I Bought a $200K Amazon FBA Business… and Lost $60K (Full Deal Breakdown)

So what you're seeing on the screen right now is me wiring $92,500 into Empire Flippers to purchase a supplements business on Amazon. And at this point, I didn't know that 6 weeks later Amazon was going to start flagging and documenting requests on multiple ASINs. Not just one, multiple. And I basically had 2 options: either fight it and spend the next 6 months in Amazon appeals, watch revenue drop while burning all of this cash, trying to save the business that was already compromised. Or the latter was exit, take my losses, cut clean and move on. And I ended up choosing to exit this actual business, but my total loss was $60,000. Where in reality, as you can go ahead and see on this screen, The business purchase price was $185,000 plus an additional $15,000 worth of inventory. So that number, which I lost $60,000, in reality should have been over $200,000. And the only reason it wasn't is because of one decision I made before I even wired a single dollar. And that is deal structure that most buyers never even think about until it's too late. So in this video, I'm going to go ahead and show you, because obviously you see Nude Relapse. This is the actual brand that I went ahead and purchased on Amazon, where you can still find it on Amazon today because the seller is selling this actual item still. But I'm also going to go ahead and show you exactly what ended up happening, the specific flags that ended the actual deal, and basically the 3 rules that now I run on every single acquisition before I even commit to anything. And at the very end of this video, I'm going to give you the exact checklist I use before wiring a single dollar to Empire Flippers, to Quiet Light, to Website Closers. It's basically 47 items, 8 different categories built from deals just like this one. And I'll have it on the link below, but let's kind of go ahead and get started with this video because I'm going to show you all the numbers. You can see this was the exact listing itself from Empire Flippers. And let's kind of move on to how it looked like on paper, because the thing is, you can look at paper and think this is a fantastic deal, but at the end of the day, you don't know what actually happens until you buy the business. And let me kind of zoom out a little bit just to make it easier for all of us to see this. Um, but basically this was the deal structured. I acquired this business for $185,000 plus inventory, which was an additional $15,000. So $200,000 total. The supplement had 8 different SKUs. As you can see here, it's not just one product, it was multiple different types of parent ASINs, which is going to be important when I go ahead and kind of go, uh, through a little bit more on this actual video, right? So I had 8 different SKUs, monthly revenue was $29,000, the average monthly profit was $8,600, uh, net margin 30%, TACoS 8 points. Everything kind of checks the box on on papers. And that is the point, because a lot of these businesses always look great on paper until you actually become an operator in this actual business. Not to mention it was a subscribe and save model. So this customer will repeat this purchase multiple times. So the lifetime value of this customer is a lot, right? And if I changed nothing to the actual business, I can rest assured that in 23 months in time, I will recoup all of my money back, but I don't know what I don't know. So let's go into what ended up happening, the thesis versus the reality. Why did I even purchase this business in the first place? Because number one, low TACoS. That means that they were underutilizing PPC opportunity. They had a $50 cost per acquisition. And the thing is that the seller could not afford top of search. So even though I thought, hey, They have low TACoS. All I have to do is ramp up advertising. It was very expensive to acquire a customer, especially high-intent customers. So for certain keywords where I wanted to show up at the very top of Amazon, we're talking about $7, $8, $9 cost per click, not to convert, not to buy the actual customer, which was $50 of cost to acquire a customer. Sorry, I didn't go ahead and make any edits in my actual video. So bear with me. But the thing is that just to get a click was very, very expensive, right? So that's the reality of it. Number 2, I mentioned, uh, subscribe and save. Somebody will go ahead and repurchase this multiple different times. The thing is with Amazon, we don't own the customer. Amazon owns the customer. So if Amazon decides to suppress a listing, which, um, they did, we'll go ahead and go over exactly what ended up happening. Once a listing is suppressed on Amazon, that person cannot go ahead and simply reorder the item or get it shipped to them directly. We have to fix the issue first before the customer even receives the actual item. And the third thing is that we purchased this business because they only had one child ASIN, which was a 90-day pack. Well, our idea was, okay, they have a 90-day pack. Let's offer a 30, a 60, maybe even a 120-day pack, because now that we're driving people to our product detail page, our conversion rate will go up because not everybody wants a 90-day supply. But it became even a bigger issue because maybe Amazon doesn't flag the 90-day pack, but now they're going ahead and flagging the 30-day pack, the 60-day pack, the 120-day pack, which again was an endless fight with Amazon once it came to compliance. And we're going to go over the actual risk factors because there was 3 buckets of failure that ended up happening right here. The first one was compliance risk. Amazon flagged some ASINs at the very beginning, flagged other ASINs afterwards, and continued flagging different ASINs all the way up until us transferring the business back to the original seller. And the thing is, sometimes it's easy fixes as far as compliance is concerned. Other times Amazon will flag it until you get your items tested, especially with supplements. So they have a partnership with Eurofins where your manufacturer works with them, sends them the supplements, and Eurofins will go ahead and test them for $2,500 per test. And you might think, what's the big issue, right? Well, if Eurofins goes ahead and flags and says that this is invalid to sell on Amazon, now you have to go back to your manufacturer, figure out what's wrong with it, send it back to Eurofins, and pay an additional 2,500. And if you have multiple child variations, you can already see how much of a headache and costly this is going to go ahead and be. And the thing is, when it comes to Amazon enforcement, it's literally inconsistent bot rejections because Amazon will flag this based on a bot, will submit the documentation, and Amazon will flag it again because something in the documentation, the PDF, does not fit how they want to go ahead and have it processed, right? And this is such a big headache when it comes to Amazon because it's not a real person reviewing this stuff. It's always a bot, which again is a huge risk factor when you're buying supplements like this or supplement businesses like this on Amazon particularly. And every single time this appeal was like a 3-week cycle, which again, your product is suppressed. Any customer you acquired that was on subscribe and save no longer gets this actual item until the compliance is met. So suppressed BSR tanks, revenue goes to actual zero. And then the unit economics, which again, we knew all of the unit economics and the cash flow risk before we bought the actual business, but you cannot really anticipate it. But let's kind of like fly through this, right? The product price when we went ahead and acquired it was around $17.99, but we'll go ahead and put $19.99 here. The gross profit to manufacture, to ship into Amazon, the Amazon 15% fee and the fulfillment fee to a customer, we had a gross profit of $10, but the cost to acquire a customer with PPC was around $50. So it meant that that customer had to go ahead and purchase our product 5 different times, 5 different refills in order for us to go ahead and make a profit off that customer. And you don't control the actual customer or the lifetime value. Amazon does, because they can go ahead and continue to flag your actual product, right? So if a listing is suppressed, your Subscribe and Save cancels, they go to zero. And you can see here that sale velocity was disrupted. Amazon flags the actual account. We had a payment freeze for a completely different reason. And now the reason for that is because the original seller was from Vietnam. We went ahead and transferred to USA account. Amazon flagged that issue that allowed us to have a 90-day freeze that we couldn't collect any money, um, post actual close, which became a huge issue as well. But we literally had zero liquidity. We couldn't fund inventory reorders. We couldn't even fund to go ahead and come out with different variations of the same product. And the thing is here that when you're looking at this on paper, most buyers would have caught the unit economics problem, right? We caught it. We already knew that. Most buyers would have caught the cash flow problems that come with that, right? We knew that. We knew that we're going to make our money back somehow, some way, but nobody catches the compliance problem until Amazon catches it themselves. And that's basically what ended the deal because it was literally like whack-a-mole when it came to trying to figure out what Amazon necessarily wanted. So I want to show you 2 options that we had at this point when all of this was going on. And I want you to think about this, which one would have you chosen? Because the answer tells you a lot about how you think about this actual deal structure. And this is exactly why item 24 on the checklist exist. And again, if you want to download it, it's going to be right down below. But let's go ahead and kind of go over all of this, right? The options that we had is to fight or exit. Option A, we continue operating, we resolve this compliance, which can take anywhere between 3 to 6 months, and it might come out in the future that we have to go ahead and eliminate this actual ASIN. Our payback period went ahead and turned from 24 months to 48+ months because of all of these different issues going on in the actual business. And our capital at risk was around $200,000. And we had no control over this, right? Or option 2 was to exit, right? Trigger seller financing protection, because we only went ahead and put half of it up front. We returned the asset and lose money, right? The capital at risk here was $80,000, or basically our initial down payment of the actual business. So our total loss here was around $60,000 because we were able to sell through something. Amazon finally paid us back some money as well. So we were able to recoup some of that cashflow, some of that inventory. We still bought more inventory as well. So we were able to go ahead and recoup that as well, but we were able to preserve right around $120,000. And even, even though option B might've been the most obvious answer when you kind of step up, take a step back and view all of this, but it wasn't when you're in the nitty-gritty things, because there were still a bunch of problems, right? Because the seller didn't just hand over the keys to want to go ahead and have the keys for their actual business. We signed a contract. They wanted the money for it. They obviously knew there was something might've been wrong with their actual business, right? Um, so they refused to go ahead and take it back. And the 3 options they gave us was paid in full. You can resell it yourself, or let's litigate. Because if somebody in the court saw this, they would say, okay, you had a contract. You can go ahead and honor it. But we had some leverage, right? Like we raised prices from like $1,799. Raised it all the way to $24.99. You can probably see right now that they're selling it at $25.99. So they kind of increased it by a dollar more than what we had it for. Um, and we didn't have a loss in like conversion rate. So our conversion rate was still strong, even though we kept on raising prices and we increased subscribe and save penetration. So our numbers actually went ahead and grew more and more over time. And we negotiated COGS down, this and that. So the result, the seller ended up going ahead and accepting the asset return. And we're able to preserve that much money. But again, the 3 rules in this actual business, right? You have to break out even on the first order. You cannot rely on long or long-term value of the actual customer or lifetime value of an actual customer, right? So if your customer acquisition cost on day 1 doesn't give you margin on Amazon, again, if you do Shopify, you do everything else, it's fine because you own that actual customer. On Amazon, you need to be first order profitable. And I've learned this the hard way. Number 2, open compliances, right? If you have anything on your account health that seems like a red flag, you're basically— the, the ASIN valuation is zero. So this is why whenever something is going on in the Amazon account, the account health is always the number one thing I look for. If there's any flags there, I don't even look at the actual business anymore. Why? Because I got burned this time. I know that some people will go ahead and get burned a second time, right? And then after that, structure for worst-case scenario. This is why I always like to do some seller financing, some earnouts, some holdbacks, not just going ahead and using it as a leveraging tool, but also using it for protection as well for the worst-case scenario to happen. So again, if I would have paid in full 100% From the very start, there'll be no way in hell that this actual seller would have taken this business back. The only reason they took it back is because they got paid up some money upfront and they had still the business they can go ahead and take over. So I still lost money, but I was able to go ahead and preserve some money as well. And again, I mentioned item 24 on the FBA deal autopsy checklist, zero open compliance requests. And if you guys are interested in going ahead and seeing everything here, I went ahead and linked it down below. So make sure to go ahead and check that out, download it. It is completely for free.