How to Leverage Foreign Currency Volatility in Your Ecommerce Business
For any ecommerce business, it would make sense that the more international markets you’re in, the more customers you’ll have, the more products you’ll sell, and as a result, your business can reap the benefits of its increased bottom line. Or perhaps you’re looking to source your products from overseas, thinking it’ll save some money, or that you’ll find unique items which you can’t find locally. However, it’s important to keep in mind that whenever you’re selling to international customers or buying from manufacturers abroad, you’re exposing your business to volatile currency markets. These fluctuations in the currency markets can have a significant impact on the cost and pricing of your goods, and ultimately your company’s profits.
Foreign exchange rates can move by as much as 10% over just a few weeks or even days. There are several factors which can cause these fluctuations, such as political events and elections, economic data and forecasts, central bank meetings, commodity prices, and even the weather.
Some of these events leave only a temporary impact, while others can continue to create volatility for months. For instance, in the weeks following UK’s Brexit referendum, the pound fell by 10.4% against the Euro, from €1.3017 on June 23, 2016, to €1.1663 on July 6, 2016.
While volatility can undoubtedly affect your ecommerce business, it can be a currency trader’s friend. As major currencies often display high price swings, if trades are placed wisely, the high volatility can help with tremendous profit-making opportunities.
Volatile currency markets don’t just impact traders and businesses. Anyone can be affected, positively or negatively. That’s why when paying overseas invoices or repatriating profits from abroad, you want to make sure you are getting the best exchange rate and not paying enormous transaction fees. You can avoid this hassle by having a bank account for each currency you are dealing with. Otherwise, banks and international marketplaces such as Amazon will charge their own fees and uncompetitive exchange rates for each currency conversion when depositing your funds into your domestic account. With your currency-specific bank accounts, you can choose when to transfer your money back home, based on the timing of when exchange rates are favourable.
Solutions To Currency Rate Fluctuations
When selling on multiple international marketplaces, your accounting can become a nightmare, especially when it comes to currency conversion for pricing, maintaining profit margins, and calculating your profits and losses (P&L). SellerCloud offers the ideal solution for this.
SellerCloud allows online retailers to consolidate their P&L across their orders from all marketplaces. It will record the currency where each order was placed, and as SellerCloud automatically checks exchange rates once a day, it will save the current rate at the time of the order. You can also search orders across multiple currencies based on the home currency, which is USD for American companies. For example, if you want a list of orders that are valued over $200 USD, it will also include orders for the corresponding value in EUR.
To take your accounting one step further, SellerCloud allows you to export orders into QuickBooks using their multi-currency feature. By default, your foreign currency orders will post to QuickBooks in USD using the conversion rate which SellerCloud had automatically saved at the time of purchase, or you can export orders in their native currency.
When you purchase your goods from an overseas manufacturer, you may need to pay for them in their home currency, which can lead to more confusion when trying to determine your cost of goods sold (COGS) and their profitability. Luckily, SellerCloud supports international currency purchase orders (POs) and allows you to control the conversion rate on the PO, based on the rate at the time you paid for the goods.
No matter which marketplace you’re selling in, you still need to stay on top of your pricing to remain competitive, while also maintaining your profit margins. Add in fluctuating currency rates, and that can complicate your pricing strategies even more. The good news is that SellerCloud allows you to easily adjust your item prices across all marketplaces. You just add the base currency on your company profile and your prices on the international marketplaces will auto-adjust based on the current exchange rates using a rating API. You can even convert currencies in bulk on multiple selected SKUs at once.
Another bonus of using the SellerCloud system is taking advantage of our partnership with XE, which is the leading foreign exchange provider. Through this partnership, you can accept and deposit payments locally, then exchange whenever the rates are most favourable. You can even lock-in your rate for up to three years, so you can rest easy that your funds won’t be manipulated by currency fluctuations.
Whether you are an entrepreneur or a consumer, I’m willing to bet that you have a PayPal account. Did you know that PayPal, unlike most other payment processors, can hold multiple currencies in one account? You can open a balance in any of their supported currencies, make or accept payments in these currencies, convert your balance from one currency to another, and even close out your balance in any currency you choose. Pretty cool, right? Even better is that SellerCloud’s integration with PayPal allows you to charge credit cards for orders, refund payments, capture payment details, and send PayPal invoices – all in multiple currencies!
Why Should I Expand Internationally?
There’s no doubt that expanding your ecommerce business globally brings both challenges and opportunities. As the domestic market tightens and becomes more competitive, an increasing number of sellers are expanding abroad. In fact, Shopify’s data from The Enterprise Guide to Global Ecommerce anticipates a 246.15% increase in worldwide ecommerce sales, from $1.3 trillion in 2014 to $4.5 trillion in 2021. That’s more than a threefold growth in online revenue.
It’s not just B2C ecommerce that’s seeing a global explosion, but B2B ecommerce sales are seeing even more growth. According to Statista’s B2B Ecommerce 2017 Report, B2C ecommerce sales were $2.3 trillion, while B2B ecommerce sales were $7.7 trillion. SellerCloud has expanded its integrations to include a number of foreign marketplaces, including Amazon Canada, Amazon UK, and Walmart Canada, to name a few.
International marketplaces are like the new frontier for ecommerce entrepreneurs. It is uncharted territory and raises many questions, such as where should you invest first? Which countries present the best market for your products? Who should you partner with for global warehousing and third-party logistics? I should note that many SellerCloud clients use Shipwire for worldwide logistics and fulfilment services. SellerCloud’s integration with Shipwire allows your multi-channel orders to be processed and fulfilled, then updated inventory and order shipping confirmations will sync back to your SellerCloud system.
If you aren’t selling internationally yet, you, like many other ecommerce businesses, may be experiencing a severe case of FOMO-fear of missing out. If you are ready to jump into the global ecommerce pool and get your feet wet with the prospect of new revenue streams, just make sure you’re protecting your profits from those volatile sharks known as foreign currency fluctuations. Get in touch with SellerCloud to see how our tools can leverage these volatilities to your advantage.