Growing businesses are always looking for ways to further their growth, and sometimes that means launching into new global markets. But if you’re going to cater to international customers, you need to meet them where they are. Often that means selling in their home currency. This is particularly important for B2C ecommerce brands as currency is a major part of the payments process and overall brand experience. In fact, up to 50% of online shoppers say they would not buy a product if the pricing wasn’t listed in their home currency. But adding currency options doesn't come without challenges. Here are some of the top things business leaders need to keep in mind when considering selling in multiple currencies.
Exchange rates
While this may seem like the most straightforward aspect of selling to customers in other countries, it can have perhaps the biggest impact on your business. Exchange rates are in constant flux and a slight change in the exchange rate could mean the difference between profitability and selling at a loss. This is why many companies that transact globally adjust their pricing to account for variability. This helps to ensure profitability on all international sales. Still, even if you’re selling at a profit, your margins may vary depending on when the transactions take place. So, you will need to consider exchange rates as you build your pricing strategy and work on long-term forecasting.
Multiple-currency accounting needs
For many accounting professionals working at small to midsized businesses (SMBs) the thought of selling in different currencies is enough to bring on a migraine. That’s because many entry-level accounting systems make it difficult to perform multiple-currency accounting (MCA) tasks. For starters, if your new venture into global markets means you’re establishing a new legal entity, you’ll need strong multi-entity accounting capabilities. This is often very inefficient and time-consuming in many basic accounting software solutions. You’ll also need to calculate foreign currency gains and losses, consolidate reports into your company’s home currency and administer exchange rates. With many entry-level accounting solutions, you’ll have to do these things manually, putting significant strain on your accounting personnel. So, consider upgrading your accounting software to a system that makes it easy to automate these MCA tasks and streamlines work for your accounting team.
Payment methods
Simply pricing products in local currencies likely won’t be enough to win market share. You also need to offer the right payment methods. These vary from country to country and are crucial for driving conversions. For example, in the U.S., credit cards are a preferred payment method, while in the Netherlands people strongly prefer iDEAL, and Alipay is a top performer in China. So, make sure you address both pricing and payment preferences if you want to succeed in global markets.
Transaction costs and back-end payments systems
Many U.S. companies are familiar with the cost of completing credit card payments or ACH transactions. But every new payment method you add brings new costs. Depending on how you route payments and process transactions, your costs will vary. So, just like exchange rates, you should use this information to guide your pricing strategy. You’ll also need to make sure your back-end payment processing systems are set up correctly to handle new payment methods and flow data into your accounting software solution. Spending more time on the front end to make sure these back-end systems are optimized for international transactions will save you a lot of hassle in the long run.
Taxes and import/export duties
Taxes are handled differently around the world. So, if you’re going to sell into new markets, you need to account for these costs in your pricing strategy. Do your research and consider partnering with an expert that can guide you in this area. Subscription brands and SaaS companies should pay particular attention to value-added tax (VAT) regulations, which can also vary by geography. Sellers of physical goods will have to account for import/export duties, which again could impact the way you price your products. Make sure you have good visibility into all of these extra costs to create an effective multi-currency pricing strategy for your products and services.
Starting your global journey
Launching into new markets and building a new customer base is an exciting challenge for any growing company. But to be successful, you need to make sure you get the details right. When it comes to selling in multiple currencies, you need to have strong visibility into all costs, good back-end systems and the right accounting software to bring it all together. By investing time up front to account for all of these issues, you will be better positioned to enter the market and start winning new customers.
Need better multi-currency accounting capabilities for your growing business? Check out Gravity Software® and see why our innovative accounting software makes it easier to do business anywhere in the world.
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