6 minute read
Selling on European marketplaces shares some startling similarities with traveling to a foreign country. You’ll need to exchange money into foreign currency, and you’ll probably have to pay foreign taxes like VATs.
If you’re an experienced international traveler, you know not to exchange money at the first place you see. You’ll want to compare rates. If it’s your first time selling on foreign marketplaces, there are some hidden costs you’ll want to know about and watch out for. Once you better understand those costs, you’ll know how to minimize them, sometimes even avoid them entirely.
In this post, we’ll unravel the hidden costs every Amazon seller should be on the lookout for when expanding their Amazon business to the UK and EU. Even if you’re not selling on Amazon UK yet – or one of the other Amazon EU marketplaces – it’s never too soon to start planning.
Here are the hidden profit killers every global Amazon seller should know before expanding to Amazon UK, Amazon Germany, Amazon France, Amazon Spain, and Amazon Italy.
When you project the cost of paying 3.5-4.5% on Amazon Currency Converter* over a year or two years, the loss could equal the cost of a new car or the vacation of a lifetime.
Let’s look at an example to break the potential costs.
If you can save 3% on foreign exchange fees each month, the extra profits can be enormous. If you’re receiving 38K per month on Amazon, you’ll save about $1,140 a month. Over three years that adds up. Big time. If you’re earning 38K per month, that extra 3% adds up to $68,400 or about the sticker price of a new 2019 Audi A7.
*The estimated rate is based on actual Amazon Currency Converter transactions between 07/09/2016 – 07/23/2016.
Having a foreign bank account in the countries where you sell will save you money, right? Maybe. For many sellers, the answer isn’t always a “yes.”
Let’s backup and look at what it takes to even open an account in a foreign country. In many nations, you’ll be subject to strict rules. Some countries mandate that you have a place of business in that country. For many sellers, opening a foreign office is so cost-prohibitive that they take the simplest route, and do nothing. They just keep paying the extra 3-4% to Amazon Currency Converter every time they receive their profits from Amazon UK, Amazon Germany, Amazon France, Amazon Spain, and Amazon Italy.
Even if a seller is able to set up a foreign bank account in the country they do business in, it’s not an ideal system for global expansion. Each time you start selling in a new country, you’ll have to go through each country’s rules for opening a bank account, possibly have to deal with operating a bank account in a foreign language and meeting the rules and requirements for keeping the account in good standing.
As if getting ripped off one time with airport-like currency exchange fees wasn’t bad enough, a lot of online sellers are actually paying outrageous double exchange fees.
What are double exchange fees? That’s what happens to international ecommerce sellers who have their original foreign marketplace payout exchanged automatically into dollars. Then they’re forced to exchange those dollars back into the original currency they received it in, such as British Pounds, Euros, Yen or another currency.
Let’s look at an example of how the dreaded double foreign currency exchange could work for a US merchant selling on Amazon UK. You open your Amazon EU account, and start selling on Amazon UK. Because your customers are in the United Kingdom, they’re paying in pound sterling (or GBP). That means you’re actually being paid in British Pounds. If you do nothing, Amazon Currency Converter will automatically exchange your funds into US Dollars when receive your payout every two weeks.
Exchanging all your earnings into US Dollars may seem fine. It may even make sense, at first. If you think about it, you’ll probably need to bring home at least a portion of that money back to the United States to run your business. But if you’re doing business in the United Kingdom, eventually you’ll need to pay VAT taxes to HMRC (Her Majesty’s Revenue and Customs). And the government of the UK only takes Pounds. That means you’ve got to convert the US Dollars you exchanged from pounds into dollars back into pounds.
That’s a double currency exchange, and you never ever want that to happen. Remember, currency exchange always involves a cost. Even large banks pay fees to other banks to exchange currency. That means the best currency exchange is no currency exchange. Are you going to be able to completely avoid currency exchange as an online seller? Nope. The point is you don’t want to exchange currency more times than you have to – that is if you want to keep as much of your hard-earned profits as possible!
With a global currency account, you can leave a portion of your earnings in the currency you received them in. Not only will you be able to eliminate double currency exchange fees, you’ll be able to avoid some of those exchange fees altogether.
Let’s look at that same U.S. online merchant who sells on Amazon UK we looked at earlier, only this time how things would work if they had a global currency account. When that U.S. online merchant receives their payout from Amazon UK, they’ll receive it in pounds. Let’s say the merchant knows they’ve got VAT taxes to pay from their Amazon sales in the UK. Instead of being forced to exchange their payout into dollars, they do nothing. The merchant simply pays their VAT taxes directly to UK government in pounds. Zero exchange fees!