Even with the best ambitions, any 7-figure seller needs to understand the financial costs of operating in new markets in order to scale with success.
Expanding into new markets comes with high risk — but it can deliver high rewards.
In 2020, global eCommerce retail sales reached more than $4.2 trillion, accounting for 17.8% of all global sales. And that share is expected to climb to 24.5% by 2025. For 7-figure sellers who have found success in their home markets like those in the U.S. or U.K., it’s a logical leap to want to expand your business internationally to China, India, Europe and other markets in the hopes of taking a larger cut of those international sales.
With expansion, there are a number of factors to consider, including pricing, marketing, and suppliers. But even with the best ambitions, any 7-figure seller needs to understand currency exchange and the financial costs of operating in new markets in order to scale with success. For businesses already operating at high volumes, it’s important to consider cost, time, and effort when it comes to developing your international market strategy. Set yourself up for success by considering the following financial impacts:
The first step in expanding into a new market is understanding foreign exchange, also known as FX or forex. During this process, one currency is exchanged for another — like converting British pounds (£) into Chinese yuan (¥). Exchanging currency comes with a fee, and currency exchange rates change on a daily basis. In any given market, a 7-figure seller will need to exchange currencies at a high volume and on a regular basis, impacting both cost and time.
When banks transfer or receive money from different countries, they typically charge a foreign transaction fee. While they can climb as high as 5%, a typical foreign transaction fee comes at a rate of 3%. For 7-figure sellers, these fees eat away at your profit margins and can make expansion into a new market a costly venture. Traditional foreign exchange fees also come with another disadvantage: a lack of transparency. While some are obvious, others might be obscured throughout the process. When working in high-volume sales, it’s critical to avoid surprise fees — not only do they add up over time, but they prevent you from developing a clear business expansion strategy.
Regardless of which market you choose to expand to, you can expect to pay some form of sales tax or business tax. Additionally, you may also have to pay customs duties on your imports — or your international customers may have to pay duties and taxes. Some countries have even enacted taxes exclusive to eCommerce sellers. For a large-scale operation, it’s critical to factor in tax regulations as you develop your expansion strategy and determine your price points.
Each market has its own set of regulations — including what you can ship and to whom. When it comes to compliance with these international laws, it’s important to do the research ahead of time. Because regulations are created to protect against money laundering and other financial crimes, a business can’t claim ignorance of local laws. In fact, failing to adhere to international compliance could cost you in the form of substantial fines or even your business.
In order to avoid fees, some 7-figure sellers opt to set up local bank accounts in each country they choose to operate in. While such a move can be helpful, it also requires the business owner to travel extensively to set up the accounts in person.
Instead of creating a series of accounts in each new international market, consider working with a global payments partner to save you money and time. LianLian Global allows you to exchange funds and convert multiple currencies at a fraction of the cost of traditional banking methods. With no surprise fees, this type of cross-border wallet allows you to get paid or convert USD, EUR, DBP, PLN, HKD, and CNY to streamline funds and payments in any international market. Additionally, with this approach, you’ll have full transparency throughout the process. Know exactly when payments are accepted, processed, and received.
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