Same time last year, USD 1.00 meant INR 44.6 while as of today it means something like 38.00. American Dollars lost nearly 16% of its value in a period of one year and for companies like us it may mean between 6% – 7% reduction in profits. The situation is more complex because wages continue to rise by as much as 25% per annum and unless the situation is controlled, the decline in profits will be as much as 19% – 20% for a SMB which do not have access to sophisticated techniques to managing forex.
The blazing question right now is: how an organization can protect itself from this loss? Here are some suggestions:
Increase billing rates
One of the quick fixes will be to increase your billing rates by 15% – 20%, so that you may continue to earn the same level of revenue as we used to earn earlier. Increasing the price will make you lesser attractive and for providers who compete just on price, this will spell certain death.
Increase billable hours
You may want to increase the billable hours as much as possible. Making all satirday as working days will mean that your billable hours will increase increase by 13.33% which will offset the dollar depreciation entirely. This will make your very unpopular with your employees though!
Start billing in Local Currency
You may start billing your clients in your local currency and then convert it to USD equivalent at the time of receiving payments. This is the exact opposite of what you are doing now. This approach will make you some of your clients feel uneasy, especially those who insist on fixed dollar value quotes and can’t understand what rupees mean.
Have contract level agreements
While signing the contract you can have a clause that says that if dollar value falls below a certain threshold level, the client will have to pay the difference amount.
Increase Business outside US
This is a long term solution but one that you must take a close look at. You must develop markets outside USA, so that you are not that badly affected by the dollar rates.
Reduce dependence on USD
You must invoice the clients outside USA in their local currency and not in USD. It will reduce your exposure towards dollars.
On lighter note, gold prices keep on rising. Thus, may be you can charge your clients in gold, the idea of asking for 100 gms of gold (or its $ equivalent) for a job sounds like a silver bullet solution. (Please, no noble prize for this one!)