How to break into the US e-commerce market from Australia

Written by CurrencyFair | Dec 14, 2022

Selling online through an e-commerce platform can be a lucrative side hustle or a successful small business. But there’s a catch. While you can set up a store online from any country and complete cross-border sales to a wide range of markets, from a logistical perspective you need to be where your customers are. That place is America, which accounts for US$875 billion of global e-commerce sales. By contrast, the Australian e-commerce market will be worth just US$32 billion by 2024. 

Here’s how to set up an e-commerce store serving the United States, navigate the tax and currency exchange implications, and grow your global footprint. 

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E-commerce is booming

Global e-commerce sales reached US$5 trillion in 2021, according to Shopify, which is usually the first port of call for anyone starting an online shopping venture from scratch. The platform allows you to set up an online store, collect payments and fulfil orders from almost anywhere in the world. Alternatively, you can join the e-commerce boom through the Amazon or Facebook marketplaces, among others. The key is to show up in search results as a US-based retailer. 

Why sell in the US?

Looking for an extra revenue source to meet the cost of living in Australia? There are more than 288 million internet users in the USA and they spend an average of US$3,445 a year on online shopping. That figure continues to rise. 

By 2025, 18.5% of all transactions in America will be through e-commerce. There’s the potential  to reach a bigger market through a US-based store than if you were shipping products from Australia. There are further advantages to selling from the US:

  • Trust: A store with a US-registered address and LLC inspires consumer confidence. Both are cheap and easy to set up. 

  • Low cost banking: Selling directly to customers in US dollars eliminates confusion and cost over currency exchange rates. It’s also relatively easy to collect payments and transfer funds home.

  • Fast shipping: Time is a key currency in e-commerce, and with typical shipping delays of seven to 14 days from Australia, home-based stores can struggle to compete. Set up your store in the US, however, and you can fulfil orders in days. 

  • Streamlined returns: Around 25% of items bought online are returned, often through no fault of the store owner. Managing the process from the US as opposed to Australia provides a slicker, more consumer-friendly experience, not to mention a big reduction in cost. 

  • Search engine optimisation: Creating a US-facing store allows you to localise prices in US dollars, and sizes in imperial measurements, while a .com domain name registered to a specific state makes it more likely you’ll show up on local search results. 

What American shoppers want

The American and Australian markets might differ in scale, but the conventions are similar. If you’re successful at home, there’s a good chance you can scale the business quickly overseas. Like Australian shoppers, Americans want:

  • Easy, secure payments through credit card, PayPal or e-wallet.

  • Fast delivery. Amazon has set a formidable benchmark for same-day delivery for Prime members. Not all customers will expect your store to match the retail giant, which together with Walmart and Apple account for a third of US e-commerce sales, but it’s a reference point nonetheless. 

  • Strong customer support. Providing a fast response to customer queries is harder when you’re on the other side of the world. Instead, you can hire a Virtual Assistant set to east or west coast time zones to manage enquiries without delay. 

What you’ll need to set up a US e-commerce store

Cross-border e-commerce has yet to emerge from its “Wild West” years, and there are plenty of sellers who set up a store in the US without following any of the steps below. But beware of confusing the internet, which is borderless, with business, which falls under local jurisdiction. If you want to scale your store and enjoy peace of mind, take care of the following: 

  • Business entity: You don’t have to be a US national to create a Limited Liability Company (LLC). Setting up an LLC is remarkably simple and it allows you to conduct business in the United States. The states of Delaware and Wyoming are popular choices because they don’t have income tax and you don’t have to collect sales tax. However, under some circumstances (ie. when sales exceed a certain threshold), you may have to register as a “foreign corporation” in each state where you do business. 

  • Business name: Here’s your chance to choose a store name that ranks high on US search and registers emotionally with American customers. Check if your choice is available through the US Patent and Trademark Office.

  • Fulfilment centre: Working with a domestic third-party logistics (3PL) provider or warehouse will significantly cut your operating costs and delivery times. If you’re shipping your product in bulk to a US warehouse, use a customs broker to take care of any duties and taxes.   

  • Taxes: Once you have your business entity set up, apply for an Employer Identification Number (EIN) from the Internal Revenue Service. It’s not just a legal requirement. You’ll need an EIN to work with wholesalers, charge sales taxes, and open a bank account. Even though you may not have tax residency in the US, there are still taxes to levy on sales within the country. 

  • Payment processing: If you processed every payment from an Australian bank account, currency exchange fees would quickly consume your profit margin. Instead, you can set up a US bank account and payment processor (e.g.. Stripe, PayPal), which will also make it easier when it comes to paying any taxes. 

Watch out for the following

The US ban on Vegemite may be the stuff of urban legend, but there are still some important restrictions you’ll need to be aware of if you’re launching a product or store in the US market. 

Regulatory compliance

Before selling into the US market, check if you need a federal or state licence. If you’re selling products that are regulated by the Food and Drug Administration, such as CBD, animal products, or supplements, stiff restrictions apply. 

Sales tax 

While Australia has a Goods and Services Tax incorporated into the price, each state in the US applies its own sales taxes, which are added on at checkout. Until 2018, this wasn’t something e-commerce stores really had to worry about. But since the South Dakota v Wayfair, Inc Supreme Court Ruling, out-of-state online retailers are now responsible for charging sales tax wherever they have an “economic nexus”. That’s the location of the consumer, not the business, so you could have to apply tax in any of 10,000+ sales tax jurisdictions nationwide. It’s complicated, but only really applies once your revenue is over US$100,000 in a particular state. If in doubt, hire a local accountant to navigate the rules. 

Compliance rules

Cyber attacks and security breaches are a constant threat for any e-commerce business. Your site should have HTTPS (SSL) security encryption, and your payment processor needs to be Payment Card Industry (PCI) Data Security Standard (DSS) compliant. These standards are integrated into most e-commerce platforms, however. 

Under the Children’s Online Privacy Protection Act (COPPA), you can't collect personal information from any child under 13. There are also big fines if you allow underage consumers to purchase age-restricted products. 

The CAN-SPAM Act is an important piece of regulation to consider when rolling out your marketing campaigns, even if managed from Australia. You must include an opt-out mechanism in any email or SMS, and must steer clear of any misleading or explicit content. There are some big fines for businesses who knowingly breach the rules. 

Of course, the above advice isn't exclusive to Australian e-commerce entrepreneurs. You can expand your operations to the US market wherever you currently have your laptop, without leaving your hammock. No matter the scale of your ambitions, the more you can reduce your currency exchange fees, the better the returns back home. With CurrencyFair, you can unlock fees and rates that are up to eight times lower than those offered by traditional banks. 

Sending money overseas? Save money when you send money with CurrencyFair’s great exchange rates.

 

This information is correct as of December 2022 This information is not to be relied on in making a decision with regard to an investment. We strongly recommend that you obtain independent financial advice before making any form of investment or significant financial transaction. This article is purely for general information purposes. Photo by Bench Accounting on Unsplash.