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How You Can Leverage Amazon Live to Drive Revenue

 

We predicted live stream shopping was going to be a big influence in 2021 ecommerce. We weren’t alone—many in the industry agree with us, and we already see the rise of influencer-driven  “social commerce” on sites like Facebook Shopping, Instagram Live, and TikTok. It’s a natural extension of the rise of ecommerce when the opportunity for in-store experiences has halted. There’s a hole to be filled, and live stream content engages customers while authenticating product quality. 

Back in September 2020, Amazon Accelerate featured a keynote, “Amazon Live: Drive Discovery and Conversion,” which talked about the benefits of the program (driving brand awareness, demonstrating products’ features and benefits, and directly engaging with customers), and hinted at the future emphasis Amazon would be putting on live stream content. 

In truth, Amazon Live is an excellent opportunity to advertise deals with driven urgency, make your products more discoverable, and chat with customers in real-time. 

There are a few different approaches you can take to create live content. We’ve tried a few, and here’s what we’ve learned. 

Thrasio’s History of Live Content in Three Acts

In 2016, Amazon launched a short-lived live stream platform, “Style Code Live,” which also had a QVC-inspired feel but focused on beauty and style tips. On Prime Days in 2017 and 2018, Amazon sellers could produce live streams promoting their Prime Day deals (very similar to what sellers can create now using the Amazon Live Creator App). Early 2019, likely to compete with emerging Facebook and Instagram’s shopping initiatives, Amazon Live premiered as the platform we see today—a mix of content hosted by talent with broadcast TV experience and seller’s DIY productions. 

At Thrasio, we’ve been dipping our toes into Amazon Live since Black Friday 2019 (shortly after the platform launched). We’ve run the gamut of production value from as cheap as possible to high-dollar Amazon-produced segments. 

A VP, a costume, and an iPhone

This was an experiment in the purest sense. Our first streams were indubitably more for staff entertainment than they were to convert customers. It wasn’t very successful as there was no discernible bump in sales, but it is a point of pride for Thrashers who have been here long enough to remember when this happened back when we had less than eighty employees. 

Our fearless host, John Hefter (then VP of Creative and now SVP of Creative & Brand Strategy), on a never-ending quest to “delight Amazon’s customers” donned a couple of goofy costumes and turned up his already thick Boston accent to try out Amazon Live for the first time on Black Friday 2019. We’ve posted the videos below. There’s not much to learn other than maybe what not to do. But there’s something to be said for sucking it up, putting on the baby costume and going for it. 

Introducing, A Professional Influencer

In March 2020 (right before we all went remote), we tried a different approach to Amazon Live with a former influencer turned Thrasher, Michael Platco. This was one of the first projects he worked on. He still brings a lot of energy to the videos, points out the features, and comes off as an expert on the product. 

Again, there wasn’t a bump in sales in response to these videos, but we were learning. And Platco is able to use that same energy in the content he produces for Thrasio products across TikTok, Instagram, Facebook, etc.

Amazon-Produced Live Streams

This fall, we dove right into the live streaming platform with Amazon-produced Live segments for some of our top products. 

These segments are a great way to get a leg up on the deals page, but they do require some prep work:

  • Fill out a form of talking points (benefits and features) of the products so the hosts know what to talk about.
  • You must be running a deal on the product.
  • Pony up—the starting cost for an Amazon-produced live stream is $35K.

While that might give you sticker shock, we’ve discovered that the returns are huge. For Cloud Massage, one of our compression therapy brands, the sessions rate during the Live segment increased 500% over a comparable 7-Day Deal, which led to a 177% increase in revenue. 

For Crafts4ALL (a great product in a completely different category and price point), sessions increased 438%, revenue increased by 91%, and rank increased by 66%

The revenue lift we saw from Amazon Live placements definitely paid for themselves, but even if it hadn’t driven as much direct revenue lift I believe we nonetheless would have benefited from the brand awareness each placement gave us. Not only did each live deliver attributed revenue; it also provided a short-term boost in rank,” says Yonny Reichel, Amazon Audience Advertising Director.

In addition to driving real-time brand awareness, once you pay for this segment on Amazon Live, the content is yours. You can repurpose the video to post on your Amazon Listing, your D2C site, or Facebook and Instagram ads too. 

The Takeaways

We’ll admit some of the seller-produced live-streamed content is cringy (think Public Access TV); however, you should be doing something in the live streaming space. If your business isn’t yet big enough to justify the $35k price tag, you could pay a micro-influencer, look toward experts in digital advertising to partner with. Influencer fees range from free products to sales commissions to guaranteed flat fees—there’s something for everyone depending on brand budget and overall goals. 

Or you can give it a shot yourself. It’s free to live stream on the app so long as you have an iPhone or another iOS device, download it here. You can boost your own content (or influencer content) via the app too. 

Perhaps the most interesting part of where Amazon’s live streaming program is now, is that unlike the rest of an Amazon listing, Live segments aren’t censored or scraped as far as we can tell. Meaning, you can refer to your website, your competitors, and talk up your customer service efforts outside of Amazon. 

Not only does it appear that Amazon is looking more and more toward live streaming, but our success shows Amazon’s customers are looking for it too. It’s likely going to be an essential part of growing an FBA business in the near future, and we think it’s worth the investment. Being an early adopter of new Amazon marketing techniques pays off. If Amazon is embracing live-stream content, you should too as it’s likely to increase in value as part of the overall marketing opportunities for FBA sellers. Both Amazon and sellers are trying to unlock as much revenue as possible. Working alongside Amazon to prove out the Live Stream channel as a viable marketing tool is a win-win that will generate a lot of goodwill.

“Whether it’s videos, listing photos, or copy—good creative content builds trust with customers,” says John Hefter, SVP of Creative and Brand Strategy (and giant Bostonian Baby), “Don’t jump over a $20 bill to get to a $5.”

A lot of sellers use a family friend who knows Photoshop to do their listing photos and write the copy themselves. You might save some money upfront, but what are you missing out on by foregoing sleek, attention-grabbing content that converts?

When it comes to Amazon Live, shoppers likely won’t know it costs $35k to pay for a segment, but they do know subconsciously that cheap companies with bad products either won’t put in the effort or can’t afford to produce quality videos. They also know Amazon wouldn’t push them toward bad products. 

More content on your listing is always a good thing. On a listing, you only get nine images (only six of which are seen automatically by the customer), five bullet points, and six modules in A+ content. Amazon live videos give you the opportunity to show off your product in use. And for customers to see it beyond the white background photos (especially important if your listing photos use rendered images rather than photographs). 

On Amazon Livestream, customers can ask real-time questions allowing you to act as a salesperson rather than just a seller. And we doubt this is the last we’ll see of interactive shopping experiences. 

Live streaming on Amazon and social media are likely just a stepping stone to the future of shopping with AI and AR. The price tag for Amazon’s Live streams also rings true for another of our 2021 predictions—that the cost of success for FBA sellers is continuing to rise. 

TL;DR

You get out of it what you put into it. If you spend no money and just fool around, you’re not likely to see significant returns. That’s not to say you shouldn’t do it. 

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Brokers, Aggregators, & Private Equity Firms: Make The Right Choice

 

When thinking about selling your FBA business, there are many different aspects to consider before reaching out to a potential buyer. If you’re unsure whether you want to work with us, another direct buyer, a broker, or a private equity firm, a little bit of prep work can help you feel confident you’re getting the best deal possible. At Thrasio, we have a “come as you are” policy for prospective sellers meaning you can reach out to us at any time with no prep needed. 

  • Deciding on your ideal exit requires some forethought. Ask yourself these questions: 
  • Do you know the space well enough to feel comfortable negotiating on your own?
  • What’s the minimum sales price you are willing to accept?
  • What’s your ideal timeline for selling your business?

Do you want to move on from the business operations, or are you hoping for a cash influx to drive growth while remaining involved?

We go into this process in depth in How to Prep Your FBA Business for Acquisition, but the fundamental questions above will help you determine how to approach the first few steps. 

Brokers

A broker is an individual or a company that assists you throughout the selling process from start to finish. They’ll walk you through every step of the way until the transaction is closed and you have cash in hand. 

Like a real estate agent, they’re going to help you prep your business, put together a P&L, and shop the deal around to multiple buyers. They’ll also help you weigh the pros and cons of working with each buyer and provide expert guidance during negotiations, making sure you don’t leave money on the table. Brokers are experts in ecommerce and can be especially helpful to entrepreneurs who have never sold a business before. 

Just like individual people, no two businesses are alike. A broker will help you navigate the market by identifying your businesses’ strengths and weaknesses and how to negotiate for the best deal structure possible for your unique situation. 

The downside is that brokers take anywhere from 10-12% of the total transaction value. However, especially if this is your first time selling a business or selling in the FBA space, brokers can be well worth their fee. 

Aggregators & Rollups

When looking for a timely and streamlined sale for your business, a direct sale to an aggregator or FBA rollup (like Thrasio) is the fastest and most efficient option. 

If you have to shop your business around to several buyers—as you would be doing with a broker—a lot of these prospective buyers are just looking to kick the tires and will end up burning a lot of your time. We cheekily refer to this exhausting process as the “speed dating” part of working with a broker. 

Skip the Prep Work

We do many tasks for prospects that a broker typically does for their clients, like constructing P&L statements and providing you with an accurate valuation of your company. 

We understand the Amazon space better than anyone. We structure deals so that you benefit from the long-term success of selling your business. 

We Pay Well Too

When selling to Thrasio, you’ll have the opportunity to receive three separate payments:

  1. Upfront cash
  2. Stabilization payment
  3. Earnout 

Upfront cash is pretty much what it sounds like—the cash payout you receive upon the official deal’s closing (after the assets are migrated). 

In most deals, a stabilization payment is received 12 months post transaction close date. Stability payments ultimately act as a stamp of confidence from the seller. They signify that under the care of a buyer with access to virtually unlimited resources—the seller is confident that the business will remain at least flat 12 months post-acquisition.

For example, $5MM in sales 12 months post-acquisition compared with $5MM TTM sales at the time of acquisition). 

Historically, we’ve been able to grow topline revenue over 200%+  across our portfolio of brands 12 months post-acquisition. We typically view this portion of the deal structure mainly as an insurance policy.

The most exciting and differentiating piece of our deal structure involves an earnout component. For example, we typically offer sellers  50% of all net profit over the acquired profit for the two-year post-acquisition period. If your business made $1M in net profit the previous year, you would receive 50% of the net profit over the $1M threshold twelve months post-acquisition. At the end of year two (24 months post-acquisition), you would be due an additional earnout payment that’s also 50% of the net profit over the $1M threshold. The threshold does not go up in year two. 

What Your Deal Could Look Like*

  • 2017: $5M in sales and $1M in net profit
  • January 2018: Closes deal with Thrasio & receives a cash payout
  • January 2019: Over the last year, the company made $8M in sales & $4M in net profit.
  • You receive a stability payment (whatever was negotiated) + (in this example) $1.5M earnout.
  • January 2020: Over the last year, the company made $10M in sales & $6M in net profit. 
  • You receive an additional earnout payment of $2.5M. 

Our performance history shows that we grow net profit over 150%+ 12 months post-acquisition.

Note: many aggregators utilize this earnout structure but do not have the stats to back it up, effectively making their earnouts worth significantly less.

Having the most robust track record in the marketplace (100+ acquisitions at the time of this writing) makes our earnout the most valuable in the market by far.

When sellers are confident in the buyer’s operational capabilities (in the case of FBA sellers—someone who knows the Amazon space), they can make even more money than the asking price when listing with a broker or quicker than if they scaled on their own.

Process Timeline

Private Equity Firms

If brokers can be compared to real estate agents, private equity firms (P.E.s) can be compared to house flippers. If you’re looking for an investment into your business or don’t mind staying involved in operating the company after you’ve sold it, going with a P.E. might be the best option for you. 

P.E.s can give you significant capital growth opportunities, and they usually allow you to get a second helping through rollover equity. So you can have relative liquidity in the payment you receive but still participate in the upside of the business’s growth after the deal has closed. 

What is initially attractive about P.E.s is that they tend to offer four to six times the company’s net profit upfront. And sellers can keep that rollover equity in the company. Meaning you’ll retain a portion of the ownership of the company. So in the future, when the P.E. sells (flips) the company for a profit, you’ll take a chunk of that future value. 

Rollover equity typically takes the place of stabilization and earnout payments. It guarantees you have skin in the game to ensure the company continues to grow as operating a business sold to a P.E. often falls to the original leadership. 

The negative aspects of working with a P.E. depend on what you want as a seller. If you want to part ways with the business altogether and move on to your next venture, most P.E. deals will not be for you. In that case, you’d need to sell to an experienced FBA operator. Additionally, if you’re looking for an expeditious exit, you’d be better off working with a direct buyer like Thrasio. 

In reality, the money you make selling to an aggregator with a tiered payment system (cash upfront + stabilization payment + earnout) typically is competitive to a P.E. offer. Additionally, P.E.s rarely look at FBA businesses with less than $5MM in EBITDA. 

TL;DR

We love brokers, and we work with all of them. But if you want to save time, we can provide a lot of the expertise they do. If you sell to us, you’ll likely make the same amount of money you would have made selling to a P.E., but you won’t have to stay on operating in the day to day weeds while owning significantly less than when you sold the business. 

*Numbers in the example are completely fabricated and don’t represent any deals made by Thrasio and its acquisitions.

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5 Predictions for Ecommerce in 2021

 

While 2020 was pretty rough for retailers, FBA Sellers soared in most categories (unfortunately, categories like auto and travel suffered tremendously). Regardless of background or industry, we can agree things didn’t go as planned last year. However, an overall growth of ecommerce and international expansion of FBA availability did come true even despite the upsets caused by COVID-19.

We’ve pooled our most valuable resources (Thrashers themselves) to put down their predictions for what five things FBA and ecommerce businesses will see in 2021. 

1. Expanded Video Content

We’re confident about in 2021 that Amazon will put more emphasis on Amazon Live and other video content. Amazon Live has been around for a while, but this year Amazon Accelerate had several keynotes hyping-up Amazon’s QVC-like streaming platform for sellers. We already know Amazon’s algorithm gives preferential ranking to listings with video content (more on that here).

In 2020, we also saw a lot of celebrity stores and a heightened presence on social media. In 2021, we’ll see even more as Amazon is motivated by up and coming competitors in Facebook and Instagram shopping as well as Gen-Z’s beloved TikTok, who partnered with Walmart and Shopify to pilot livestream shopping events. To compete, Amazon will have to expand celebrity content, carve a more natural path for influencers, and dive deeper into third party content sales. 

Thrasio’s Co-CEO, Carlos Cashman, predicts Amazon will go about this in one of two ways, “They’ll either expand Live organically or move to acquire an existing company to meet the compete with Instagram and Facebook.”

Live ecommerce shopping is the way of the future. Forbes reported livestream shopping accounted for 9% of China’s total ecommerce revenues in 2019. With infinite products to push and plenty of FBA Sellers willing to pay up for the sales, Amazon will continue to dominate—just within another medium. 

2. Facebook & Instagram Shopping Will Be Huge

We mentioned Facebook and Instagram above, but in just how influential we think Instagram and Facebook will be in 2021, they deserve their own spot on the list.

Instagram’s highly visual platform (something Amazon never emphasizes) is perfect for D2C brands. Think about the marketing of items that need to convey a luxury feel—nearly impossible to do on a white background. These Instagram shops will eat up (and, more importantly, grow) Etsy shops, Shopify, and D2C brands like Harrys Razors did. Amazon’s army of hungry FBA sellers will make sure Amazon still dominates online sales, but not without making some changes. 

3. Higher Quality Offerings

Amazon has been the proud purveyor of affordable odds and ends for years, some of which are flimsy and cheap. Affiliate marketing accounts for much of the content on sites like Buzzfeed with articles like 33 Products That’ll Upgrade You Life for Under $25. The impetus for a lot of these listicles seems to be “there’s a lot of junk online, but this stuff is worth buying.” However, with ecommerce (and Amazon sales) hitting an all-time high in 2020, customers and sellers alike are all too aware of the saturation of cheap products. 

Increased customer attention and regulatory scrutiny aren’t going anywhere in 2021, leading to a more quality-focused market. Amazon’s Brand Registry and Project Zero initiatives prove the trend. Brand Registry has been around for a while, and it’s becoming more effective with each update. Brand Registry streamlines any changes or updates on a listing, but to level up as a seller and validate your brand’s quality, you need to unlock Project Zero

Project Zero launched in 2019 with the sole purpose of removing counterfeiters. However, it’s a self-service removal tool meaning the bad actor’s listing is removed as soon as the report is submitted. No review necessary. To have access to Project Zero, you need to have a certain percentage of accuracy in your reportings reviewed on Brand Registry. As this extra layer of protection for legitimate brands filters out counterfeiters and hijackers, Amazon’s general quality of products should improve naturally. In keeping with their customer-centric philosophy, Amazon wouldn’t emphasize these initiatives if it weren’t important to their customers.

Another proof point of the trend toward higher quality is Amazon’s introduction of Luxury Stores in the fall of 2020. While it didn’t seem like an opportune time for Amazon to enter the luxury market, it was a time when luxury retailers were desperate. Luxury brands like Oscar de la Renta previously marketed on the idea that their brands were inaccessible to the masses, so making their items available on Amazon is a massive shift for the fashion industry and a change for Amazon too. 

Screenshot of Amazon Luxury interface (mobile)
Screenshot of Amazon Luxury interface on mobile (December 2020)

Within the luxury stores, you can see the small interface changes that deviate from Amazon’s ordinary listings that indicate a slight shift toward better visual marketing. Products on the luxury store listings feature 360º photography and a deviation from the ‘Amazon Bland’ iconography and color palettes. There’s even a serif font. The icons are set in a slightly metallic beige that comes off as sleek rather than cheesy gold. A jaunty shopping ‘bag’ replaces the cart, which would look off-putting in brick-and-mortar luxury stores.  The design updates tell of more change coming soon for all sellers. 

4. The Cost of Success Will Rise

With great luxury often comes great expense. Almost everyone in the space is in agreement that PPC costs will rise. As JugleScout states, “Amazon PPC is an auction, meaning that your cost per click (CPC) is a penny more than what the next seller is willing to pay per customer click for a specific keyword.” 

With increased competition among sellers and venture-backed pros like us (sorry), it’s going to make it more challenging for single sellers to compete. In addition to rising costs, there are many nuanced changes in space, mostly due to regulatory compliance scrutiny and the eventual policy changes—not to mention Amazon’s new focus on supply chain management. The lower the IPI score, the more a seller has to pay in FBA fees. Depending on the category, some sellers may not be able to keep up. 

However, there is an upside: sellers will see a more liquid market for their businesses and potentially higher average multiples due to the COVID bump. 

5. Brexit: ~The Wild Card~

Brexit has caused a comprehensive compliance lift. For smaller sellers, the time and cost associated with selling in the UK are too costly to keep operating. Many sellers are jumping ship. For non-Amazon sellers, it’ll be even more challenging to do business in the ecommerce market. 

Sellers on Amazon UK can use Brand Registry to validate the new compliance aspects, but even so, it’s a giant bear. 

It’s likely rollups like us will scoop up a lot of these UK brands, but time will tell how Brexit will affect ecommerce as a whole. 

Tl;dr

In 2021, Amazon is going to continue its absolute dominance. Competitors like Instagram (Shopify) and TikTok (Walmart) are just motivating factors. 

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How to Improve Your Product Listing on Amazon

 

Thrasio’s Creative Team—designers, copywriters, and project managers—work together to craft the perfect branding for each of our products. The customization of each listing elevates the quality and feel of each individual brand which builds trust with each targeted customer and increases conversion.

You don’t need to convince your customers that they need the type of product they’re looking for. In most cases, shoppers have already searched for whatever compression sleeve or pet shampoo they’re in the market for. So your challenge starts with making your listing stand a cut above the other products on the results page. In other words, you have to convince the customer that they need your brand of pet odor eliminator. 

We have a team of 65 creatives that work together to make our nearly 100 brands look amazing. All the way from listings to packaging and D2C efforts. As a lot of MDS (Million-Dollar Sellers) are projecting, we’re going to see a lot more venture-backed and already successful sellers dominate Amazon in the future—make sure your brands can compete. 

Turn your FBA business into a brand customers trust by producing a compelling brand that converts through a complete listing, smart copy, and sharp design. 

Amazon Grades on Completion

Amazon’s algorithm gives preferential treatment to listings that take every opportunity to add information within your seller account. This means listings that utilize all 9 listing photos, adding a video, and filling all 6 modules in A+ content.

 

Note, on mobile, shoppers can only see the first 6 listing photos, so make sure your strongest sales points are in those photos along with any information that needs to be clarified to a potential customer in order to avoid a poor review. The last three listing photos can show repeated information from your title and bullets, stock images, or potentially show other products within your brand. 

If you have more than one product, set up your brand storefront. Not only does it give your products more exposure, but Amazon is starting to push more toward storefronts. A lot of PPC ads click through to the brand storefront rather than the specific product listing again showing shoppers more of your brand than the first product they were looking for. 

Filling the gaps in your listing is not only going to elevate your product within the algorithm, it also gives you more opportunity to share the features and benefits of your products with customers. 

We’ll outline how to make your listing photos, videos, A+ content, and storefront look like the million-dollar brand it is that converts. 

Copy That

“Copy” refers to any written material on your listing. There are plenty of resources for SEO copywriting, but we’ll skip the title and bullets for now—that’s a different skill set. For the purposes of this blog post, copy refers to the words written within the photos and videos on your listing. 

Whether you’re hiring a freelance copywriter or doing it yourself, think of your listings as an opportunity to tell a story. Stories are the simplest ways humans communicate with each other. Not only do stories carry an emotional impact, they’re also more memorable and digestible than a hard sell. Good copy builds a brand rather than just a listing. 

With a simple product like a compression sleeve, it might be easy just to describe what material the product is made of and how to find the right size. “It’s not enough to just describe features. Your copy should speak to outcomes—both practical and emotional—that solve the problem a shopper has come looking for a solution to,” says Forrest Lee, Thrasio’s Associate Director of Copy. The text in your photos should describe how these specific compression sleeves fit into and improve the customer’s life because they’re designed to fit perfectly, and made with superior materials. It shows the customer that the seller has time and expense to create beautiful listing photos and a sophisticated video; and therefore, the customer trusts that the same care has been taken when developing the product itself. 

Pragmatically, copy describes the features and benefits of a product. It describes how a product works, and in what situations it can be used. Amazon sellers can look through their reviews and customer Q&As to address any questions or doubts posed by real customers, increasing conversion by decreasing bounce rates. 

Good Copy Practices

AO Mobile Screenshot
Angry Orange Listing Photo on Mobile

Take a holistic look at your listings—including all positive and negative reviews and the Q&A. Write down the main features and benefits of your product on separate pieces of paper. Then arrange each feature/benefit in order of importance or compelling-ness. That’s the order of how you should arrange each selling point on your listing images. Again, making sure the most important points are in the first 6 photos and the first 3 modules of A+ content. Try to keep it to one main statement per photo, with one benefit. (e.g. Headline: Smells Like Heaven; Subheader: rid your home of that kitty kat stank).

In general, keep it short and snappy. People are looking at listings very quickly, so they want the information simple, quick, and accessible. They don’t want to read that much – or they don’t want to feel like they’re digging deep for information. Customers aren’t always going to read the description either, so it’s important to break it up across several photos. 

Eye on Design

Like products in traditional retailers, brightly colored packaging, and sleek displays attract customers online also. Amazon has a challenge of remaining user friendly and appealing to everyone from gen z-ers to baby boomers. 

Along with easy-to-read copy, you want the same accessibility in design. Meaning, easy to read typography choices with appropriately contrasted colors, and professional product photography.

 

Color palettes are complex. Maybe you want to be antithetical to your competitors so your main listing photo stands out against others on the search results page. Dive into color theory to have your palette evoke the voice/tone of your brand: friendly (yellow), trustworthy (dark blue), luxurious (black/metallics).

Strategic Branding

As Senior Art Director, Henry Ngo says, “Branding isn’t just a logo or a typography choice. It’s a cohesive presentation of your brand.” 

The design is going to pull all of your branding together. Do think about your logo and typography choices, but don’t overlook the tone of voice, personality, and colors that represent your products. Using those big picture ideas will help you considerably when making decisions about iconography and copy. 

You can do it yourself, or go for a cheap freelancer on Fiverr. But we recommend investing in a true branding expert when hiring a graphic designer. Contact your local AIGA chapter for recommendations (if you’re in the U.S.), or hire a pro on Upwork.

On Trend

One of the many trends from 2020 we’re expecting to continue into the new year is more quality and luxury products in ecommerce. 

As shoppers start turning to marketplaces like Facebook, Instagram, and Tik Tok, their expectations for the branding and polish of products they shop for online are changing. Even Amazon gave their app a facelift this year with a new teal gradient. Furthermore, Amazon’s new venture into luxury fashion points toward the historically minimalist (i.e. bland) interface slowly transitioning into something more up-to-date. You need to be sure your listings do the same. 

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How to Prep Your FBA Business for Acquisition

 

At Thrasio, we want sellers to know they don’t need to have everything perfect before talking to us about selling your FBA business. We’d rather have sellers connect with us when they first start thinking about selling their business than put off connecting with us because they’re trying to package everything up. However, sellers can do a few things to make the process run more smoothly for both themselves and potential buyers. 

Think About Your Ideal Exit

Start by asking yourself what you’re looking for from the deal. A few things to ponder:

  • What’s the minimum sales price you are willing to accept? 
  • What are you hoping to do or accomplish with your earnings?
  • Do you want to wash your hands of the business altogether, or are you hoping to remain involved? 
  • What’s your ideal timeline for selling your business? 
  • Do you have any employees to consider?
  • What do you want to do next? Are you launching a new business? Retiring?  

Once you firm up the big picture, you’ll be better prepared to talk to a buyer or a broker, and you’ll be more comfortable sitting at the negotiating table. 

Put Together Performance Data

When you sell your business, the prospective buyer will go through all of your performance data during the evaluation phase. Before entering into an LOI (Letter of Intent), which often requires a non-compete agreement, you’ll need to have at least a bare minimum of shareable data on how your business has performed historically—such as a Profit & Loss statement and sales data from each revenue channel.

In initial discussions, buyers will want to know simple figures like net monthly revenue, gross margins, and costs of goods sold. It’s good to have the most up-to-date information on hand to streamline this part of the process.

Clean Up Your Finances

Keep your books in ship shape and up to date throughout the entire process. Make sure you’re paying your bills and keeping up with inventory. Our team does craft P&Ls for every deal, but you’ll want to have as much of the business financials in order as possible before reaching out to any other buyer or broker. If you’re working with a broker, you’ll likely be required to have a full accrual-based accounting of your business. 

Secondly, but perhaps more importantly, you want to reach out to your accountant regarding selling your company. Identify any tax liabilities, and figure out the best overall deal structure for your tax position. 

Choose Between a Broker and Direct Sell

There are pros and cons to both, and we work with both. 

On the upside, when working with a broker, you have their experience and guidance to lean on throughout the process. If you are unfamiliar with selling a business, this may be a good option for you. 

Additionally, brokers often have hundreds or even thousands of buyers looking at their listings. 

On the other hand, the high volume of interest that comes through a broker often leads to many people wanting to “kick the tires.” You may be on multiple calls with buyers who are “shopping”  that never go anywhere. As mentioned above, you need to have your financials entirely in order before your business can go on the market through a broker. Working through accrual-based accounting can be tedious. Your broker can work with you on this, but they’ll also have several other clients they’re working with, which may make the process feel transactional. 

Broker fees and commissions are often 10-12% of the total deal price. These fees may be well worth it if you’ve never sold a business before or have other reservations. But you may make up those savings if you can forego paying for a financial audit and work directly with a buyer instead.

When you work directly with a buyer like Thrasio, you get a one-on-one relationship. It’s not transactional. We take the time to get to know you and your business through a series of conversations and emails—no pressure to take calls or entertain offers that don’t work for you. There’s no commission, so you get 100% of the purchase price—saving you that 10-12% commission rate. And the deal typically moves much quicker which is important to many people who run their own business and don’t want to draw out the process. If you aren’t a Quickbooks wizard or you need help creating a P&L, Thrasio can help you through the process and get you a valuation for your business typically in a few days. 

Business as Usual

Even when you’re confident a deal will close, you should always continue to operate your business as if you will still be the owner a year from now. You might assume since you’re selling or closing on a deal to hand over your business, you can pull back on PPC or don’t need to replenish inventory. But, if the deal falls through,  you’re left holding the bag. We’ve seen it before when sellers have come to us after a previous deal fell through, and their business has lost significant value. 

Do yourself (and potential buyers) a favor, and streamline your operations when you start thinking about selling. Continue doing everything that made your business a success throughout the entire acquisition process. You’ll protect yourself should you want to walk away from the deal at any time, and you’ll preserve the value of your business when it is time to negotiate its value. 

Want to learn more about selling your business? Reach out to us!

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Selling Your Business to Thrasio (The Basics)

 

Whether your company has grown beyond the size you want to manage, you’re pivoting your focus toward a new venture, or you’re just curious about what Thrasio does, you don’t have to be an expert in FBA acquisitions to start thinking about exit strategies.

In the two years since Thrasio was founded, we’ve bought nearly 100 FBA businesses. We’ve learned quite a bit about how much sellers can expect to sell their business for, what makes a business desirable to us, and what sellers can anticipate from the acquisition process.

The value of an FBA business

Current market rates for selling FBA businesses are 2 – 4x your Trailing Twelve-month Earnings/ Profit. You’ll often see this written as TTM EBITDA or TTM SDE (Seller Discretionary Earnings). 

If your business has Operating Expenses that do not directly relate to the success of your business, those are typically considered “add-backs” and we will add those back to your profit-making that upfront payment higher.

 Add-backs are things like Owner’s salary, office rent, and if you have any other expenses running through your business (once we had a pet product owner who ran her dog’s food through the business, we wouldn’t include that as an Operating Expense) – since Thrasio won’t be running those expenses through the business when we own it, we don’t count them. 

2x – 4x is standard across the industry at this time. Thrasio estimates we do about 40% of the transactions in this industry in the US today and these are the rates that most buyers and sellers are transacting at. What gets closer to the 4x than the 2x?

  • Size of business – the larger your TTM EBIDTA/ SDE, the more we’re typically willing to pay for a business.
  • Secured Intellectual Property – Patents, Trademarks, Brand Registry and even having exclusives with a manufacturer are helpful in increasing the value
  • Overall market size for your products and opportunity for growth
  • Reviews, Ratings, and Rank (see below). Brands with 1 or more highly ranked (top 10) products in their category demand higher multiples.

For a ballpark estimate of what your FBA business might be worth, multiply your seller’s discretionary earnings (trailing 12 month’s net profit + owner’s expenses) by 3 or 4.

Example:

 

TTM Net Profit= $1,200,000

Operating Expenses = ($200,000)

TTM EBITDA/ SDE = $1,000,000

Multiply by 2.5x

Expect an upfront payment of $2,500,000 for your business + Performance Payments + Inventory at Landed Costs .

What are we looking for?

R3: Reviews, Ratings, and Rank…and Category

Reviews

We look for products or brands with hero ASINs that have at least 500 (predominantly positive) reviews acquired organically. That gives social proof that the product is a leader in the category. Incentivized or purchased reviews need not apply. 

Ratings

A rating over 4 stars proves the product’s quality and shows the brand can sustain its position over time.

Rank

What’s the product’s ranking on high volume keywords (most popular search terms)? If a seller has been able to rank well in a competitive category, it often provides an indicator to us that you’re also doing other things well—investing in marketing, managing stock-outs, and optimizing your listings. But, we don’t *only* look at high-ranking products. We evaluate niche products we think can perform even better after our playbook is applied.

Category

Our sweet spot is in everyday hard goods selling on a private label—everything from kitchen utensils to pet supplies (we don’t buy resellers or retail arbitrage). We stay away from trendy items like apparel, tech products that will be obsolete within a few years, and food/grocery. We go for items that are likely to be found in every household, office, or car. 

We’re not interested in big seller accounts with moderately successful ASINs. Unlike a lot of buyers, we embrace the smash hit hero ASIN that does $3M in revenue because we can spread the risk across our portfolio of nearly 100 brands. 

R3 must be organic. If you have achieved this through black-hat tactics or are violating any Amazon Terms of Service, this will decrease your multiple or potentially disqualify you from being an acquisition. 

How long does it take to sell my FBA business?

Migration of all of the assets during the transaction takes about 30-40 days.

LOI

After we chat a few times and decide we’re a good mutual fit to work together, we’ll go through negotiations and sign a letter of intent (LOI). Once we sign a LOI, we’re 98% positive we’re going to be buying your business.

Note: There’s nothing legally binding about signing an LOI other than an exclusivity period while we work through diligence under NDA. There’s often a misconception that after the diligence period, the buyer will try to work down the price—we don’t do that. And the proof is in the 98% acquisition rate of deals we close after LOI.

Due Diligence

After LOI, the clock starts. This is when our diligence team will start working through your Seller Central accounts and other platforms so we can validate the costs of goods sold. We’ll take a look at your IP and legal agreements, and recreate your P&L.

If you’ve never sold a business before, this might sound nerve-wracking. We’ve bought companies whose financials were handwritten on loose-leaf paper, and a company whose listings got suspended the day of closing. Rest assured, nothing scares us. So if your business is not in tip-top shape, don’t worry.

While in due diligence, you will be meeting with our teams from different departments (Brand Management, Creative, Marketing), so we can learn how to properly run your business to its highest potential, and ensure that your earnout continues to grow.

Migration

Then, assuming you’re a US-based company, you’ll wrap up any negotiations in the Asset Purchase Agreement and we put the payment in an escrow account. Migrating the assets takes about 7-14 days. Once we’re migrated, we’ll release the funds from escrow, and you’ll get your first payment.

Payments

Depending on how we’ve structured the deal, you’ll receive additional stabilization and earnout payments.  Stabilization payments are paid to sellers when the business continues to operate at least at the same level as it did when you sold it to us (based on net revenue), and are usually paid 12 months after closing. We’re confident that the businesses we acquire will maintain profitability within the first year of acquisition, so we offer this additional payment as part of our negotiations to seal the deal with sellers.

Earnout payments are paid to sellers whose brands have grown under Thrasio’s portfolio. Companies we acquire typically see about a 150% increase in profitability. With earnouts, sellers get to participate in the upside of selling their business. A typical earnout increases the size of the total payout by about 37%. They’re usually paid 12 and 24 months after closing, and are often based on EBITDA. Other buyers can’t offer earnouts because they don’t have the proven record of success that our operations team has proven time and time again.

Are we a good fit?

Over the last two years we’ve been in business, we’ve analyzed over 1,000 FBA businesses. We’ve learned that raising capital and buying a business is the easy part of the process. The real skills come into play post-acquisition when we start operating and growing the business.

We have the invaluable experience of acquiring and operating nearly 100 businesses (check out what they think of us here). Each of our specialized teams can tease out what we got right, what we got wrong, what we are really good at, where we struggled, etc. We can now take that knowledge and look at a business with a very different lens than someone who has yet to make an acquisition.

As Ken Kubec, VP of Acquisitions, says, “they will have to take their lumps and earn the scars.”

TL;DR

If you’re at all curious about selling your business, we’d love to talk to you.

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The Software Thrasio’s Brand Managers Can’t Live Without

 

Thrasio Brand Managers (BMs) do a lot of the work for their designated portfolio of FBA brands usually performed by the independent seller. They own the success of day-to-day brand operations through listing content and creative, marketing tactics, financials, customer service, risk mitigation and compliance, inventory, and, of course, developing strategies for growth, all while staying on top of any attacks, competitors, and suspensions. In order to do all of this, they spend a lot of time in Seller Central and using other popular software.

There’s an overwhelming amount of data tools available to FBA sellers. A lot of them overlap, and you’re always looking for the golden ticket that will “do-it-all.” We don’t have all the answers, but Thrasio’s team of 30+ Brand Managers have a few favorites.

Note: These are neither affiliate nor sponsored links—just stuff we genuinely use and appreciate.

Seller Legend

Seller Legend is a sales statistics interface that tracks units, orders, revenue, cogs, and session data for a given account. You can group the data by parent ASIN, child ASIN, SKU, or product ID across any marketplace or specific date range.

While Seller Central shows sales for the entire account, Seller Legend indicates how a specific ASIN performs. Note: It’s essential to export session data from Seller Central to upload into Seller Legend regularly (at least weekly) to keep the data set as accurate as possible.

There are plenty of uses for these data sets, but we often use it to track a product’s performance after making any changes or applying new strategies via conversion rate. For example, if we make a bunch of creative or branding changes, we can pull the conversion rates both before and after changes are pushed live to ensure that those creative updates increase conversion.

We also use Seller Legend to tag individual products as active, pre-active, or discontinued to communicate a given product’s status across all teams from supply chain to marketing.

Ultimately, Seller Legend simply provides a great financial picture for a given brand. Through Seller Legend, you can see margins, PPC data, ROIs, and even who owns the buy box. This information helps with decision making on pricing, deals, and coupons.

Keepa

Keepa is a tool that gives you the holistic story of a brand. It’s a browser extension that shows keywords, ranking within categories and subcategories, BSR rank, ratings, and review counts over the listing’s lifetime. And not just your own listing—any Amazon listing.

Brand Managers set up alerts to track competitors to products in their portfolios, look at subcategories, and get alerted if and when they lose the Best Seller Badge.

Looking at all of these otherwise separated elements that feed into Amazon’s algorithm shows the overall health of a brand and helps BMs learn what’s making a product work.

Keepa Example
Keepa Extension

For example, one of our bike seat brands seems to do significantly better on lightning deals than anywhere else. The BM of this brand determined that by seeing huge revenue fluctuations on the days that he was running a deal on this product.

Some products, such as seasonal items, may not perform any better on deals than they do regularly. Keepa helps you make that determination easily and pivot your energy and resources toward other strategies.

Helium 10

Helium 10 is, first and foremost, a competitive research tool that identifies keywords essential to SEO ranking.

BMs use Helium 10 to pull a list of ASINs that come up for a given keyword. It’ll show you an ASIN(s) category, who owns the buy box, whether the ASIN is FBA or FBM, as well as the fees. It helps BMs keep on top of the buy box, and get a closer look at the competition.

Where Helium 10 really pulls its weight though is with Thrasio’s SEO and Product Launch teams. These teams are separate from Brand Management, but work closely with BMs to ensure the success of each product.

For example, if our Product Launch team is working on a new variation of a product in one of our pet supply brands, they could search for “dog nail clippers” on Amazon. Using Helium 10’s Chrome Extension, Xray, we can download a report of all the competing products for that search term. Then, from the Xray report, we can download the Cerebro data from the top competitors in that search term and run them through our own data aggregation tool to make the key choices to launch new products as competitively as possible.

Example image of Xray Extansion
Helium 10’s Xray Extension

The SEO team uses similar functions to continually update and optimize these listings post-launch and post-acquisition.

Thrasio BMs wear a lot of different hats. We pull a lot of data from Seller Central and put it into our own secret sauce software, but the products listed above are daily touchpoints for BMs managing products in any category.

If you love data and spreadsheets, take a look at our careers page.

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How To Boost Your FBA Business in Q1

 

For many retailers, sales are lower in Q1 than at any other time of the year. If you aren’t selling blankets, snow gear, exercise equipment, or supplements, you’re likely downshifting to save money for more profitable quarters. On the flip side, sales trends in 2020 thus far are forecasting nothing short of a blowout for FBA sellers this holiday season, so year-end revenues should be healthy.

holiday shopping predictions 2020

Along with the usual holiday mayhem, Casey Gauss, Thrasio’s VP of Amazon SEO, advises sellers to expect more of the unexpected in Q1. We may see more of what sellers saw in Q2 of this year—supply chain disruptions, shipping delays, and stockouts. These problems are by and large out of your control. Therefore, you should prepare for anything you can control and keep a careful watch on your inventory. 

While many sellers will indubitably be celebrating all-time Q4 revenue highs, they’re simultaneously staring down the barrel of the new year and expecting the traditional Q1 drop. At Thrasio, we’re hoping to extend the most wonderful time of the year into Q1. We’ve got a few ideas on how to combat shoppers’ annual spending hangover in January while sidestepping the annual logistical obstacle that is Chinese New Year. 

Through strategic planning, fresh creative assets, and smart ad spending, you can turn your Q4 profits into real growth in 2021.

Plan Your Work, Work Your Plan

It’s a good time to prioritize administrative needs. First, meet with your CPA as close to the New Year as possible, and see if you can afford a safety net for the coming year. As our Chief Supply Chain Officer, Mounir Ouhadi, says, “We can’t predict black swan events like the pandemic. But we can do our best to plan for what we know is coming based on trends.”

If you’re looking into improving your current products or testing out new suppliers, keep in mind Chinese New Year will be in full swing. During the month of January in China, most laborers and suppliers take off work from their factory jobs and travel home. This creates a trucking and shipping scarcity amid slower factory output. It’s also common for factory workers to change jobs around this time. If your supplier is in China, Taiwan, or Vietnam, make sure your inventory forecasts are as accurate as possible, and ensure your orders will last through the end of January to avoid exorbitant shipping costs and quality control issues. 

Ouhadi predicts sellers will overreact and over-order their products for Q1 and Q2. With the COVID-19 vaccine shipping in the first half of 2021, we might expect big shipping providers to focus on vaccine distribution in Q1 and Q2 causing constraints on logistical essentials like air freight. 

If you have enough working capital, you can protect your business by stockpiling two months’ worth of future demand with the supplier or a local 3PL close to the market where you sell. Otherwise, you may want to work with your suppliers to make sure they have everything prepared to initiate production rather than leave you scrambling.

Creative Refresh

Updating your listing photos, A+ Content, and copy may be the easiest lift for maintaining your growth in Q1. Spend time during the second half of Q4 gearing up for the next shopping events (e.g. The Big Game in February, Chinese New Year, Valentine’s Day), or just a general update to compete with new branding trends.  

Amazon’s algorithm prefers listings with all nine listing photos allowed, A+ Content, and a brand video. Take a look at the search results page for your product. See if you can orient the products in your main listing photo differently to make your listing stand out among your competitors. Changing positions or improving the arrangement of included items may be more eye-catching to shoppers when scrolling through search results. At Thrasio, we call them “thumb-stoppers.”

You can test new branding against your old stuff with services like PickFu and Splitly. Pickfu allows us to target Amazon Prime members only and show them the old creative against our new creative and ask which one they would be inclined to purchase. Splitly offers automated A/B testing on a variety of listing features from images to pricing. 

PickFy Example Before
PickFu test image showing the original main listing photo.
PickFu Example
PickFu test image showing a main listing photo candidate for listing optimization.

Shift Your Branding’s Point of View

In Q4, you’re likely to sell your items as a gift for the customer to give to someone else. Conversely, Q1’s customers are shopping for themselves. Update keywords, PPC, DSP, and social media ads to help the customer imagine the product in their own hands rather than as a gift for someone else.

Additionally, our VP of SEO (and all-’round Amazon expert), Casey Gauss, predicts Amazon will only guarantee delivery in time for Christmas on products purchased December 9th or earlier. This means that people scrolling through social media and Amazon in the 15 days leading up to Christmas are more likely to be shopping for themselves and anticipating cash and gift cards in just a few days. With the pandemic still keeping many people at home, that’s a lot more time spent on social media than in previous years.

One More Thing

Q1 may be a good time to evaluate your software and subscriptions to see if you can cut back at all. Subscripturation is a huge problem in the Amazon space. So many programs only cover 1 or a small specific subset of tasks. It’s super easy for smaller companies to be inundated with tons of different tools for minor tasks..or even subscriptions you’ve forgotten to cancel. Learn more about what software Thrasio brand managers can’t live without here.

Want to learn more about Thrasio and how we manage brands? Subscribe to our new podcast, The Selling Point.