Tips On How You Can Beat The Inflation
Over the past year, the value of the British pound (£) has plummeted by ~20% against the US dollar ($), which was caused by a whole host of reasons that includes the war with Ukraine, a worsening economic outlook in the UK, the cost of living crisis, and the conservative party generally not having a f*cking clue what their policies should be. Brace yourselves with more UK inflation in 2023.
You might not realize it, but the depreciation of the £ and strengthening of the USD has a big impact on our every day lives, and that’s because we’re a nation that is full of businesses that import products that are paid for in dollars, which is a currency that is becoming more and more expensive in £ terms as each day passes. To make up for business costs going up due to the loss in value of the £, prices for pretty much every type of product – fuel, food, and day to day items – have all increased substantially over the past 12 months.
This time last year, £1 was worth around $1.30, whereas now it’s worth $1.1, meaning that if a UK retailer that buys their stock in dollars wants to make the exact same amount of profit in £ terms versus the same time last year, they’d have to increase their prices by 15%. I have reported more about how inflation will affect Amazon FBA sellers in a previous post.
If you’re reading this and you’re a UK Amazon seller or you’re about to be, then you absolutely need to be aware of the implications of the £ weakening against the $; otherwise, your business could be in big trouble. The reason for that is because more likely than not you’re going to be generating sales in £, but the cost of your stock is going to be in USD, which means that in order to pay your supplier, you’ll need to convert your £ to $, and as we’ve seen, the £ is now worth less than it was a year ago, meaning that the amount needed now in order to pay your supplier in $, is roughly 15% higher than before.
While that may sound depressing, and it is, all is not lost. I’m going to run through a couple of options that you have available that should reduce some of the pain of the £ continuing to depreciate.
Before we get into those techniques though, if you are currently a seller or about to be, make sure that you re-do your profit calculations so that you know exactly what your margins are and whether future stock orders are still likely to be profitable. Watch my videp on how to calculate your Amazon FBA profit if you’re unsure and then speak to your accountant who can help guide you. If you don’t have an accountant yet, then speak with Osome, a digital accountancy firm that specialises in accounting for Amazon FBA sellers.
Re-Negotiate With Supplier
OK, so regardless of whether your profit margin is still in that acceptable area or not, you’re certainly going to be in a worse position than you were last year. But do you know who’s not in a worse position, but actually a much, much better one as a result of the strengthening dollar? Here’s a clue – it’s the person that has been receiving any of the money that you’ve been converting.It’s your supplier!
Now, before you start sending your supplier angry emails or messages about them ripping you off and making money from your misery, hold your horses and let me explain why these guys are in a much better position than we are.
Pretty much every Chinese supplier requests to be paid in US Dollars, and that’s down to it being viewed as one of the safest and most widely accepted global currencies. Despite preferring to be paid in dollars, once a supplier does receive payment, they will typically convert their profits into their home currency, which is the Chinese Yuan, and doing that has allowed them to benefit massively over the past year.
If you look at the rate of dollars to Chinese yuan over the past year, you can see that as the dollar has continued to strengthen. The amount of Yuan that suppliers have been receiving after converting their dollars has increased. Over the last 12 months, the USD has increased 10% against the Yuan.
To put it simply, Chinese suppliers are making at least 10% more profits than they were last year, and they’ve done that without having to increase prices or reduce their costs. It’s all down to a change in the foreign exchange rate. This 10% increase in profits is probably on the low side because that doesn’t factor in any benefit they’ve received from the cost of raw materials and transports reducing across the board in general. So, based on that, here is what you should do.
Know how to negotiate with your Chinese Amazon FBA supplier. Ask them to share some of the upsides that they’ve received over the past year as a result of the US Dollar increasing in value against the Chinese Yuan, and commodity prices starting to reduce. While they’ll probably be reluctant to reduce their prices at first, keep the pressure on and make sure that you show and explain to them just how much worse your own profits are as a result of the £ being decimated.
I’ve successfully renegotiated prices with my supplier 3 times over the past few months because I made it crystal clear that without any price reduction, I wouldn’t be placing any more orders full stop. If you can show them in a chart just how much worse off you are as a result of the £ losing value, then that’s even better. The reality is that most of these guys won’t even realize how badly the £ has performed until you show them.
If your supplier genuinely cares about having a long-term relationship with you, and you can explain to them about how they’ve benefitted and you’ve lost out as a result of currency movements, then they should hopefully be willing to reduce their prices to help you out.
Increase Prices (Do Coupon First)
If you’ve been reading the news lately, you’ll know that the UK is experiencing high levels of inflation, driven in part by the £ weakening and the cost of imports rising. Prices are going up in pretty much every single category because businesses need to make a profit, and an Amazon FBA one is no exception to this rule.
Across all of the categories that I sell in, the majority of sellers have increased their prices in order to reduce the impact of Amazon’s fee rises and the higher costs of importing. I’ve done it myself, and in general, haven’t noticed too much of an impact to my sales as a result.
Many sellers are often reluctant to increase their prices on Amazon, out of fear of killing their sales completely. While that is unlikely to happen, if you are worried that a price increase may do more harm than good, then you should consider increasing the price to your target amount and at the same time adding a price coupon so that the net price is the same as before.
The benefit of applying coupons is that they’re eye catching, people love to think that they’ve just got a good deal, and you should make more profit overall because around half of the time, shoppers forget to click and claim for the coupon anyway. After a few weeks of testing, if you haven’t noticed your sales dramatically reduce, you can either remove the coupon to start selling at your full price or decrease the size of the coupon’s discount.
Buy USD Now!
Although the GBP has recovered in value somewhat after the disastrous impact of the mini-budget a few weeks ago, many view this recovery as a dead cat bounce that’s likely to lead to the £ getting close to parity with the USD.
With continued high levels of inflation, a weak economic outlook, and a tough winter ahead thanks to high energy costs, it’s hard to agree with the people that think the UK is a good place to be right now, and that is going to have an impact over the longer term with the value of the £. Unless anything happens with the state of the economy that suddenly makes the UK an attractive place to invest, I think that the £ is indeed going to continue its trend downwards towards the 1 mark.
As an Amazon FBA seller with plenty of costs in dollars, the next sensible thing to do if you want to continue selling in the UK while protecting your profits is to start buying dollars now before they become even more expensive. If you want to do that, then the cheapest way in my experience is to use Wise, who will allow you to buy and then store dollars in your own bank account for a rate that is usually always very close to google. If you use this link, you’ll get up to £500 worth of dollars for no transaction fee at all.
The situation with the £ and the $ is pretty bleak right now, but if you follow these steps, then some of the pain will hopefully go away. In relation to this post, if your sales haven’t been good for a while, read my guide on how to increase your Amazon FBA sales.
If you want to learn how you can create an Amazon FBA business yourself, then check out my free training where I run through my exact 5 step strategy that I’ve repeatedly followed to continue launching successful products.
If you are ready to start your journey and want somebody look over your product research ideas before you pull the trigger and send money to a supplier, then why not take a look at my Smashers Academy program, which is a beginner to advanced mentor scheme that aims to teach you everything there is to know about Amazon FBA, guiding you through the process so that you can become a successful seller as quickly as possible.