Even if the UK leaves the EU, exporting will still be super-simple between the two regions.
I digress. Let’s get back to exporting bike bits from the USA to EU/UK
The problems come if there are import costs like DUTIES and SALES TAXes like, for example, the UK’s VAT. The first problem is a tad more paperwork but more than that it is the second big problem of the added operational/distribution costs. Suddenly things can get quite expensive, quite quickly – shipping, duties, handling fees and 3rd party profits all add up usually to ‘quite a lot‘
Add in the profit margin from any third party company and BOOM. It suddenly gets way more expensive.
For example things I am doing with powermetercity.com in the USA just can’t make money when exporting to the UK I think Mr Rainmaker has got close to overcoming that with clevertraining because of the volume of business.
So you might think about selling direct form the US. There is a good example below of a post from FLOCYCLING giving you the calculations for their export business model.
However if you are a company selling low value items then the direct consumer model of FLO probably won’t work as there is an additional HIGH cost of transportation for every single, low cost item going directly to the end consumer.
A couple of general anomalies to worry about:
- Threshold for charging import duty @variable% (see calculator here) is £135 (Source: here)
- Threshold for charging VAT @20% is £15 (ideally Mr/s Supplier your non-commercial samples will be marked as such and will have paperwork showing a value less than this)
- Exports FROM the US do not incur US sales tax. So you save on that tax but have the equivalent (usually higher) European sales tax added on later
- If Jo public receives the goods through Royal Mail then there will also be a handling fee and a forced visit to the ‘local’ collection office to pay the fees, duties and taxes. This can mean that you pay more in taxes and duties and fees for an item worth £15.01 than the value of the item itself. Hint: This is REALLY annoying.
- European VAT/Sales Tax rates are typically above 20% but not always eg Germany is 19%
- The calculations are different for genuine gifts
What’s the solution? I profess to not knowing but it’s clear that the unit price and anticipated sales volumes make a pretty big impact on the optimal model. Perhaps instead make it super cheaply in China? Perhaps just accept that Europe is more expensive? Perhaps you could even make things in Europe and hide away all your profits in Switzerland by the use of IP-related internal accounting charges or various island tax havens…nah. You wouldn’t do that last one surely? That would be bordering on immoral.
————— FROM ———————–
Our international customers often ask if we sell our products through international distributors or bike shops. The quick answer is no. We are a consumer direct brand for many reasons. Keeping the cost of our wheels lower for our consumers regardless of where they live is one of the biggest reasons.
Some “consumer direct” companies manage domestic shipments themselves but will use an international distributor for international shipments. This is a hybrid model, which raises the cost of products. Our Definition of Consumer Direct Sales is a bit different. We believe in a pure consumer direct model and ship directly to the customer regardless of their location. Our Import Guide covers all questions for our international buyers.
So, how much money do you save when you buy consumer direct? The two examples below compare consumer direct costs vs. buying through an international distributor and bike shop. You may be surprised by how much you save.
Assumptions
1. Our retail pricing is equal to the wholesale price of companies who sell through the standard distribution model. (This is actually true).
2. Markup for an international distributor and bike shop is typically around 40% (but we’re going to show you what it looks like at 40% and 20%)
Example One – Consumer Direct Cost
FLO Wheels Bought Directly from FLO (consumer direct): Front FLO 60 and Rear FLO 90 Carbon Clinchers: $1,148 USD
Shipping Charges: $78.50 USD
USD to GBP Currency Conversion Rate: 0.81
Import Country: United Kingdom
Import Duty Rate: 4.7%
Value Added Tax (VAT) Rate: 20%
Import Method: CIF
Total Consumer Direct Cost: 1,248.19 GBP
Example Two – International Distributor and Bike Shop Cost
Wheels Sold to an International Distributor: Front FLO 60 and Rear FLO 90 Carbon Clinchers: $1,148 USD
International Distributor Markup: 40%
Bike Shop Markup: 40%
USD to GBP Currency Conversion Rate: 0.81
Import Country: United Kingdom
Import Duty Rate: 4.7%
Value Added Tax (VAT) Rate: 20%
Import Method: CIF
Total Consumer Cost at 40% Markup: 2,289.85 GBP
If we were to use 20% markup instead of 40%, the cost would be the following.
The Total Consumer Cost at 20% Markup: 1,682.35 GBP.
Conclusion
Hey I can’t re-post the whole thing!! If you want to read that I feel obliged to point to the source and to urge you to buy their wheels 😉 Well, at least consider them. (I don’t have FLOW Wheels)
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Interesting numbers.
There is the element that different products/categories/manufs have different margin rates. So for example Garmin and GoPro have much less profit in it for the retailer than cycling wheels per the example above. Inversely, clothing and bags has far more.
The example above is largely why (since you noted me) Clever Training now has their UK/Europe store. But that brings with it its own complexities. At first glance you might think they could consolidate buying power via the US side, but in reality almost everything has to be negotiated separately with suppliers/distributors in Europe – with no taking into account the US side (thus lower volumes = lower discounts initially). Only a couple of brands will do things semi-globally, and they are all tiny brands with like 3 employees each. So it’s not as if CT can buy at cheaper rates in the US and then ship to CT UK/EU, and then sell from there. I think there’s only one product they cross-ship on, that’s it.
There’s also the fact that while Europe prohibits MAP policies, they don’t prohibit rules around where you can sell a product too. So manufs can put in place restrictions that a product acquired in the UK can or can’t be sold to Australia. It’s why if you look at Wiggle’s site, there’s a lot of interesting logic that occurs when you change the country drop-down for certain products (like Garmin and Wahoo).
Of course, the reality is that Europe simply has higher costs for companies that the US. You know this of course, but I think a lot of folks miss it. We see it even just owning a bakery (albeit in France, which makes it worse). But labor, contractual, taxes, even warranty periods, etc… are all more than the US.
In any case, neat numbers.
Some interesting points, thank you for adding them in.
There were a series of stories going round in the UK a few years back; basically under the heading ‘Rip Off Britain’ and it did seem like that to very many people. I just think it’s nice to get some numbers to help everyone at least partly understand why things are like they are.
Of course there are even more marketing complexities than either of us have touched upon but one thing that stand out to me is the comparison to other industries. I just couldn’t believe the 40% reseller margins that are highly likely to quickly get squeezed through competition of various sorts. In my other job the margins are higher and in previous jobs (I have a similar background to you) I experienced many industries and, again, they mostly seemed to have more wiggle room with the profits.