2020 has been an extraordinary year for many very well documented and understood reasons. For some industries COVID 19 and the economic consequences of trying to contain the virus has been existential, whilst for others it has been positively transformational and created considerable growth opportunities. Certainly the sector we at Nozzle specialise in, eCommerce, has benefited considerably from lockdown and all that goes with it, but I wouldn’t say in a transformational way. 2020 has seen the acceleration towards what many people think was the inevitable and eventual demise of the high street, the shift from offline to online, and the growth of online marketplaces such as Amazon. And this acceleration has led to a flurry of mergers and acquisitions (M&A) within the Amazon ecosystem. Indeed, according to a recent report on Marketplace Pulse 2020 has witnessed the commitment of $1 billion of fresh capital to firms looking to acquire sellers and brands on Amazon.
This model is not new and certainly well proven if you follow companies such as Thrasio who have bought in excess of 50 sellers on Amazon in the last 2 years and joined the “Unicorn’ club in July of this year following a $260m series C raise at a $1 billion pre-money valuation.
This increased level of demand however has had the dual effect of both increasing valuations and shortening due diligence timelines. Sellers are expecting valuations of 5x earnings before interest, tax, depreciation and amortization (Ebitda) and they expect deals to be concluded quickly.
Not all revenue is created equal
But what we know better than most at Nozzle is that not all revenue is created equal.
It is imperative to understand key metrics such as repeat purchase behaviour, customer lifetime value, PPC wastage and revenue growth opportunities before making acquisition decisions and agreeing the right valuation. And doing so within what has become a market norm of 45 days is not easy.
Amazon does make the data required to understand these metrics available via its API infrastructure but it's not easy to unify these data sets, let alone make sense of them and use them to drive growth. This is a core competency of the Nozzle platform. We surface all this data, key metrics and insights in a simple, easy-to-understand dashboard and we provide optimisation tools to deliver results.
We’ve not been doing this for that long but over 100 sellers worldwide trust our software and services already and we’re now seeing significant demand from this group of Amazon FBA aggregators to license the Nozzle audit and analytics tools to help them make the right acquisition decisions as well as using our bid optimisation platform to drive growth post sale.
One of the biggest and more immediate challenges facing the market, and therefore for these aggregators post acquisition, is on the logistics side and specifically supply chain management. Having too much stock is very expensive and not having enough will lose a seller the buy box, organic rankings and consequently sales. This is a key area for the Nozzle product team next year as we augment our tools to address these logistical pain points.
The following is a list of key questions that Nozzle's technology answers
- How do I spot high potential FBA businesses to track as potential acquisition targets based on criteria like market share, sales, category?
- How much can I truly afford to spend to acquire a customer. What is my true breakeven ACoS/RoAS that accounts for all repeat purchases?
- How long does it take for a customer to become profitable?
- How much can I afford to drop my price in response to competitive pressure given my Customer Lifetime Value (CLV)?
- How many of my repeat purchasers are in my Subscribe and Save program? Are they more valuable than the repeat purchasers who aren’t? What is the relationship between my marketing spend and sales (ad and organic).
- What products are my customers comparing my products to and what they do ultimately buy?
- When will my aged inventory incur incremental Amazon warehouse fees and am I better off liquidating the inventory given the expected sales vs the cost of the warehouse fees?
- And many more...
Please feel free to get in touch if you need any of these questions answered.