MBA2150 Q&A Wednesday: Do I charge in US Dollars or my local currency?

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Hey O. Welcome to the $100 MBA show business lessons. You need to build the business you want every single day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my co founder back in 2014 and today's episode is Q and A Wednesday. On Q and A Wednesdays we answer a question from one of you, one of our listeners. If you've got a question you want to ask, just go ahead and email me over at Omar MBA Net hey Omar, Love the podcast. I have a very specific question. My business is based in Europe but I want to ask you should I charge for my product in US dollars? I see a lot of software products like mine charging in US dollar on their pricing page. I'm wondering should I do the same? What's the rationale behind this? Or should I just stick to my local currency? Appreciate the advice Sharon. Thanks Sharon for your question. For anybody running a business outside the us this is actually a question they're going to have to ask themselves at some point, a decision they have to make. And I'm going to walk you through the pros and cons of this decision. How to come up with a decision that's right for you. There's a rationale behind why so many companies choose to just stick with charging in US dollar. I'll walk you through that and more so that you can set your currency for your pricing and feel confident in that choice. Let's get into it. Let's get down to business.

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Before the Internet, most businesses would just charge their local currency because their customers were local. And a big part of that decision was because their expenses were in local currency. So, for example, if you're in Europe and your local currency is the euro, you would charge in euro. And of course, all your bills in your local business would be in euro. So this would make finances, your P and L, your profit and loss sheet, so much easier. That's just how things were simple. But now with the Internet and having the ability to have customers around the world, especially with a software product like Sharon's, charging in your local currency may not be the best thing for your customer or your business. So to discuss this topic, let's break down the options. Option number one is you just stick with one currency that you charge your customers, whether it's US Dollars or it's your local currency. The other option is choosing just US Dollars. So anybody that buys your product is being charged in US Dollars. And the third option, of course, is offering both. There are many people that offer both options, especially in software, where they read the IP of that visitor to your website, they say, oh, you're in Europe, so let me display the prices in euros. And of course, they can toggle between euros and dollars if they wish. Now, with this option, you have to understand that you might think, oh, this is perfect. This is the best of both worlds, right? The customer can choose to choose in euros or in dollars. Yes. But this is not so great for you as the business, because the value exchange is going to differ. What do I mean by that? Let's say the euro is down like it is right now. Somebody who's paying you in euros for the price of your product is actually paying less or giving you less value, monetary value, than somebody paying in US Dollars. And because currencies can fluctuate in value. You can't change the prices of your products constantly to reflect that. So yes, you're doing a courtesy to your customers. But what a lot of companies do is they actually charge higher prices with non US currency. Why? Because to accommodate for this fluctuation or volatility in currency. Now if you are somebody who tracks currencies or foreign exchanges, you know, in the last year to two years, currencies have really fluctuated a lot. And it can mean a lot of money lost for your business because of this. So it's not an exact science. But the safest thing that companies do is they actually charge more. So I'll give you an example. Let's say your product is a hundred dollars U.S. let's say that translates at a certain time to €90. They would charge a hundred euros to kind of accommodate for the fluctuation. So we just discussed the challenges of option number three. Let's talk about option number two where you just charge in your local currency, in this example, euros, euro. If you have customers that are based in the US and are familiar or work with the US dollar or companies that use the US dollar as their metric of finance, this can be a little bit problematic. This might turn away customers, especially in the B2C world because they're not really sure what the euro exchange rate is. It may cause them to hesitate. Some credit cards even decline payments because most people are not being charged in Euros. They're transactions are usually in US dollar because they're in the US Even if they're not in the US Banks are a lot more used to people buying things in US dollar versus other currencies. Sometimes it requires a customer to call the bank and say, okay, please charge this charge. This is too much friction. So a lot of people tend to say, hey, I'm going to go with the US dollar, which is option number one. Now why do people do this? And I'll give you the simple answer that people do this because the US dollar has been the most stable currency or the strongest currency, I should say, because they are the largest economy. This is the situation right now. In today's day and age in business, this may change. But for right now, the rest of the world follows what happens economically in the US what that means is when interest rates go up in the US currencies around the world fall are impacted. So a lot of people during a recession or as they're approaching a recession will convert their money into US dollars or local money so that they feel a sense of security. If there is volatility with currency or inflation, it's not an asset or gold. But in the world of currencies and finances, the US dollar is the most stable of the currencies. This means if the euro value goes down and you're charging in US dollar, you're still making the same amount of money, if not more, when you convert it back to euros. And the Euro is what you're paying your bills in. So it's almost like you're getting a surplus of cash. Now, of course, your exchange rate can change, meaning what the dollar is worth in your local currency can decrease. So for example, the US dollar is 1.5 Australian dollars, but a month ago it was 1.7. That's a significant difference when you look at scale, when you look at thousands of in the year. So your expenses can get more expensive. This is why most SaaS companies, software companies, online companies choose one of the two options. Option one, which is only US currency, the only charge in US currency. Or they offer a variety of currencies, euro, Canadian dollar, Australian dollar, US dollar and then they increase the price of the product in the non US dollar choices to buffer any volatility.

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Sxm so to sum up, if you're starting out and you don't have maybe the budget to program your pricing page to offer different currencies to make sure that your payment processor is hooked up with these different currencies and charging these different currencies for different products. Or you just don't have the time and you want to launch already. Then charging in US dollars is the fastest way, is the fastest way to get started. And then you can add the other currencies later. Of course, how this impacts your own business's finances, P&LS revenue, profit, all that kind of stuff. Talk to your accountant. This is not financial advice. I'm just sharing with you what I've learned along the way about charging in different currencies. Now, before I wrap up, I want to make one important point and it has to do with your expenses in your local currency. If you're living outside the US when there's inflation, when the economy is on a downturn like right now and the other currencies, the non US currencies are weaker than normal or down in comparison to the US dollar, things get more expensive. This is when you start seeing inflation in other countries. What used to cost X amount for a service or product or maybe a vendor they're using will go up. The price will go up because they're trying to combat the weaker currency that they're running on. So mind you, yes, you might be making more on the conversion if you're charging US dollar, but you might have to revisit your pricing because your expenses are going to go up in your local area. This is of course, if your expenses are in local currency. A lot of online businesses make sure all their expenses are in the same currency like US dollar, like web hosting and tools and services. But if you have local employees in your team, they're probably getting paid in your local currency. So keep that in mind. Thanks so much for listening to the 100 RMBA show and thanks to Sharon for asking today's question on Q and A Wednesday. If you got a question you want to ask, just go ahead and email me over at Omar MBA net. Hey, do you love the show? Do you get something out of it? Do you feel like it helps you every day? If so, help us out by sharing it on social a quick tweet, a quick Facebook post, put it on LinkedIn, whatever. Just, just tell people to head on over to 100- MBA-NET where they can subscribe to the podcast. Thank you in advance for doing that. Before I go, I want to leave you with this. If you haven't launched your business yet, if you haven't launched your products or services yet, this is not something you really need to worry about until you do. Okay, first get your customers okay. Charge them any currency. Once you get the ball rolling, then you have idea validation. You know that people want what you have and then you can make a decision based on what you learned in today's episode. But don't get bogged down in the details or have it stop you from launching. Thank you so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care.

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