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How to Manage Exchange Rate Risk in Pricing



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Fluctuating market values directly impact international companies’ margins. Use these exchange rate risk management pricing strategies to turn the tide in your favor. Read the full post here:

How to Manage Exchange Rate Risk in Pricing

  1. 1. How to Manage Exchange Rate Risk in Pricing insights from
  2. 2. 2 Exchange rates have a huge impact on your pricing strategy. As rates shift, prices either become more profitable or not profitable at all.
  3. 3. 3 This requires a HUGE strategy shift as markets become more turbulent. For example, the Euro has lost almost 25% of its value against the US dollar, creating enormous risk and opportunity for many companies.
  4. 4. 4 Need some inspiration for your next strategy shift? Here are two ways to manage exchange rates in a way that doesn’t negatively impact margins.
  5. 5. 5 1. Establish a Price Fluctuation Framework with Customers
  6. 6. 6 Constantly renegotiating deals is exhausting, and neither side leaves happy.
  7. 7. 7 Instead of updating terms when exchange rates change, work with customers to build a framework to address exchange rate fluctuations.
  8. 8. 8 A simple framework: Keep prices the same as long as the exchange rate does not change by more than 10%. Automatically recalibrate prices to split the difference between new and old prices when the price does move by more than 10%.
  9. 9. 9 Have your analysts research worst and best-case scenarios and ensure the terms work for both parties. Make sure you cover your bases and close all potential loopholes!
  10. 10. 10 Put everything on paper in terms customers understand, with concrete examples and market-relevant terms.
  11. 11. 11 2. Create Value by Assuming the Lion’s Share of the Short-Term Risk
  12. 12. 12 Absorb more risk, but make sure your customers are willing to pay a premium for it.
  13. 13. 13 Lay out clear expectations for both parties to ensure customers honor their side of the equation.
  14. 14. 14 Strategy Success Tip #1: Manage Internal Expectations
  15. 15. 15 Make sure your staff understands the strategies’ terms and goals.
  16. 16. 16 Strategy Success Tip #2: Regularly Measure Price Performance
  17. 17. 17 We recommend isolating your data points (exchange rates, volume, customer segments, etc.) to see the true impact of your strategy on your profits. Measure regularly!
  18. 18. 18 Strategy Success Tip #3: Keep a Close Eye on Exchange Rates
  19. 19. 19 Closely monitor exchange rates to enhance trend assumptions and predictions. Make incremental improvements to increase profits over time.
  20. 20. 202020 KiniMetrix helps companies leverage their sales transaction to build profitable pricing strategies. Click here to see how KiniMetrix can do this for you. Start turning exchange rate fluctuations into a positive impact on margins.