EUR and CAD and USD and… A tale of many currencies!
Big national holiday week here in North America, which is the perfect time to discuss my next tip in our series dedicated to getting #Finance and #RevOps teams outside and enjoying their summer – currencies and exchange rates.
Hot Tip #2: If you’re selling internationally in different currencies, make sure you’re isolating and identifying renewal ARR increases and decreases that are tied to exchange rate changes.
If you consolidate into your home currency, let’s say it’s USD, and you sold a 3 year contract for 10k EUR each year, what that exchanges to in the first year can be quite different going into the second and third year of the contract depending on the current exchange rate at that time.
And we’ve seen the amount of ‘unprecedented change’ that can happen in just one year. 📉
🌐 September 2021: 1 EUR = 1.17 USD
🌐 September 2022: 1 EUR = 0.96 USD
🚨 Assuming your 10,000 EUR contract remains flat across these dates, the converted value would go from 11,700 USD down to 9,600 USD in just a year!
Without isolating the amount difference linked to foreign exchange rates, your ARR waterfall may mistakenly report an increase as an upsell or price increase and conversely a decrease as a credit or discount. In turn, it could incorrectly impact how the overall numbers are reported and possible commissions that is paid out to sales and customer success teams. 🤦♂️
💡 It’s why ARRow has a function built in to address fluctuating exchange rates that identifies and isolates when an increase or decrease has been impacted by the exchange rate and not renewal contract negotiations.
Making sure that these amounts are properly allocated keeps clarity in your reporting, avoiding downstream impacts, to ensure for example that commissions are paid out correctly, your numbers are consistent and explainable, and it reduces the amount of cross-checks Finance has to do to get out the door on a beautiful summer day! 😎
🔎 For a closer look, check out this doc we have created around a simple example and the impact that Advanced Currency Management in Salesforce can have (or just book a meeting with me and we can chat about how ARRow can automatically make those adjustments for you).