Monday, March 9

Pound Woes

The British pound has slid again against the dollar and the euro. It's a mixed bag for me, but it's not good for Sumeria.

When the pound is weak it's cheaper for US and European customers to buy from me in GBP. Since most of my customers buy in GBP, this makes it a more attractive prospect for them, since they get it cheap (while I still get the full amount). Unfortunately, at the moment most of my customers have decent stock levels, so I can't use that as a lever to get further sales.

A few of my US customers buy in USD. They prefer the stability of knowing how much they are going to pay for the games, month in, month out. A weak pound doesn't affect these customers, but it means I get more GBP for an order than I would, had they bought when the pound was strong. All good so far.

The problem with a weak pound is when you want to buy something overseas. I got Carpe Astra manufactured in Germany by Ludo Fact. The production quality was excellent, and I was reach impressed by the customer service too. At the time when I was pricing up the print run, they were noticeably cheaper than getting the game manufactured in the UK. I had to pay half up front (I was a new customer) and half on delivery. The half up front was fine, but by the time it came to pay for the second half, the pound had started its slide. The game ended up costs me more than I had bargained for, which ate into my margins.

I'm going to use the same company for manufacturing Sumeria. However, the pound has slid much further since November, though it has at least climbed a bit since its woeful near-parity showing between Christmas and New Year. This time, I don't need to pay anything to the manufacturer until after the games arrive. I'm hoping that by mid-June the pound will have sorted itself out a bit. If so, the game will become cheaper to manufacturer and I might even be able to reduce the RRP on the game accordingly. I have to pay the (German) artist shortly in Euros however, so I'm going to take a hit on the exchange rates on that transaction.

For the moment, it's all up in the air - which is a little worrying! Needless to say, I'm watching the exchange rates like a hawk, and looking at forecasts too.

4 comments:

Isamoor said...

I would think it would make sense to at least purchase some forward contracting to add predictability to your costs. Maybe buy a future contract for 30-40% of the total cost to lock in the current exchange rate. It would insulate you from the worst of the swings that might occur...

Jack said...

I'd not considered this at all. Of course, at the moment, I'm hoping things swing in my favour, so a forward contract would just lock me in at today's (bad) rate.

Cheers,

Jack

Isamoor said...

Well yes, if you contracted a full 100% of the value. That's why I suggested only doing a portion of the value. It mainly just reduces the variability of the future value. You're paying someone else to absorb some of that risk. It's true you would give up some potential upswing, but you also insulate yourself from some potential down swing. I would figure a small business like yourself would appreciate a reduction in uncertainty.

Anyway, best of luck!

Jack said...

Yeah, that's a good point. Of course being an optimist, I'm considering the upswing not the downswing!

Cheers,

Jack