Everything starts and ends with EBITDA when you’re an Amazon acquirer.
Whether you’re valuing a new business or drumming up interest among investors, EBITDA is a key metric that has a flywheel effect on your firm.
But perhaps one of the hardest things to master is operationalizing EBITDA. After welcoming a new brand into your portfolio, you’re challenged with tidying up operations and simultaneously growing brand reach.
Your success is tied to your ability to overcome this hurdle and to maintain three pillars of EBITDA growth. Keep reading for a breakdown of these pillars, as well as expert tips for operating more efficiently.
Pillar 1: Control Costs
When acquiring new brands, the first obvious step is to shave unnecessary (or excessive) costs tied to the supply chain, advertising and/or marketing.
It’s worth noting that the latter is drawing more attention these days, as “artificial growth” through ads is slowing on Amazon. In the last year alone, Amazon ad prices have shot up 50% to an average CPC of $1.20. This has amounted to more than 30% of a product’s price on average—up 20% from a year ago, according to Bloomberg—and is likely to inflate even more.
On another note, you not only have to watch the operational costs of a brand, but also your own costs for piloting it. Many rollups face the issue of a rapidly growing headcount. This is often the result of hiring more brand managers and modularizing a brand’s selling operations—a problem that others have combated by introducing new software and automation into their tech stack.
And still, those who do tap software often attempt to build their own platforms (with little success) or resort to snatching up existing tech companies, only to shoulder ongoing development costs.
Beware of these common pitfalls, which come with large price tags and persistent maintenance.
Pillar 2: Grow Brand Revenue Post-Acquisition
As you eliminate wasteful spend, your next priority is to maximize and develop new revenue streams for freshly acquired brands. At this stage, the biggest challenge is to wean brands off Amazon-dependant sales—even though Amazon is your cash cow.
The end goal is to establish brands as standalone businesses that are defensible against external forces and have their own customers. This is especially crucial for FBA brands, which are constantly at the mercy of Amazon and drive all their revenue from a channel where 75% of shoppers are brand-agnostic.
All the while, you still need to build upon the sales you receive from Amazon. In the short term, Amazon remains a core platform for your brand and familiar territory for you to conquer.
Pillar 3: Acquire More Brands
It goes without saying that EBITDA growth relies on a fresh, diverse portfolio of brands. To achieve this, you must select the “right” brands to purchase and look under the hood to weed out one-hit wonders, manipulators (sellers who’ve doctored product reviews or sales numbers, for example) and overall risky investments.
Meanwhile, as Amazon acquirers are in their heyday, brand owners wield a lot of leverage. With more than 80 rollups vying for a small fraction of eligible sellers on the marketplace, acquirers are feeling the pressure of having to differentiate themselves.
“‘We buy Amazon businesses’ is already an outdated concept,” reports Marketplace Pulse. “Some [rollups] are already focusing on particular categories; some are investing in exchange for a minority stake. Others want to be incubators for more brands like Anker.”
To win new business, you must outbid competitors by cutting the largest check (and assuming a longer payback period) or proving faster, better brand expansion that leads to a better earnout for sellers.
How to Fortify Each Pillar
With all that said, there are a number of tactics that can help to optimize EBITDA at various stages.
Expand Your Brands’ Footprint
It’s never too early to explore new sales channels. While the size of Amazon’s marketplace dwarfs that of Walmart, eBay and others—risks abound on Amazon. Namely, brands face the looming threat of account suspension, mounting FBA costs, sudden policy changes and Amazon’s unnerving control over the fate of their business.
Alternatively, niche marketplaces offer the advantage of a targeted (and loyal) audience, fewer competitors and more branding opportunities. And though Amazon remains critical to short-term success, the future security of your brands relies on channel expansion.
Not to mention that if you have a strong playbook for growing brands off Amazon, you could better differentiate your pitch to brand owners.
History shows that strongest brands focus on diversifying their catalogs, suppliers and fulfillment methods.
“If [Amazon-native brands] focus all of their attention on creating products that are supposed to meet Amazon customer needs, but in the end, have no other way of selling their products [and haven’t chosen to] sell elsewhere,” says James Thomson, chief strategy officer of Buy Box Experts, “then there's this kind of absurd situation where you don't really have any assets that you're building long term. You're just generating sales, but they're one-time sales.”
"...there's this kind of absurd situation where you don't really have any assets that you're building long term. You're just generating sales, but they're one-time sales.”
He continues, “This is a time where I ask the question, ‘How many sellers are going to look at potentially diversifying outside of one type of product that's made in one country...so that if customer preferences change in one category, it’s not going to affect all parts of the business?’”
Rollups typically find themselves at a crossroads trying to decide whether to prioritize brand-building or efficiency. While a simple, FBA-reliant strategy adds to an organization’s efficiency, it certainly doesn’t help with the brand’s growth.
Use the Right Software
The right multichannel automation software can do wonders for efficiency, accuracy and growth. For example, solutions today enable you to sync inventory across channels, route orders and forecast demand to prevent costly errors.
With a platform like Zentail, you can easily convert your Amazon catalog into a multichannel catalog, too. The platform uses AI to translate product data for some of the largest marketplaces, so users can list a product to multiple channels in a few clicks.
A secondary benefit of integrating a multichannel system: you can get connected with a team of ecommerce professionals. With the support of a team that’s familiar with non-Amazon channels, plus a platform for centrally managing a brand’s multichannel assets, you can avoid hiring to bring experts in-house.
Organize Your Teams Optimally
It’s not uncommon for rollups to assign multiple managers to one brand. Various teams may handle various areas of operations, or certain teams may be responsible for certain sales channels.
The downside of this approach is that teams often fail to communicate with one another. Cross-channel catalogs become cluttered and hard to manage. Marketing campaigns aren’t consistently rolled out. Inventory becomes tangled.
Minimizing the number of hands that a brand passes through is the most surefire approach. But to accomplish this, software is necessary. You need a central place to manage a brand’s listings, orders, inventory and more—allowing for quality control and a simpler brand management. With the right software, you no longer need to separate your teams by brand or channel. You can get everything done in one place at one time.
The Bottom Line
You have a lot to juggle when you’re in the business of acquiring and managing Amazon brands. But as competition heats up and the harsh realities of ecommerce set in, you may find yourself needing to recalibrate your strategies around the three core pillars of EBITDA growth.
As you seek to cut costs, grow revenue and acquire new brands, remember this: Amazon is a means to an end, not an end itself. Think big picture and avoid falling into the same trance that has already stunted the growth of many rollup firms.