Bootstrapped #116: Pricing your product in multiple currencies, with Ed Freyfogle from OpenCage

I’m joined by Ed Freyfogle for the first of several episodes in which he is my cohost. Ed is the co-founder of OpenCage Geocoder, a bootstrapped, profitable SaaS.

Thanks to Balsamiq who sponsored this episode. Find out how, thanks to Balsamiq, you can promote your bootstrapped business for free on the podcast

Our guest sponsor, courtesy of Balsamiq, is Mockless.

We discuss:

  • the bootstrapping scene in Barcelona, where both Ed and I live
  • the advantages of offering your product in multiple currencies
  • which currencies to offer
  • dealing with currency fluctuations
  • how this affects your marketing content
  • how Quaderno has helped both of us do best-in-class invoicing.

We also rant a little about how some businesses could improve the finer details of billing.

Listen to this episode.

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You’re doing a good job presenting this podcast! I like it a lot.

On topic: I use pricing in 5 currencies as well, and let the choice depend on the language:
French -> EUR, CAD
English -> USD, EUR, CAD, GBP, AUD
Dutch -> EUR
German -> EUR
Spanish -> EUR, USD
etc.

Sometimes, I notice that people pick the currency that is the cheapest for them. For instance, the AUD has lost a lot of value against the USD lately, and Japanese customers now often pay in AUD instead of USD. I try to keep the amount just about equal, but round it to a nice number: 49, 59, 69, 79, etc.

Another tip is to make sure to have multiple ways to pay.
For instance here in The Netherlands, iDEAL is used a lot for on line payments.
I also offer both a Stripe and a PayPal gateway. Some people hate PayPal, others have never heard of Stripe and prefer to use something they know.

Note that this is all B2C.

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Thanks for the feedback!

I think PayPal is a must for B2C. I’ve heard many people say that adding PayPal to their payment options for their B2C product resulted in a big boost in sales.

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@freyfogle and @SteveMcLeod

Great podcast!

The discussion about yearly pricing was quite interesting. There’s a simple way to ballpark how much reduction in price you can give to yearly and 2 yearly pricing. It’s based on churn.

Take your monthly churn and convert it to yearly:

2% monthly churn = 22% yearly churn

If you converted all you customers to yearly contracts, you could ask all customers to pay 22% less, and get the same revenue.

For 2 yearly pricing this would look like:

2% monthly churn = 38% 2 yearly churn

These numbers allow you to ballpark the maximum reduction you can give.

A couple of caveats:

  • not sure of tax implications when to recognize the revenue
  • customers might self select, i.e. customers which would not churn anyway choose the 2 yearly plan
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A good reason for encouraging customers to pay yearly is cashflow. You get an entire year’s payments (minus discount) upfront.

For a fast-growing but cash-strapped business - such as a typical bootstrapped business - getting cash upfront is really helpful.

If your monthly churn is 2% at the start of each month (except the first), then your annual churn is:

1.02^11 - 1 = 24.3%

But, because those people churn at different times your earnings are only 11.5% more with the monthly plan.

plans

Or is my maths wrong?

11.5% more with the yearly plan

An additional thing to take into account is that Stripe et al charge a percentage AND a fee per transaction. With yearly plans, there’s one fee instead of 12.

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I’d argue the formula to convert from monthly to yearly churn is:
(1 - churn)^months = retention
and
churn = 1 - retention

(1-0.02)^12 = 0.78
and
churn = 1 - 0.78 = 0.22 => 22%

In general, yearly churn% is lower than monthly churn%, because each month you start with less customers, and a fixed percentage of them churn, which means less customers churn.

However these calculations are theory, because you usually also get new customers, have special events happening, have differences in churn between months, …

W.r.t to using 11 or 12 in the exponent, that depends when you start counting churn.