Currency Exchange Rate Impact Analysis

Currency fluctuations cost us $500K in ARR (-2%) in November. Here's how: For a long time, customers could only pay in USD via credit card at lemlist. But, 9 months ago, we enabled payments in EUR & GBP to make things easier for international customers. To keep things simple, we used a 1:1 conversion rate: 1$ = 1€ = 1£. Fast forward to today: 1/3rd of our revenue — $9M — is billed in EUR. So when the EUR dropped 6% against the USD, our ARR dropped by 6% * 33% = -2%. The interesting part? Our business actually grew in November. But the reported ARR took a hit due to currency shifts — something totally outside our control. It’s a reminder that as you scale, metrics aren’t just about performance. They can be shaped by external forces like currency rates, inflation, and broader macroeconomic trends. Back in my M&A days, we always adjusted for constant FX rates to see a business’s real growth. It stripped out the noise and let us focus on what actually mattered. Hope you'll find this valuable 🙏

Today, global service providers should be reviewing all exchange rate assumptions in their pricing tools, internal rate calculators, outstanding proposals, and significant contracts. If you sent a proposal one month ago in US Dollar, where a lot of the work will be performed by Euro and/or GBP-denominated staff, the price likely needs to go up several percent. If your standard rate cards for Europe and/or Asia Pacific staff are denominated in US Dollars, you better take a look and determine what adjustments are needed. Even within Europe, there have been significant moves in certain local currencies versus the Euro, so those need checked too. If your pricing tool is updated for Fx once a month, that was probably done on Tuesday and you should update it again today instead of waiting until next month. All bids in progress likely need updating too. We have zero influence over tariff policies and exchange rate fluctuations, but there's no excuse to not adjust our pricing for current reality.

𝗪𝗵𝗮𝘁 𝗶𝗳 𝘆𝗼𝘂 𝗰𝗼𝘂𝗹𝗱 𝗽𝗿𝗲𝗱𝗶𝗰𝘁 𝘁𝗵𝗲 𝗳𝘂𝘁𝘂𝗿𝗲? 🌚 If you’ve been following my FP&A posts, you’ll notice a deliberate focus on topics that guide your 2025 business planning and budgeting. By now, all things being equal, you should have rounded up or be close to rounding up your preliminary forecasts. (If you haven’t started yet, I’m sending you love and light, dear 🥱 . Start soon, though—it’s already late in the game!) Now, if you’ve completed your preliminary 2025 numbers, it’s time to take it to the next level: layering in Scenario and Sensitivity Analysis. These are the “little things” that separate great FP&A analysts from the rest. I can personally attest to how much of a game-changer they’ve been for me—since incorporating them into my forecasts, I’m rarely caught off guard. I know the curveballs to expect, and I’m able to help decision-makers plan with confidence. That’s the kind of FP&A professional you want to be. If you’ve ever been asked, “What happens if sales drop by 10% and costs rise by 15%?” or “What if interest rates hit the roof?” or “What happens if the Naira depreciates beyond ₦2,000/US$1?” you know the struggle. That’s where Scenario and Sensitivity Analysis step in as your go-to tools. Here’s a quick way to understand them: Scenario Analysis: Big picture—“What if multiple things change?” Sensitivity Analysis: Focused Lens—"How does this one factor impact us?” A mistake I often see also is treating these analyses as mutually exclusive. They’re not! Using both gives you a balanced, holistic view and prepares you for almost anything. Here's how to use both effectively: 1. Start with Sensitivity: Identify your most sensitive drivers—the variables that significantly impact your outcomes. Is it FX rates? Raw material prices? Workforce costs? Test those first. 2. Move to Scenarios: Build 2-3 compelling scenarios incorporating those sensitive variables. Example: >> Base Case: Inflation in Nigeria stays between 30% - 33% in 2025 and Naira trades at ₦1800/US$1 >> Optimistic/Best Case: Inflation in Nigeria scales back to single digit and Naira appreciates back to ₦400/US$1 >> Pessimistic/Worst Case: Inflation in Nigeria go north of 40%, and Naira depreciates by more than ₦3,500/US$1 (God forbid abeg! 😭 ) 3. Link to Actions: Scenarios and sensitivity analyses are meaningless without clear action points. Use your insights to plan. For instance, if FX volatility spikes, what’s your hedge plan? If costs rise, where can you cut? Incorporate these into your 2025 budget—not just as good practice but as a way to stand out. I'd also love to hear from you: what scenarios have you built into your forecasts? P.S. This topic is one of my go-to interview icebreakers when assessing candidates! Now you know... 🚶♀️ #FPA #FPATuesday #Budgeting #ScenarioAnalysis #SensitivityAnalysis #2025Planning

The Bookkeeping mistake that costed an e-commerce seller $18,000 in one quarter (CURRENCY CONVERSION) Selling internationally can explode your revenue. But it can also destroy your profit margins if you handle multi-currency accounting wrong. Last month I audited books for an online retailer doing $450K across European markets. They thought they were crushing it with 40% margins. Reality check: After proper currency accounting, their actual margin was 12%. The hidden profit killer? Exchange rate fluctuations they weren't tracking properly. Here's what most international sellers get wrong: They treat all currencies like not real money and convert everything at random rates. One day they use Amazon's rate. Next week they use their bank's rate. Month-end they panic and guess at the differences. This creates phantom profits that don't exist and real losses they can't explain. The 6-step system that fixes currency chaos: 1.Pick one primary currency for all financial reporting and stick to it religiously 2.Track every transaction in its original currency before converting anything 3.Use consistent rate sources instead of whatever's convenient that day 4.Record conversion fees separately so you know what international sales really cost 5.Reconcile platform reports against bank statements weekly, not monthly 6.Revalue foreign currency balances at month-end to catch unrealized gains and losses Real example of how this works: EUR Sale: €100 at 1.10 rate = $110 revenue recorded Three days later settlement at 1.12 rate = $108 actually received after fees Without proper tracking: Missing $2 loss per transaction With 5,000 transactions monthly: $10,000 phantom profit vanishing The difference this makes is staggering. Instead of discovering surprise losses during tax season, you know your real margins daily. Instead of guessing at profitability by country, you can make data-driven pricing decisions. Instead of reconciliation nightmares, your books actually balance. Smart international sellers understand this truth: Currency management isn't about perfect predictions. It's about accurate tracking and consistent processes. When your multi-currency system works properly, you can price confidently, forecast accurately, and scale internationally without financial surprises. At Ottit, we help e-commerce businesses master international accounting and protect their profit margins from currency volatility. Ready to clean up your multi-currency mess and see your real international profitability? Book a strategy call through the link in my bio. What's your biggest challenge with international sales accounting?

Foreign Central Bank moves begin to increase interest rate differentials With this week's quarter point cuts by the Bank of Canada and the European Central Bank, the policy interest rate differentials with the dollar have begun to widen. The Federal Reserve's 5.5% upper bound target is now 75 basis points above the Canadian policy target, and it is now 125 basis points higher than the ECB's target. It is probably too early to know how this will affect market rate differentials. The increase in interest rate differentials in favor of the dollar could lead to a strengthening of the dollar against these foreign currencies. So far, there have been no big movements, likely because the changes were widely anticipated and so are already priced into market currency values. Exchange rates depend on many developments that affect supplies and demands for currencies, but relative interest rates are the most important during non-crisis periods. Investors and companies with large cash balances will tend to move those funds toward currencies that have relatively higher rates today or that are expected to appreciate in value in the near future. What will be interesting to see is whether there are larger exchange rate movements if foreign central banks continue to be ahead of the Fed in monetary policy easing, as seems likely. A strong dollar creates winners and losers. For US manufacturers a stronger dollar would cause an additional competitiveness challenge in export markets. At the same time, a strong currency increases the purchasing power of US consumers and reduces costs for the many companies who source inputs abroad. Because it would reduce import prices, at least marginally, a stronger dollar would help the Fed's fight against inflation. Essentially, foreign countries would experience the mirror image of these effects.