Small retailers and Amazon sellers are
increasingly expanding their sales to overseas markets. The reasons are
plentiful, but essentially it boils down to minimal risk. Offering your
products to new markets overseas provides many more opportunities for new
sales. Especially sellers from small countries, for example in central Europe,
selling to the rest of the E.U. member states seems almost like a necessity.
Importantly though, it comes as very little
cost and risk. Offering your product to a large delivery proximity bears very
little upfront cost (e.g. Amazon sellers); only in marketing expenses for some
retailers, if they wish to promote themselves in a new market. The reward might
be gaining a few extra sales, but it could mean bringing a completely new
product to a market, thus gaining first mover advantage.
It creates diversification. If there is
political instability, unemployment and/or a sudden drop in purchasing power
from the domestic economy, having a large portion of the business’ revenue coming
from many different markets is a way to mitigate systemic risk; it would be
unlikely that all the markets felt the same economic effects to the same
degree. This applies to changes in culture, taste and regulations too.
Expanding overseas is a matter of pressing a
few sequential buttons on eBay or Amazon. It is also likely that the delivery
company the business is already using also offers reasonable international
delivery. For example, UPS, FedEx and DHL operate in almost any country you can name.
When selling to foreign customers however,
they pay in their own domestic currency. This leaves the burden of exchanging
currency on the seller. Amazon take full advantage of having a built-in system
of exchanging your currency upon a sale. The rate is likely around that of what
a commercial bank provides its customers with, a lousy 4%, give or take.
The exact markup isn’t explicitly clear, which
is never a good sign. Many sellers wouldn’t even think twice about it, either.
It eats into their profits quite considerably. Usually with Amazon (or eBay)
selling, retailers are in a hugely competitive market. So many sellers are on
these sites, and gross profit margins are likely going to be very low, unless
the product being sold is widely differentiated (perhaps something
With such a low cost strategy of high-volume, low-prices
then every percentage counts. Spending 4% needlessly on the currency exchange
could be the difference between surviving or not, because you are likely
competing against domestic businesses who do not lose a portion of their sale
in exchange rate markups. For clarity, this markup is inflicted on the lump
sale price of goods sold on Amazon, not the net profits. To give perspective
here, this is $4,000 per year wasted when sales revenue is $100,000.
How to overcome the expensive
There are some options for Amazon sellers and other retailers, though. Currency spreads can be squeezed down from the extortionate 4% to around 0.5% to 1%. This is achieved by setting up overseas collection accounts, meaning that when the company is paid by the overseas customer, the currency remains in their domestic currency in an overseas account of yours.
Why this is good?
Well, it gives you control over how you
exchange your own money, rather than leaving it up to Amazon. These collection
accounts themselves, along with other money transfer companies can be used
instead. Many can be used to cover different regions. For example, OFX covers
Hong Kong, New Zealand and Australia, World First covers Singapore, Japan and
China, USA and Canada, and moneycorp could be used to cover the EU. They all
tend to offer outbound payments to suppliers in over 100 currencies (moneycorp
The larger the volume of the transaction, for
most companies, leads to a better exchange rate. Regardless of volume though,
it will be better than the Amazon currency exchange. This
can be to the advantage of businesses with high revenues. If revenues are over
$100,000 per year, then around $3,000
extra profit can be expected upon opening an overseas collection account.
It is worth bearing in mind though that this
could lead to lengthier transaction times. Even if the transaction times are
reasonable, generally having an overseas account will likely lead to a slowdown
in your cash flow, because you wouldn’t have time to constantly be transferring
money. Therefore, a little cash buffer would be a great way to overcome these
issues, and cover for those periods of waiting on sales revenue to arrive in
the domestic business account.
Many sellers, particularly on eBay, will be
using PayPal to collect their money. This is fine, but PayPal’s exchange rate
and transfer fees should be avoided at all costs (similar to banks and Amazon
exchange). Instead, it is wise to transfer money from PayPal to a TransferWise account.
Not only does PayPal have terrible conversion
fees of between 3.75% and 4% (in 90% of cases), they actually invoke same currency fees when sending money abroad
(e.g. 2% in Canada / US). Cross border transactions to the same currency costs
absolutely nothing with a TransferWise borderless account (and many others).
Furthermore, the conversion fee of sending say EUR to USD is around 0.5% at
TransferWise – around 3.5% less than PayPal.
Connecting a TransferWise borderless account
to PayPal is great, because PayPal is still a great company to use in business,
as it is very safe. Connecting an account for transfers though means getting
the best of both worlds – PayPal’s safety and universal applicability to almost
all other 3rd parties, and a money transfer company that will offer the best
rates on the market that are comparable to the interbank rate.
Co-Founder At SellerApp
Startup entrepreneur with strong decision-making ability, a talent for managing complex projects with a demonstrated ability to prioritize and multitask with strategic planning.