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Old 26.01.2015, 15:04
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renegotiating service contract to share FX risk

So I bill to an EU company Client in the almighty Euro but my cost base is very firmly in CHF.

This was fine when the CHF to Euro were coupled at the 1.20 mark. There was no fx risk to either party as the coupling was in place at the time of contract agreement.

Obviously this has all changed now & the pair are decoupled, as the Euro has devalued drastically a previously unforseen risk (unforseen by both parties) has been realized & I have borne the pain here unilaterally, so my question is regarding tactics for renegotiating of the rates agreed to consider fx fluctuations.

I am reading about "banding" whereby rates are calculated within a certain fx band such that the risk is borne by both parties to a greater or lesser extent.

I'd appreciate any experience or thoughts you may have on how to approach renegotiating. I have a good relationship with the Client going back 8+ years & I believe he is open to discussing the topic.

Thanks y'all.
H.
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Old 26.01.2015, 15:25
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Re: renegotiating service contract to share FX risk

Were there times when you "won" because of the FX rate? IE when it was higher than the estimated rate?

If you were to raise your price by 10-20% would that significently effect your price/value competitiveness?
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Old 26.01.2015, 15:37
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Re: renegotiating service contract to share FX risk

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I have a good relationship with the Client going back 8+ years & I believe he is open to discussing the topic.
Discuss it then, but re-negotiation is usualy considered as a very last resort, nobody likes it, back sliding is another term.

Grin and bear it, it will be better for you in long run i think
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Old 26.01.2015, 19:06
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Were there times when you "won" because of the FX rate? IE when it was higher than the estimated rate?

If you were to raise your price by 10-20% would that significently effect your price/value competitiveness?
Not really, it was always 1.18 to 1.20.

I reckon that my effective rate is minus ~20% & I am carrying all the burden so I was thinking of perhaps a meet in the middle approach.

Yes, it would effect my competitiveness but not to the point where they would swap me out. The knowledge gained would be costly & time consuming to backfill, imho .

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Discuss it then, but re-negotiation is usualy considered as a very last resort, nobody likes it, back sliding is another term.

Grin and bear it, it will be better for you in long run i think
I hear you but 20% is pretty hefty cut not to share around.
How do you reckon it'll be better in the long run, I don't see this to be honest.

Last edited by 3Wishes; 26.01.2015 at 19:28. Reason: merging successive posts
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Old 27.01.2015, 08:41
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Re: renegotiating service contract to share FX risk

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I hear you but 20% is pretty hefty cut not to share around.
How do you reckon it'll be better in the long run, I don't see this to be honest.
You: After the drop in rates I'd like to amend my rate up by 20%
Them: Sorry we are not interested.
You: How about we meet in the middle? 10%
Them: Sorry we are not interested.
You: I had hoped our long standing relationship would allow us to meet in the middle.
Them: We thank you for your work over the last 8 years. We won't be extending our contract with you.

That bit^^^

You'd be better off putting up and shutting up and apply small increases over the next few years. At the time of signing the deal you agreed to the risks of billing in EUR but paying yourself (and therefore your costs) in CHF. There are always risk when there is a currency mis-match between income and expenses. Companies and wealthy individuals hedge this risk as much as they can. Using it in a negotiation is poor form and shows a lack of forethought on your behalf.

However, when you renew asking for a 3% might not be such a problem
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Old 28.01.2015, 10:50
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Re: renegotiating service contract to share FX risk

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I'd appreciate any experience or thoughts you may have on how to approach renegotiating. I have a good relationship with the Client going back 8+ years & I believe he is open to discussing the topic.

Thanks y'all.
H.
The key to this is whether your Client feels that paying more is justified for the service you provide. That can be an uphill battle and much depends on the nature of your business but you state that you've got a good relationship with your Client and a 'gut' feeling that your Client would be willing to discuss this. Approach this in the right way and what have you got to lose (apart from, possibly, some 'face')? Ultimately, unless you expect a return to the 'old rates' for EUR/CHF quite soon, it is not in your interests to work at a loss.

That said, few Clients would actively look to pay more for the same service without benefit to them and it is that benefit which you need to provide. Unless your service is truly unique (unlikely) then you'll still need to strike the right balance between higher fees and remaining competitive. Perhaps you should consider:

- how do you adjust your costs from CHF to EUR (is there any work you can outsource back into the Eurozone)?
- are there any additional services you can provide as an enhancement justifying a higher bill but without a proportionate increase in your costs?
- could you cut some of the existing services to reduce your costs (offering a less than pro rata reduction in fees to help with the exchange rate)?
- could you explore billing a proportion of your work in future in CHF?

Approaching this simply as a case of "I need 20% more for the same work" probably won't be enough (you have not suggested this but perhaps some others have interpreted your request this way). Approaching this as an opportunity for both yourself and your Client may work. If you are indeed a valued supplier to your Client then the Client may well be concerned about the impact of losing your service and welcome the opportunity to clarify where you stand.

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However, when you renew asking for a 3% might not be such a problem
So far as simply increasing your fees by 3% next time you negotiate... that doesn't help you now, it's not proportionate to the change in exchange rate, you may still have to justify that increase, you'd need to look at how that fits with your previous billing strategy, and that may well be too late for you if you're 'losing' money now.

One thought for you to consider, a quick look back over the last eight years suggests the Euro has generally been weakening against the CHF. How have you dealt with that fluctuation?

Good luck.
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Old 28.01.2015, 15:25
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Re: renegotiating service contract to share FX risk

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The key to this is whether your Client feels that paying more is justified for the service you provide. That can be an uphill battle and much depends on the nature of your business but you state that you've got a good relationship with your Client and a 'gut' feeling that your Client would be willing to discuss this. Approach this in the right way and what have you got to lose (apart from, possibly, some 'face')? Ultimately, unless you expect a return to the 'old rates' for EUR/CHF quite soon, it is not in your interests to work at a loss.

That said, few Clients would actively look to pay more for the same service without benefit to them and it is that benefit which you need to provide. Unless your service is truly unique (unlikely) then you'll still need to strike the right balance between higher fees and remaining competitive. Perhaps you should consider:

- how do you adjust your costs from CHF to EUR (is there any work you can outsource back into the Eurozone)?
- are there any additional services you can provide as an enhancement justifying a higher bill but without a proportionate increase in your costs?
- could you cut some of the existing services to reduce your costs (offering a less than pro rata reduction in fees to help with the exchange rate)?
- could you explore billing a proportion of your work in future in CHF?

Approaching this simply as a case of "I need 20% more for the same work" probably won't be enough (you have not suggested this but perhaps some others have interpreted your request this way). Approaching this as an opportunity for both yourself and your Client may work. If you are indeed a valued supplier to your Client then the Client may well be concerned about the impact of losing your service and welcome the opportunity to clarify where you stand.



So far as simply increasing your fees by 3% next time you negotiate... that doesn't help you now, it's not proportionate to the change in exchange rate, you may still have to justify that increase, you'd need to look at how that fits with your previous billing strategy, and that may well be too late for you if you're 'losing' money now.

One thought for you to consider, a quick look back over the last eight years suggests the Euro has generally been weakening against the CHF. How have you dealt with that fluctuation?

Good luck.
appreciate that thoughtful response, some good options to consider there.
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