In a word:
Most Amazon aggregators will require a minimum average gross profit margin of 20%.
Gross profit, in the world of Amazon exits, is also referred to as your ‘Contribution Margin 3’ (CM3).
How is this calculated?
Add up your total sales (or revenue), then deduct the following:
- Cost of goods sold (product costs and logistics).
- Amazon fees (commission, FBA etc).
- Advertising fees (PPC).
But here’s the important bit.
Gross profit or CM3 does not include your operating costs.
This means that:
Rent, rates, staff costs, R&D, stationery, your remuneration, and all other expenses outside the scope of the CM3 calculation (look it up).
In a nutshell.
Of all the Amazon aggregators we have dealt with, 20% appears to be their absolute minimum threshold for gross profit or CM3.
Because the due diligence on an Amazon FBA business takes pretty much the same amount of time, regardless of its revenue and profits.
It is for this reason that Amazon aggregators work within certain thresholds when identifying businesses to acquire.
For some product categories, aggregators require a higher minimum margin.
On the whole, however, 20% was generally used as the benchmark for the deals we have been involved with.
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