The One Secret to Global Expansion Every Successful Amazon Seller Knows
If you’re ready to master the global Amazon sales game, there’s one big secret to growing your business every savvy seller knows... and it has to do with keeping the most of your hard-earned profits.
When you sell on Amazon’s global marketplaces, you’ll receive funds in the local currency of the marketplace you’re selling on. For example, you’ll receive pounds if you sell on Amazon.co.uk. If you live in the US, you’ll need to exchange those pounds into US dollars. Finding the best exchange rate that doesn’t cut into your Amazon marketplace payouts is the key to keeping more of your profits.
In this article, we’ll take a look at the options for bringing your Amazon profits home – and maximizing what you keep. Let’s start with the first place people often look to when they need foreign currency exchange, banks.
Not Everyone Can Get a Foreign Bank Account
While having a foreign bank account can sound pretty cool; it’s not necessarily a practical reality. You may be required to have a business address or office in that country. For Europeans, the process is easier within the EU. For Americans, it’s another story. Many European banks don’t want to deal with the paperwork of compliance with American regulators, especially since the US enacted the Foreign Account Tax Compliance Act of 2010.
Traditional Banks Aren’t Exactly Known For Great Exchange Rates
Even if you do jump through the hoops to get a foreign bank account, they may not even give you the best rate. Banks aren’t known for their competitive exchange rates, and they’re not really set up to handle the interests of international e-commerce sellers.
Banks are most likely to reserve their most favorable exchange rates for businesses that exchange millions per month or more. They may even advertise their interbank rate, the wholesale rate they use to transact with other banks, even if they’d never actually offer their customers that same rate.
But many Amazon merchants never even set up foreign exchange with a bank in the country they’re selling on. They use Amazon’s built-in currency converter.
The Amazon Currency Converter Option
For many merchants who sell Amazon EU and Amazon Canada, Amazon Currency Converter is the easiest way to exchange profits from foreign currencies into local currency. But it’s not free to use Amazon Currency Converter, and it’s almost certainly not going to be cheap. Worst of all, you may not even know you’re being charged for currency conversion using Amazon.
Here’s how it works, when you transfer money using Amazon’s currency converter, you’ll be charged an exchange rate not a separate fee. It’s sort of like exchanging money at the airport, where you hand them $100 and you get back the equivalent of $90. They may not claim to charge you a “fee” – they just gave you an unfavorable rate that amounts to a high fee. Although Amazon doesn’t charge fees much higher than most banks, they don’t make the fees easy to understand.
So How Much Does Amazon Currency Converter Cost?
According to estimates, Amazon charges around 3.5%* when you use their currency converter. Yes, 3.5% is a relatively high percentage. No, you don’t have to pay that much of your profits to currency exchange.
* Estimated rate based on actual transactions using Amazon Currency Converter between 07/09/2016 – 07/23/2016.
If you pick the right cross-border account, you could get that rate down to 1.5% or 1%. That’s an estimated 2.5% savings. While 2.5% may not seem dramatic at first, it sure adds up over time. Consider what a seller who transfers the equivalent of $12,000 per month would pay. In one year, that 2.5% will add up to $3,600 savings. In three years, that adds up to $10,800 – more than enough for a new top-of-the-line Rolex Submariner, which runs about $8,550.
When you calculate the cost to your business, the toll is even higher. Consider the real cost of taking an extra $10,800 away from your business; money that could be invested in inventory and hiring to grow sales. Over the course of a few years, that extra $10,800 could be worth $25,000, $35,000 or more to your business.
How Get a Better FX Rate
Now that you know the banks and Amazon aren’t the best place to exchange your money, where do you go? For many e-commerce sellers, the answer is in finding a cross-border account, sometimes called a borderless global account. With the right cross-border account, you can eliminate many of the exchange fees and transaction fees – and keep more of your profits!
Finding a Cross-Border Account for E-commerce
A good cross-border account can help fuel global growth in more ways than just currency exchange. With the right cross-border account, you can pay suppliers and make VAT payments without any fees. You’ll also avoid the dreaded double foreign exchange fees when paying VATs and suppliers.
Here’s how double exchange fees work… Let’s say, you need to pay your UK VAT (which you’ll have to do in pounds). Since you’ve already exchanged your earnings from pounds into dollars, you then have to exchange the dollars back into pounds to pay your VAT. That means exchange fees both ways, plus any fees the bank may charge to transfer the money.
A cross-border account designed for Amazon and e-commerce sellers, like the one from PingPong, gives you the ability to keep your earnings in the currency you prefer. When it’s time to meet your VAT and supplier obligations in the UK, you can pay directly in pounds. No exchange fees!
Now that you know the secret every savvy global seller knows to growing their business, there’s no reason to overpay for exchange fees or making supplier and VAT payments. Just be sure to do your homework. Shop around for rates, and find the best account to help your Amazon business grow.
If you’re not sure what you’re paying to bring home money from Amazon and would like help understanding your current rate, contact PingPong for a free, no-obligation rate comparison.