When it comes to selling an FBA business, the conversation always comes down to multiple.

2 or 3 times? Sales or profit? Trailing twelve months basis?

Of course, the multiple is at the core of a business valuation, but all too often I see sellers focus on grabbing a high cash multiple at the expense of maximizing the long-term value of their FBA business.

In this post I am going to explain the different structures typical of FBA acquisitions and tell you how, from a buyer’s perspective, you can maximize your outcome through the smart use of different deal structures.

Having spent the past year working exclusively on the buy side of FBA deals, I’ve spoken to hundreds of potential sellers and worked on dozens of transactions representing $10’s of millions in Amazon sales.

I’ve learned that there is often confusion about how FBA deals actually work and that some folks may be leaving money on the table when focused on upfront cash for the sale of their FBA business. I’ll do my best to simplify the high-level components of FBA transactions to help you get the best deal for your specific situation.

How are FBA deals typically structured & what are the pros and cons of each component?

Cash is king, and that’s not changing, but unless you have an urgent need for the money, there are good reasons to consider flexible and creative alternatives to an all cash sale (what bankers call “structuring a deal”).

There are 3 potential components typically used in FBA deals:

1. Cash

2. Seller Financing

3. Earnout (typically in the form of a Profit share)

Think of these as levers. As you pull one, you need to push another. The more cash upfront, the less you can expect in overall value, and vice versa.

Understanding that the priorities of the buyer and the time value of money are important here, let’s take a quick look at these three components:

1. Cash — Paid at closing. Cha-ching.

2. Seller financing aka “Seller paper”

This is where part of the purchase price is paid over time. It’s essentially debt that is owed to you, the seller, by the buyer with the business itself acting as collateral for the loan.

For example, if you have a $1M purchase price and 20% of that is in seller financing, you will receive $800k in cash at the close of the deal and then a loan of $200k paid according to the deal terms.

As with any loan, there is a maturity date, interest rate and amortization schedule. Hint: these are important.

The interest on the loan will not only increase the total value of the deal (particularly at a time when the “risk free” debt alternative of government bonds are at very low interest rates), but buyers will also often raise the multiple in exchange for a longer loan term. Buyers like this because it helps provide additional capital for the cash needs of the business, particularly working capital that might need to be injected post-sale.

Like owner financing in a real estate transaction, you’re paid back over time while holding onto the deed. If the buyer defaults on the loan, you take back the asset (i.e. the business) and get to keep the upfront cash as well.

3. Profit/Revenue share aka “earnout” — this is where the real fun and creativity begins.

Here the buyer agrees to share some percentage of future revenues or profits with the seller. Everything is up for negotiation, but generally, with FBA brands, you’re looking at something like a 1–2 year period after the sale in which profits will be shared, with the actual split ranging from single digits to 50–75%+ of profits going to the seller (typically over a given threshold).

Buyers love this because it shows real confidence in the business, while for the seller, it can offer a chance to go above and beyond the asking price and share in future growth of the business.

Earnouts are particularly helpful for sellers who either a) have had some challenges and are looking to earn a full price or b) are growing tremendously fast or have a new product that is still ramping up and want credit for that future growth which hasn’t yet materialized.

For owners of such high growth companies who are worried about selling out too soon, this is a way to share in the upside of the business in a way that a backward-looking valuation can never do. It also allows the new owners to essentially be working on your behalf if you believe in the acquiring team.

Different Deal Structure Scenarios

So how does this all actually work?

Let’s take a look at a hypothetical example based on real world deals I’ve done, focusing on a business doing $1 million of annual profit.

As the seller, you want the highest value possible in the shortest amount of time, while the buyer wants the best deal with the payout spread out over time, if possible.

In this case, let’s say you are asking for a $3.5M purchase price, an aggressive, but not unheard of 3.5x multiple for a quality and fast-growing FBA business.

Even if the buyer agrees with the valuation, they will need to consider their own cash flows post-close (e.g. additional capital to be injected into the business for working capital and other strategic purposes), so they may consider proposing a structured offer.

Let’s take a look at 3 different offer scenarios each highlighting a different structure approach:

Offer 1 — All cash (2.75x):

$2.75M cash at closing

Offer 2 — Cash + Seller Financing (3.0x):

$2.5M Cash at closing

$500k Seller financing (2 years @ 6.5% Interest)

Offer 3 — Cash + Seller Financing + Profit Share (3.5x+):

$1.75M Cash at closing

$1M Seller financing (2 years @ 6.5% Interest)

33% of profits in year 1, 20% of profits in year 2

How to evaluate different offer structures?

Each of these scenarios has pros and cons. In the end only you, the seller, can decide what’s best for your specific situation.

If you have an immediate need for the cash, then maybe an all cash offer at a lower multiple is the best route. You might be able to do more with the money in the short term that makes that lower valuation worthwhile.

However, if there is not an urgent need or use for the cash, you can see how incorporating seller financing and/or a profit share can add a lot of value to the equation.

For Offer 2, with interest included, you would be earning an additional $282k+. Depending on your cash needs, how you structure the amortization is important here. For example, if you have annual amortization, you would receive half of the loan amount returned within the 1st year.

For Offer 3, you are looking at substantially less cash upfront, but with interest on the seller note and the potential from the profit share, you could potentially far exceed the $3.5M asking price.

For example, if the business is growing 50% annually, you would receive an additional $500k in year one and $450,000 in year 2.

This would equate to a total purchase price of $3,830,000 when including interest — $330k above the asking price! All while sitting back and sipping a cocktail on a beach with someone else doing the work for you.

Of course, it’s possible that the business doesn’t grow (or contracts) and the seller receives less in profit share. However, if the business doesn’t grow as fast as expected, then it can be fair to say that it wasn’t worth as much as originally proposed.

Yes, that’s tough, but that’s what having skin in the game is all about. No risk, no reward.

Conclusion:

In the end, only you can decide what’s the best fit for how to structure the sale of your FBA business. You’ve put countless hours of blood, sweat and tears into the business and it’s not a decision to take lightly.

The different structures available to FBA sellers offer creative and flexible means to an end, by providing a variety of alternatives to exit your business in a way that maximizes outcomes while accounting for your unique circumstances.

Use them to your advantage!

Jake Barnett is VP, Business Development for Fortunet, (www.fortunet.net) an investment bank focused on Amazon-Native brands.

Tired of clients not seeing your emails? Worried it looks unprofessional if your emails go to the spam folder? In that case, read on…

This is one of the top questions I receive from both clients and friends. Since I use Gsuite and almost everyone who asks me this does too, I’m going to focus on that.

With 5+ years of large scale cold-email campaigns, I have learned A LOT about the technical ins and outs of email delivery. So I’m now the “go to” guy for requests about even the most basic email delivery stuff. Oh well…

The bitter truth about this issue is that there is no such thing as 100% email delivery. It just doesn’t exist, even for the big guys, and certainly not with Gsuite. But there are some easy fixes that are often ignored that can get you dramatically better results.

For the purposes of this post, I’ll assume you’re not sending mass email campaigns with lots of spam keywords (Gsuite isn’t a good tool for that, anyways).

First, a bit about spam filters…

Spam filters rely on several factors for deciding which emails go to the inbox, spam folder, or are completely blocked. This includes the sender’s email address, the IP address (this is like a postal address for emails), the content of your message (Viagra, anyone?), and certain authentication protocols for email.

The result of this multi-factor filtering is that even completely legitimate emails may be flagged unintentionally. All you can do is increase your chances by following certain rules and best practices.

So what can you do?

The biggest single thing is to make sure your domain is properly authenticated. This is about as easy as it gets with technology and takes a solid 15 minutes, yet I’m still amazed at how so many of my tech savvy software clients and startup friends don’t even get it right.

In order to properly authenticate your email, you need to add three TXT (text) DNS records to your hosting account (where you setup Gsuite — usually where you bought your domain & host your website).

These are the three protocols:

1. SPF

2. DKIM

3. DMARC

First, go to https://www.mail-tester.com/ and send a test email. This is a cool free service that will point out any obvious issues with your email setup.

Look at the third tab, which will say “You’re fully/not fully authenticated”. This will tell you if any of the three protocols are not setup or setup incorrectly. If they are not setup, this is what you need to do:

1. SPF: add a TXT record with this value: v=spf1 include:_spf.google.com ~all

The host record should be “@”

2. DKIM: You’ll need to generate a key from within Gsuite and then add it as a TXT record in your hosting account. Instructions are here

3. DMARC: Add a TXT record with this value: v=DMARC1; p=reject; rua=mailto:info@yourdomain.com

Change the last part after “mailto:” to one of your emails such as postmaster@ or info@.

The host record should be “_dmarc”

NOTE: DMARC only works if you have SPF/DKIM setup correctly first. You may start receiving email reports regarding DMARC. I setup some basic filters in Gsuite that automatically archive these.

With all of these three protocols, it may take a few hours for these changes to be reflected in further test emails.

Blacklists

You might be surprised that in your Mail-Tester results, you see that you’re listed on some blacklists. This is possible even if you’ve never sent a spam email in your life.

There are two parts to blacklists: your IP & your domain

The IP is a string of typically 9 numbers that acts like a postal address for electronic mail.

Gsuite relies on shared IPs for their service (as do many other email providers). With a shared IP, it’s comparable to having an entire office building with dozens or hundreds of tenants occupying individual suites. You have your own private and secured office, but the street address is the same.

Unfortunately, the Spam cops look at your IP first, so if just one other account on the same IP is doing some spammy emailing, that can get the IP on a blacklist and hurt everyone else’s email sending reputation.

To complicate things further, Gsuite rotates IPs, so yours will change from time to time. So you can have a good one for a while, then a bad one, then a good one again.

* “Good/bad” is relative here. Overall Gsuite is pretty good and won’t give completely trashed IPs.

This setup makes it much more likely that any blacklist issues are going to be because of an IP. For the domain itself to be listed on a blacklist, you likely are guilty of doing some spamming or cold-email.

Content of the Message

You’re probably concerned about the score you received on the “SpamAssassin Thinks You can Improve”.

This part evaluates the actual content of your message. For the test, I simply sent an email with “Test” as the subject line and no body, which the content filters look at as a bit unusual and therefore give a bad rating.

If you’re sending simple transactional emails with clients, suppliers, etc. this shouldn’t be much of an issue. Just try to avoid writing emails that make you sound like a Nigerian prince who needs help retrieving his lottery winnings ;)

What else can I do?

As outlined above, the biggest single thing you can do is to make sure that your email is authenticated properly. If it’s not, and you can’t figure out how to update those protocols, go to Fiverr or Upwork and you can find someone to do this pretty cheap. Search “SPF/DKIM setup” and you’ll get plenty of options.

The next level option you have is to look at a third party SMTP and set that up in your Gsuite so that all outbound emails will be sent by it instead. These are services that specialize in email delivery infrastructure (maintaining good IPs, etc.).

I’ve found SendGrid to be pretty good. As of writing they have a shared IP plan that is $14.95 for up to 40k emails/month. This is also a shared IP, but they’re a lot stricter than Gsuite so you should get a better reputation. They also have dedicated IP plans, but these start to get pricey.

Even with these fixes, you still won’t get 100% inboxing, so I have gotten into the habit of always telling new email recipients to “check their spam box as emails sometimes get caught there when sending to a new person”.

Once they mark you as “not spam” you shouldn’t have an issue in the future (with that individual).

If you’re sending small-scale cold emails for sales or business development, don’t do it from your corporate Gsuite account. Even if it’s low volume (ie. 100–1000/daily), just buy another domain and setup Gsuite with that.

Conclusion

Gsuite is a fantastic service with the ease-of-use, countless integrations and very affordable costs. The shared IP system is a downside, but this is super common for all of the big email providers. Getting a dedicated IP will cost a decent chunk more (and come with plenty of headaches).

Whether they know it or not, this is an issue for everyone. It’s the reason why every time you sign up for something online they tell you to check your spam. It’s not your fault and it shouldn’t reflect badly on your business.

Fortunately, there are solutions. With the methods I’ve outlined above, you should see some significant improvements.