How to master multi-currency pricing in 5 steps
As the European and global economy continue to show steady signs of growth, companies around the planet are taking advantage of these favourable conditions to increase their sales efforts. While high-accuracy marketing and an attractive product are central elements to a successful sales cycle, arguably no component generates more impact than the pricing strategy.
However, for companies that price and sell in multiple currencies, getting this critical formula right is far from easy. So in light of the recent, welcomed uptick in economic activity, we wanted to share some of our best-in-class tips to maximise both competitiveness and returns when pricing across borders.
Local Price-Tag, Global Success
First, before we go over the pricing “to-do’s,” let’s touch on the main “not to do.” When you’re targeting buyers outside your home market, avoid at all cost making your shoppers pay in your currency if it’s different than your functional (read: working) one.
By dumping the conversion costs on your customers, you’re inviting them to go to your competitor. Don’t do it – it’s an amateur shortcut and will only hurt your conversion rates.
With that out of the way, let’s look at what you can do to make your multi-currency pricing strategy the envy of your industry.
- Reflect the price as closely to the FX rate as possible. Exchange rates provided by banks and payment providers are often inflated by 2-4%. By using these higher rates instead of the mid-market one, you essentially let your prices be 2-4% higher than your competition
- Be ready to discount when the time is right. Since your costs are in a different currency than the selling one, if the pair moves in your favour, you can discount to become more competitive while protecting your margin. As a bonus, if your prices are already competitive, the stronger exchange rate increases your profit margins.
- If it’s time to go, it’s time to go. Likewise, if the currency pair moves against your cost, you’ll know when it’s time to leave the market, well before the exchange rate either makes you uncompetitive or turns profits into losses.
- Cover your exposure. While correctly pricing makes you both more competitive and strategic, making the sale is only half the battle. Between the time that the sale takes place, and you collect and convert the funds back to your working currency, the FX market can erase any profits, rendering forecasts useless in the process. To eliminate this exposure, you must hedge your open currency positions with either a spot transaction or forward contract. By doing so, your margins remained locked into place during the entire currency cycle.
- Automate your policy. Continuously monitoring the currency market requires near-constant attention, and even then, accounting for every open position is prone to manual error. Instead, use software tools to make sure that the heavy lifting is done automatically, eliminating human risks in the process.
In light of the recent, welcomed uptick in economic activity, we compiled some of our best-in-class tips to maximise both competitiveness and returns when pricing across borders. This guide helps introduce pricing concepts that boost, not hinder, competitiveness and growth, while also addressing the very real risks that the global currency markets pose to bottom lines. Download your pricing guide here.