As the Australian dollar has been dropping since the middle of the year, businesses should be aware of the impact that foreign exchange has had on their cost of goods sold.

To help you better understand, I’ve run through a simple example explaining how foreign exchange rates can impact a single widget from Australian businesses.


example scenario: the impact of foreign exchange on cost of goods sold

I have created a simple scenario breakdown for an Australian business that bought a widget for US$100 in June.

Impact of COGS
Widget price US$100
Date Widget Purchased Jun-22
Exchange rate at purchase date 0.72
Price in AUD at purchase date 137
Sale price in $AUD 250
Gross profit 112.43
Gross profit % 45%

So, if you bought a widget for US$100 in June, you are paying roughly 72 cents in exchange rate. That widget was costing you about AU$137. If you’re selling that for AU$250, you are making a gross profit of 45%.

Now, we’ve seen the Australian dollar drop against the US dollar quite significantly since June.

Impact of COGS
Widget price US$100
Date Widget Purchased Jun-22 Oct-22 Movement
Exchange rate at purchase date 0.72 0.63
Price in AUD at purchase date 137 157
Sale price in AUD 250 250
Gross profit 112.43 92.32 -20.11
Gross profit % 45% 37% -8%

The same widget in the middle of October was actually costing you AU$157 at an exchange rate of 63 cents. If you’re still selling that for AU$250 you’re now only getting a 37% gross margin. That means you’re losing $20 off your gross margin, which is 8%. So now’s the time to be reviewing your prices and making sure that you’re maximising your sale price in line with the drop in foreign exchange.


what to do next

Craig James, who’s one of the economists at CBA is saying that the dollar could even drop even further and could go as low as 59 cents by the end of the year. So now’s the time to be looking at the impact of foreign exchange on your cost of goods. Looking at price increases where you can and making sure you’re managing your exposure to future changes in the Aussie dollar.


foreign exchange gain/loss

Another little hidden piece around foreign exchange is around settlement. Particularly where you may have prepaid part of your payment in USD, and you’ve got a settlement when that’s shipped. This is what we call foreign exchange gains or losses.

Foreign exchange gain/loss
If you paid this on a 30 day account.  You still owe US$100 and the exchange rate has moved since you purchased the Widget
Date paid 31 July 2022
Exchange rate at payment date 0.6856
Actual AUD paid for item $145.00
FX loss on payment  -$8.29

Now, if you ordered something at 72 cents on 30 June but paid for it at 31 July at 68 cents where the Aussie dollar was sitting you’ve actually lost another $8. So making sure that you know what your foreign exchange payments are in future and knowing whether to buy some US dollars now and how you want to manage your foreign exchange exposure is really important.


we’re here to help!

The team at businessDEPOT has a wealth of experience and working knowledge around managing working capital for ecommerce businesses.  If you’d like us to have a look at your numbers and help you through your business journey, you can get in touch with our ecommerce advisory team at or give us a buzz on 1300BDEPOT.


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general advice disclaimer 

The information provided on this website is a brief overview and does not constitute any type of advice. We endeavour to ensure that the information provided is accurate however information may become outdated as legislation, policies, regulations and other considerations constantly change. Individuals must not rely on this information to make a financial, investment or legal decision. Please consult with an appropriate professional before making any decision.