aggregators assess the growth rate of a business’s social media followers and the level of engagement it generates. High follower growth indicates a growing audience, while strong engagement metrics (such as the number of likes, comments, and shares that each post generates), is indicative of a loyal and active customer base.
Secondly, aggregators analyze the reach and impressions that your posts prompt in efforts to understand the business’s social media visibility. A higher reach indicates that the content is being seen by a larger audience, while impressions provide insights into the number of times the content has been displayed. Businesses with a wide reach and significant impressions have a higher potential for generating organic traffic and brand exposure.
Finally, aggregators examine social media conversions and sales metrics to assess the direct impact of social media efforts on your business’s bottom line. You need to demonstrate a correlation between social media activities and sales performance. Metrics such as click-through rates, conversion rates, and attributed sales provide valuable insights into the effectiveness of your business’s SM marketing campaigns.
4. Team Dynamics and Company Culture
Your company’s value goes beyond financial metrics and product performance. Aggregators often delve into the intangible aspects that contribute to long-term success.
The impact of a well-functioning team on a business’ success and scalability is invaluable to most aggregators. They understand that a cohesive and effective team is instrumental in achieving business success and facilitating scalability. Aggregators value teams that:
- Foster collaboration and innovation
- Bring diverse skills and abilities to the table
- Promote open communication, idea-sharing, and problem-solving.
Such a collaborative environment fosters creativity which leads to innovative solutions and a competitive edge – all things aggregators cherish.
For obvious reasons, streamlined operations are really important to aggregators. A lot of M&As prefer keeping the employees who worked under you if efficiency and operational excellence are observed. After all, it costs an aggregator a lot of money to hire and train a whole new staff. When team members understand their roles, work well together, and have established workflows, this enhances productivity and reduces operational bottlenecks.
An enjoyable and strong company culture also plays a vital role in attracting top talent and encouraging employee engagement. Amazon aggregators recognize the significance of a positive and inclusive work environment. A positive work culture, defined team values, and a supportive atmosphere appeals to potential employees looking for a fulfilling and meaningful workplace. This also promotes employee satisfaction, motivation, and loyalty, which leads to less turnover. Finally, a positive company culture generally cultivates innovation, learning, and continuous improvement; it indicates your team’s ability to navigate evolving market conditions, embrace new technologies, and seize growth opportunities – qualities very appealing to buyers.
In other words, if your current team culture is “meh”, you might want to consider instituting things like sporadic company raffles, Taco Tuesdays, and Happy Hour Fridays.
If your business is completely online and your employees work remotely, a positive culture can sometimes be challenging, as there isn’t a centralized workplace. Still, if your employees have been with your company for a long time, consider offering employee bonuses, raises, or even just sending out surprise Amazon gift cards. When you have virtual team meetings, maybe start off with asking everyone to state their professional and personal wins for the week. (We implement all these tactics at Ashlin Hadden Insurance and it helps generate an enjoyable work environment.) Speaking of insurance…
5. Insurance Coverage and Claim History
If you currently sell on Amazon (or are about to launch your product), you likely already know that Amazon generally requires its sellers to have business insurance. What you probably didn’t know is that having a quality insurance plan can actually increase your company’s valuation, as well.
But first things first. What exactly are Amazon’s insurance prerequisites?
Amazon’s Insurance Requirements for Amazon Sellers
As of September 1, 2020, you as a seller are required to obtain commercial liability insurance within 30 days upon exceeding $10,000 in sales in one month. When this happens, you must obtain general liability insurance and product liability insurance.
1. For general liability insurance:
- Your insurance policy needs to include a minimum coverage amount of $1,000,000 per occurrence.
- This insurance should cover third-party bodily injury, property damage, and personal/advertising injury claims.
2. For product liability insurance:
- Your insurance policy needs to include a minimum coverage amount of $1,000,000 per occurrence.
- This insurance is specifically designed to protect against claims arising from the sale of products, including defects, injuries, or damages caused by the products.
These insurance requirements apply to professional sellers on Amazon’s U.S. marketplace. Sellers are required to provide proof of insurance coverage by submitting a certificate of insurance (COI) with Amazon listed as an additional insured party. The COI should clearly show the policy limits and expiration dates.
Why You Should Consider Other Types of Insurance for Your Amazon Business
There are a number of other insurance policies you should consider – whether you currently have no insurance plan or you are covered but just for Amazon’s insurance policies.
Businesses are vulnerable to a whole host of problems that extend beyond lawsuits. And these potential problems can be devastating to your wallet. From cyberattacks to product recalls to lost/damaged inventory pallets, these are not uncommon obstacles you may face and can be managed with little-to-no financial damage to your wallet if you have an expansive insurance portfolio.
Because this blog isn’t meant to focus on the different kinds of insurance coverage available to Amazon sellers, you can check out this blog if you are curious to learn more. Let’s just say that liability insurance only covers you in specific situations, and including add-ons or other types of policies to your insurance plan is a smart decision – not just for protecting your money and assets, but for increasing the value of your company.
Factors That Can Devalue Your Company Based on Your Insurance
A comprehensive and proper insurance plan demonstrates to aggregators your ability to manage risks effectively. It shows your commitment to protecting your business, customers, and stakeholders.
What exactly are aggregators looking for in an insurance plan?
First, buyers often expect sellers to meet or exceed industry-standard insurance coverage. Having a plan that aligns with industry norms enhances the perceived value of the business. Second, a robust insurance plan helps mitigate potential financial losses from product defects, accidents, or legal liabilities. This instills confidence in potential buyers.
At this point, you’re probably wondering why this would be a factor at all, considering a buyer could acquire a new insurance plan if they feel your current one doesn’t suit their needs. And while this is true, your company’s history with insurance actually reveals a lot about your business and your management style that extends beyond insurance coverage.
Your Coverage History
The insurance history of your company is a window into your risk management practices. Specifically, buyers are looking for:
- Continuity and Consistency: A company with a long-standing history of continuous insurance coverage demonstrates stability and a commitment to risk management. This can enhance your company’s perceived value. Alternatively…
- Lapses or Gaps in Coverage: Insurance coverage gaps or lapses can raise concerns. Aggregators may view such instances as indicators of poor risk management or undisclosed issues.
- Coverage Updates: Sometimes, aggregators will evaluate your company’s insurance updates over time. This shows your ability to adapt to changing risks and industry standards.
- Legal Compliance Issues: If you have a history of Amazon-mandated insurance lapses, this will raise a red flag for buyers. It indicates a history of non-compliance, which leads to questions about possible penalties, account suspensions, or loss of business opportunities.
But most importantly, an unfavorable history of inadequate insurance with lapses and gaps means limited negotiating power for you. During acquisition negotiations, you may have reduced bargaining power because potential buyers may use these gaps to negotiate more favorable terms (for them).
Your Claim History
If your company has any kind of claims history, you can bet that a well-versed buyer will investigate it. Based on the above information, you can probably ascertain why your claim history is relevant. But to drill home the importance of a safe business with safe products that is covered by a comprehensive insurance policy, here is why it’s relevant:
- Risk Assessment: Potential buyers evaluate a company’s claim history to assess its risk profile. Frequent or significant claims may indicate higher levels of risk as well as potential future liabilities, which can devalue your company (if not be a total deal-breaker).
- Financial Impact: Claims can result in financial losses due to legal expenses, settlements, or judgments. A company with a history of high-value claims may be seen as financially burdensome.
- Reputation and Customer Trust: A company’s claim history can impact its reputation and customer trust. Repeated claims or unresolved issues may raise concerns among potential buyers about your ability to deliver quality products or services.
The underlying point is that a comprehensive insurance plan doesn’t just protect you from financial ruin while you have still have full reign over your company; it can actually help your company’s valuation when it comes time to sell
Most Amazon sellers go into building their brand with the hopes of one day selling their company over a lucrative offer and spending their retirement on a foreign beach with a rum runner in hand. No? Is that just us?
Regardless of how you want to spend your money, the point is that you want to get the best possible offer for your business. And the only way to do that is to run a fine-toothed comb over every aspect of your business and improve areas that need it. While there are thousands of articles that cover the big things buyers and aggregators look at when determining the value of your company, here are some lesser-known factors: Your customer retention and lifecycle rate, if your company and products are up-to-date with marketing trends, a robust social media presence, a reliable team of employees with a great company culture, and a comprehensive insurance plan with no lapses in coverage as well as zero-to-few insurance claims.
By proactively ironing out any wrinkles your company may have in these areas, when you go to sell your business, you can highlight your business’ strength in these areas and potentially ask for more money.
Interested in checking off at least one of these items on your “to do” list? Ashlin Hadden Insurance is a boutique-style insurance brokerage agency that has been helping Amazon and eCom sellers find full-coverage, high-quality insurance policies based on clients’ business needs. To get started, fill out this application. If you have questions before wanting to initiate the process, email us at firstname.lastname@example.org or visit our website: https://ecom.insure/.
- INTRO: Since the start of Covid, Amazon aggregators and buyers have been the hot topic in the Amazon and eCom space. Naturally, this has morphed into many Amazon sellers looking for ways to increase their company value for when it’s time to exit the business. While there is a wealth of knowledge about this very topic, there isn’t a whole lot of information on the more obscure – yet still very important – factors that M&As look at during the aggregation process.
- CUSTOMER LIFETIME VALUE/RENENTION: Aggregators look at a company’s Customer Lifetime Value (CLV) as well as customer retention rate. A CLV represents a customer’s projected revenue contribution to a business. High CLV and retention rates are an indication of brand loyalty, customer satisfaction, and potential for organic growth. Amazon aggregators prioritize businesses with high a CLV and strong retention strategies, as they present stable revenue streams, reduced risk of customer churn, and opportunities for growth. If you have a low CLV or retention rate, you need to identify and address causes such as product quality, customer relations, engagement, pricing, or brand identity.
- MARKET TRENDS: Buyers understand the importance of staying ahead of market trends for sustainable growth, and as such, they monitor consumer behavior, competitive landscapes, and emerging technologies. They analyze shifts in consumer preferences to identify trends and acquire businesses that are aligned with them. Aggregators also seek businesses targeting untapped niche markets or offering unique products, as these can provide a competitive advantage and increased value. Additionally, they look for businesses that utilize or can adapt to emerging technologies, such as augmented reality, voice commerce, or artificial intelligence, to capitalize on the latest market trends.
- SOCIAL MEDIA PRESENCE: Your social media presence is important to the valuation of your company because it showcases your branding, customer engagement, and strategic use of influencers to further your business goals. Social media contributes to business growth by increasing organic reach and visibility, fostering customer acquisition and retention, and generating referral traffic. Furthermore, M&As look to metrics like follower growth, engagement, reach, impressions, and sales conversion rates to evaluate the effectiveness of your company’s marketing efforts and its impact on the bottom line.
- COMPANY CULTURE: Team dynamics and company culture play a crucial role in the long-term success of any business. Aggregators value teams that foster collaboration, bring diverse skills, and promote open communication. It also helps if the staff like each other and their jobs. Streamlined operations and a positive company culture attract top talent and reduce turnover. Efforts like raffles, virtual meetings, and employee bonuses can create an enjoyable work environment, even for remote teams.
- INSURANCE & CLAIM HISTORY: Even if you don’t meet Amazon’s criteria for needing liability insurance, it’s generally a good idea to have coverage – not just to protect your business from financial speedbumps along your journey, but to boost your company portfolio when you go to exit. And if you already have the minimum insurance requirements for Amazon, you should consider looking into other types of policies. A comprehensive insurance plan signals to potential buyers that you are aligned with industry norms and prepared to mitigate financial losses from product defects, accidents, product recalls, cyberattacks, legal liabilities, business interruption, etc. Additionally, your insurance history provides insight into your company’s stability, adaptability, and compliance. A long-standing history of continuous insurance coverage demonstrates stability and commitment to risk management, thus enhancing your company’s perceived value.
On the other hand, lapses or gaps in insurance coverage may raise concerns among potential buyers, as they could be viewed as indicators of poor risk management or undisclosed issues. Furthermore, M&As are going to look at your claim history. This is pertinent information because frequent or significant claims generally indicate future hurdles that most buyers don’t want to deal with.
Interested in checking off at least one of these items on your “to do” list? Ashlin Hadden Insurance is a boutique-style insurance brokerage firm that has been helping Amazon and eCom sellers find full-coverage, high-quality insurance policies based on your business needs. To get started, fill out this application. If you have questions before initiating the process, email us at email@example.com or visit our website: https://ecom.insure/.