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The Effects Of Currency on Pricing

You would think that a smaller company like LandlordMax would be immune to international currency issues, but quite the opposite is true. You see LandlordMax is a Canadian company where the majority of our customers come from the US. And because of this, the currency values between the two countries, that is the difference between the Canadian dollar (CDN) and the US dollar (USD) has affected our bottom line.

Over the four years since we’ve been in business, the USD has steadily declined in comparison to the CDN. In the past we used this difference as a competitive advantage over our competitors where for example if the USD was 20% more valuable than the CDN dollar, we could then sell the software for about 20% less to make the same profit (assuming the same costs). Although this isn’t entirely accurate, it’s a good enough example for today’s discussion (in reality most of our expenses are also in USD).

Up until today, we use to charge $147 USD and $170 CDN for LandlordMax. Initially the difference between the two currencies was higher, but over time as the USD has dropped in value this difference has gotten closer and closer. Today, we’ve adjusted it to $147 USD and $155 CDN. Almost no difference at all. At this point the CDN and US dollars are almost equal.

What does this mean for our pricing strategy? Quite a lot actually. We no longer have the luxury of using the currency in our pricing model. Actually if we look at just the trend over the last five years in the graph above, we really have to consider the probability that the USD will continue to decline below the CDN. Therefore there are really good chances that our USD price will have to increase. We won’t do it today, but with the next release I highly suspect that we will somwhat increase our prices to cover the currency difference (especially if the CDN overtakes the USD).

The good news is that although our income has decreased because of the currencies, so have many of our expenses. Most of our advertising, server, etc. costs are USD. So although our profit margins have decreased along with the currency, they don’t match up exactly (it’s a much much slower downtrend on a per unit basis). However our margins have decreased enough that I believe it’s time we increase our price to compensate when we release the next major version of LandlordMax Property Management Software. I don’t know by how much just yet, but you should expect to see the price of LandlordMax go up to at least match the currency changes over the next little while.



 
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Comments:

  •     Coder
    · June 13th, 2007  · 2:56 am  · Permalink

    Just nitpicking with the grammar …

    “Canada based company,” or “Canadian company,” not “Canadian based company.”

    Sorry for the nitpicking … it’s like an OCD for me.

  •     FollowSteph.com » Why I Love Being an Entrepreneur
    · June 13th, 2007  · 9:16 pm  · Permalink

    […] Because everyday is different! It’s as simple as that. You never really know what to expect tomorrow. For example, a couple of days ago I wrote an article about how the downward trend of the USD dollar versus the CDN dollar and how it’s affected our revenue. Then today I found out we’re on pace for another record month for revenue! We’ve already beaten last month’s total revenues (although May is not a good benchmark because it’s never been a good month for us). At our current pace it looks very good that we’ll beat April’s sales record. […]

  •     Steph
    · June 13th, 2007  · 9:25 pm  · Permalink

    Hi Coder,

    I’ve adjusted your grammar suggestions. Thanks for the tip 🙂

  •     Coder
    · June 13th, 2007  · 9:51 pm  · Permalink

    You’re welcome, Steph. The perfectionist in me can rest a little easier now 🙂

  •     Patrick McKenzie
    · June 13th, 2007  · 11:40 pm  · Permalink

    I know the feeling, in reverse. The one major currency that the US is not sliding against is the yen. I wince every time I send home a paycheck. That also invariably triggers a 2% fall in the yen, to recover within 48 hours.

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