It feels great to make an export sale! It's good for your ego, good for your export track record or the outside supplier who might be involved, and good for the outlook of your new business overseas. But first, was the sale consummated at a fair profit? It is your job to be sure you know and take into consideration all the cost elements in the transaction, including base price, commissions, final transportation costs, and possible post-sales expenses -- plus all the miscellaneous fees and finance-related costs that may only surface weeks or months later. As for the base price of the product, you may occasionally have to concede some of your profit for strategic purposes when moving into a market, but you will never, never "make it on volume." While a percentage margin that doesn't work for one product area or transaction size may well work successfully for another, most trading companies tend to seek a gross margin of about 15 to 20 percent. Although I do know of successful companies selling bulk goods as low as 5 percent, there are many more export management and trading companies that are growing and prospering because they have figured out how to gross 25 percent or more -- especially if they incur overseas selling costs as needed to fulfill their mission.

As a small business starting an export effort, don't let yourself be deceived into thinking that all export sales will necessarily be larger than sales in your regular business (although many will be), or that export sales cost less to create (they cost more over the long haul). It's true that some domestic expense areas will not rise as exports rise and that some of your domestic expense structure will not benefit export sales, resulting in an expense "nut" that is quite different from that in your domestic operations. But it's also true, whether your firm is exporting directly or through an export management firm, that it is merely substituting one expense for another, and that possible reductions or increases in product costs will be offset by cost shifts in the exported product.

Just because one of your early export contacts was a foreign distributor who seemed practically ready to snatch the product away from you in its eagerness to acquire the line doesn't mean that all future sales will be as easy and, therefore, as inexpensive to initiate. New prospects may well become tougher and more expensive to discover and sell to as you go forward. In the same vein, pride that product is gracing the show windows of a store in some glamorous foreign capital will not necessarily be reflected in your net profit. So, should you find that your prospective buyer's negotiating strategy is to appeal to your pride or vanity as a way of getting you to give too much of your margin away, pinch yourself. It's going to make it that much harder to adjust to a fair price at a later date. On the other hand, if continuing sales of the product are your objective, it is nowhere more true than in export distribution, that in really solid deals, both sides must have a fair deal. As in most businesses, the cost of doing the first transaction is sufficiently high to make it unlikely you will make a true net profit on it if indirect expenses are considered. The real profit usually comes from repeat sales, and to realize those sales, the price must be right and the buyer or distributor reasonably content with the arrangements. And always remember that profit presupposes getting paid in full.

Put a sharp pencil to calculating these altered expense structures and cost shifts to better understand just what latitude for negotiation you do have and what it takes to create a net profit, so that exporting is a satisfying, long-term success. Don't forget to anticipate the possibility of changing distribution channels and the effect that such changes may have on future product pricing and export distribution costs. Exporting is interesting, but not unless you make money doing it.

L. Fargo Wells has been a leader in the international trading community for more than 20 years. He is currently a sought-after consultant on exporting and travels the world on assignments. He is also a director of several corporations to which he lends his international trading expertise. Wells is the founder and former director of the California Export Finance Office, and, with Karin Dulat, is the co-author of Exporting: From Start to Finance.

Reprinted from Selling to the World: Your Fast and Easy Guide to Exporting and Importing
by L. Fargo Wells.
Copyright 1996 by L. Fargo Wells. All Rights Reserved.
Published by McGraw-Hill.
Reprinted with permission of McGraw-Hill. May not be modified, reproduced, republished, uploaded, posted, transmitted, or distributed in any manner.