How best to deal with a rising Canadian dollar value for a software company?


8

My software company is in Canada. We sell our software for download from our web-site. Most of our sales are made in the US, though we do about %25 of our business in Canada and Europe. We sell our product in US dollars.

A problem we have is dealing with the rising value of the Canadian dollar (which is what we pay our expenses, a.k.a employees, in)

Year over year the exchange rate has affected our revenue by as much as %20! This unpredictability is a problem for our planning. It would be nice to insulate ourselves (at least partially) from that volatility, even if it meant not reaping the rewards if the CAD drops.

My question is: What strategies have people tried in software companies to deal with this issue? How did they work out.

Currently we're considering:

1) Raising our prices. This isn't immediately attractive because we're concerned that a price hike will put off customers.

2) Selling in "local" currencies at a fixed price for each. i.e. Euros in europe and CAD in Canada. Our concern with this is that for something like software that you can buy and download from pretty much anywhere on the planet, a savvy customer would look at the actual cost of the software in each currency, factor in the exchange rate and other costs, then pick the cheapest one (heck, it's what I do!). Has anyone tried this and seen if that's what happens? Any negative perceptions from customers? We wouldn't want to be perceived as trying to rip people off with a higher relative price in currency vs. another.

Any other strategies?

Pricing Sales Strategy

asked Dec 24 '09 at 04:18
Blank
Joshua Knauer
43 points
  • Concerning the risk of people "picking" their currency, one option would be to require the currency chosen to match the country given in the billing address. Anyways, unless your software is very costly, I don't think the average customer will do the currency math. – Olivier Lalonde 9 years ago

5 Answers


6

Keep in mind, the more to complicate your pricing strategy, the more overhead you'll have. Be sure to compare potential sales increases to the defined increase administration.To accept payments in more foreign currencies, you may have to open additional bank and merchant gateway accounts, and your admin staff will have a lot more bookkeeping.

We faced a similar issue, and our final decision was to just sell in Canadian dollars.

We decided on $CAD because 95% of our expenses were in $CAD, and this reduced the fluctations in our margin.

To mitigate the risk of loosing customers due to the currency (for us it was similar, only <20% of business was Canadian), we grew our international reseller network, and gave our resellers the oportunity to define their own pricing schemes. They typically resold in their own curreny, taking on the conversion fluctuation.

We did notice a temporary dip in our direct sales, but it was corrected as soon as we added a real-time currency converter to our website, to let people view the approx pricing in their currency of choice.

Also, what was a surprsingly effective strategy, was offering our international customers the opportunity to pre-pay and "top-up" monthly fees for up to 2yrs, if they wanted to hedge against currency volatility. We found that almost 1/2 of our international customers took advantage of this, which did entertaining things to our cashflow. Although it gave our accountants a hard time, it increased our sales and customer satisfaction by non-trivial margin.

answered Dec 24 '09 at 06:51
Blank
Joseph Fung
1,542 points

2

A direct way to insure against currency fluctuation risk is to buy currency options. It's too late for this approach to help the 20% hit you've already taken, but you can purchase options now to protect against further deflation relative to the USD and the Euro.

answered Dec 25 '09 at 03:17
Blank
Joe
831 points

1

Your question is not completely clear if you are trying to only improve you predictability of revenue via insulation from currency moves, or are trying to compensate for the effective price degrease you are seeing due to the advance of the Canadian dollar. The issues are somewhat separable and the only way to correct for the latter is to raise prices (one way or the other).

Personally, I would be in favor of basing your prices in your local currency, which, when properly adjusted fixes both problems. This could be presented in various ways on your web-site where either you always bill in Canadian, but for convenience offer conversion prices on the web-site based on current exchange rates. Alternatively, you can actually charge in local currencies for the buyer if you feel that overcomes some sort of purchase barrier, but I still think the prices should be equivalent when accounting for the exchange rate.

PS: I am guessing if you were in the market back when the US dollar was higher, you were not nearly as worried about this "problem". ;-)

answered Dec 24 '09 at 11:14
Blank
Tall Jeff
1,406 points

1

If the majority of your sales are in the US, you may want to increase your team in the US, to limit this problem, but the best way to deal with this is to accept that currency rates will change, and when the currency changes to favor you, ensure you are saving some of the excess, to help insulate you when things change.

You may also want to look at your Canadian sales and see how to increase that, as the best bet is to not have all your sales be in a foreign country, as you pay money to exchange the currency, so you take a loss there also, in addition to the poor exchange rate, for going from USD to CDN.

answered Dec 24 '09 at 13:44
Blank
James Black
2,642 points

0

You have a currency mismatch problem! Your assets are in USD and your liabilities are in CAD. Over the short term, you could try to hedge your exposure by purchasing currency options. Depending on the size of your company, though, you may be required to purchase options that give you far too much coverage. The other downsides are that options are expensive (options are always priced with a premium), and that they are only a temporary solution (options have an expiry date).

The best way for international companies to balance their currency exposure is to try to match their assets and liabilities as closely as possible. Have you thought about creative ways to increase your mix of USD liabilities? Moving your team from Canada would be tough, but what about shifting your hosting company? Are there are other intermediate goods your company uses that could be purchased on a continuing basis in USD?

answered May 1 '11 at 17:42
Blank
Tbaums
298 points

Your Answer

  • Bold
  • Italic
  • • Bullets
  • 1. Numbers
  • Quote
Not the answer you're looking for? Ask your own question or browse other questions in these topics:

Pricing Sales Strategy