Why your Amazon FBA brands should keep high SDE margin?
As aggregators of Amazon FBA brands look to acquire and grow their portfolio of brands, it’s important to keep a close eye on the seller discretionary earnings (SDE) margin. SDE is the amount of money that a business owner takes home after all expenses are paid, including taxes, interest, and any owner’s compensation.
Maintaining a high SDE margin is important because it indicates a healthy and profitable business. A high SDE margin means that the business is generating enough revenue to cover its expenses and still provide a comfortable income for the owner. This is crucial for aggregators who are looking to acquire and grow multiple brands, as it allows them to reinvest profits back into the business and continue to grow.
On the other hand, running a business with a low SDE margin can be risky. As manufacturing and shipping costs increase, and competition grows, it can become increasingly difficult to maintain profitability. This can lead to a downward spiral where the business is forced to cut costs, reduce quality, or even close down entirely.
In addition, a low SDE margin can make it more difficult to sell the business in the future. Buyers are typically looking for businesses with strong financials and a history of profitability, and a low SDE margin can be a red flag.
In conclusion, aggregators of Amazon FBA brands should aim to maintain a high SDE margin to ensure the long-term success and growth of their business. This can help to mitigate the risks associated with running a business with low profitability margins, such as increases in manufacturing costs, shipping costs, and competition. By focusing on profitability, aggregators can build a portfolio of strong and valuable brands that can provide sustainable income and growth for years to come.
Flummox is a brand acceleration house specialized in acquiring locally proven Amazon-native brands and expanding their reach by opening distribution across Europe on Amazon and other online marketplaces. Reach out if you’re interested in learning more!
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