According to a study by Forrester Research, cross-border B2C e-commerce is expected to more than double to $629 billion by 2022. Who wouldn’t want a piece of that pie? By expanding your business to international markets, you’re able to access vast, new business opportunities and reach millions of potential customers who would’ve otherwise been unavailable to you. But expanding into the European Union and other foreign markets is a big move, and not one to make lightly.
Entering the EU means meeting entirely new foreign laws, taxes and product regulations. If you’re based in the US and considering selling to Europe, know that there are going to be a few hurdles to jump. Let’s take a closer look at some of the questions you may have about expanding your sales to the European market, so you can be prepared to make your move.
With cross-border e-commerce rapidly expanding, Amazon is poised to explode. Globally, a quarter of the revenue generated by Amazon sellers in 2017 were through cross-border transactions – that’s up a whopping 50% from 2016. Based on estimates of Amazon’s total gross merchandise sales, this means $50 billion to $75 billion for merchants selling across borders.
Even if you’re currently a small business, expanding into Europe will give you an opportunity to grow your business and increase your profits. But where do you start? Once you’re ready to explore your options, take the time to thoroughly research each market. Identify where there’s the most demand for your products, and be sure to understand what makes each market different. What are they lacking? What wouldn’t interest them? How do you have to approach the culture differently than you would in the US?
There will be differences between the American market and the European market. If you sell electronics, for example, you have to make sure that your product is even compatible. As anyone who’s ever traveled to Europe knows, you need a converter before you can plug in an electronic device or charger. So, electronics aren’t going to work the same as they do in the U.S.
The difference in voltage between America and Europe is a dramatic example. But it’s important to go beyond the big differences to understand the finer points of the culture, even in the UK where there are no language barriers. A great place to begin is by checking sales figures and competitors to see what’s successful and where the best opportunities are for your particular product.
So, you’ve done the math, surveyed the market and metaphorically stalked your competition. Now what? You need to get your products to your overseas market. You have a few options from Amazon.
The first is Fulfillment by Amazon (FBA), meaning Amazon ships the products for you. The second is Fulfillment by Merchant (FBM), or shipping the products yourself.
If you choose to fulfill orders yourself, you’ve got a few options. You can ship the orders from your own warehouse or you can go through a third party, which is located in Europe. Pros and cons? Shipping from your own location often means high international shipping rates and import duties. Setting up a third-party shipper will save the high shipping costs, but it also carries its own set of fees.
There’s one more important factor to take into account when deciding which of these options makes the most sense, and that’s Amazon Prime. If you choose FBM (Fulfillment by Merchant), your products will not be eligible for Amazon Prime. Just like in the United States, Amazon Prime requires using FBA. Cutting yourself off from Prime buyers can mean dramatically reducing your global sales opportunities. Let’s take a closer look now at FBA and what you’ll want to consider.
When using FBA, you’re given three storage options: Pan-European FBA, European Fulfillment Network (EFN), and Multi-Country Inventory (MCI):
For most US sellers, it makes the most sense to store your inventory in the UK to avoid running into a language barrier. Trying to set up your European sales can be confusing enough without having to worry about finding a translation service to help you fill out the paperwork. In this way, Amazon UK makes a great home base of operations for expanding into Amazon EU for English speakers.
Once you’ve properly registered your business, you can set up your European Unified Account with Amazon. Setting up this account comes at a small fee but it allows you to list your products in all 5 Amazon marketplaces in Europe.
Simply put, a unified Amazon account allows you to control what products you sell, and what countries you sell your products in – and do it all from one central Amazon seller account. You only have to set up your account on one of the five Amazon EU marketplaces, then you’ll be automatically enabled to sell across all five marketplaces.
Killer tip: The registration will be in the native language of the country where you register. So, choose to register on Amazon.co.uk if you’re an English speaker.
When it comes to VAT registration, you’re required to register in any country in which your merchandise is being stored. The VAT or Value Added Tax system is very different from what American sellers are used to. VAT doesn’t only involve your sales; VAT is also triggered by where your products are stored. For this reason, you’ll also need to consider your storage options very carefully.
After you’ve listed your products and they start selling, you’ll begin receiving payments in British Pounds or Euros. That’s because Amazon makes each marketplace a native selling experience. Your customers will pay for your products in their currency, and you’ll be paid in that currency not in US dollars. In order to receive your earnings in US currency, you’ll have to convert your earnings from Euros to dollars or Pounds to dollars.
Or, you can keep your currency in the form you received it to pay your VAT obligations and suppliers. With the right account, you can pay VAT and suppliers directly – and avoid paying currency exchange fees altogether.
In all likelihood, you’re going to want to bring that money back home in US dollars, at least a majority of it. This is where many businesses selling internationally from the US are losing money.Amazon doesn’t do it for free automatically. Many merchants don’t fully understand the fees involved in converting earnings into US dollars. They’re often unaware that the process of converting their money is even taking place (or that they’re being charged for it).
So, how does it work? Once you have a balance in British Pounds or Euros in your Amazon account, you can use Amazon Currency Converter to change your marketplace earnings into US dollars. It’s sort of like exchanging your money at the airport when you’re in a foreign country, Amazon makes it quite convenient.
Also like changing your money at the airport, Amazon Currency Converter probably isn’t going to give you the best exchange rate. Amazon Currency Converter rates have been measured as high as 4.5%, by some accounts. You’re always going to pay some fee for currency exchange, but there are ways to pay far less than the 3-4% range. Those percentage points add up.
The average seller who brings home €8,000/a month will be paying an extra $232.42 a month solely in exchange fees, based on an estimated savings of 2.5%. In three years, that adds up to $8,367.40, or a new Rolex.
In order to receive the most competitive exchange rate, you’ll need to shop around. Learn more about cross-border payments, and how to negotiate the best rate.