Feeling the pinch: Software expenses are creeping up as Aussie dollar slides

On Tuesday the Reserve Bank decided to cut the official interest rate for the second time in as many months, this time by 25 basis points to 1%.

The cut brings the official cash rate to a new record low as longstanding pressure on the government to ramp up fiscal stimulus builds. 

Meeting in Darwin, the central bank board, led by Philip Lowe said it hoped the lower rate would help eat up persistent spare capacity in the economy.

“We should be able to achieve a lower rate of unemployment than we currently have and we should also be able to reduce underemployment,” Lowe told a top end community dinner in the hours after the cut. 

A lower official cash rate has, at least historically, correlated with higher inflation, a consequence of a ‘hotter’ — or a faster growing — economy.

It also devalues the Aussie dollar, which is money back in the pockets of many local businesses, with Australia being a net exporter. Others also benefit from more competitive domestic goods as imports become relatively more expensive.

Feeling the software pinch

But there are those watching the sliding Aussie with a grimace. Local businesses pay software as a service (SaaS) companies for everything from email marketing to database management, and the bill is going up.

Prosper Taruvinga says he’s forking over hundreds of extra dollars for software each quarter as a result of the lower Aussie because his providers are American companies, billing in USD.

His business, a Melbourne-based digital marketing agency, is unable to trade without software services but has experienced a 5-6% increase in costs in the last year as the Aussie has weakened.

“It all adds up,” he tells SmartCompany.

“We’ll see what we can cut and trim.”

In January the Australian dollar dropped to its lowest level against the American greenback in 10 years, dipping below the 70 cent mark. While performance has varied since then, the Aussie closed marginally lower than that at 0.696 cents on Monday.

While not unusual for American companies to bill in their own currency, there are also Australian SaaS providers also charging in USD, which Taruvinga says is strange.

“I’d rather pay Australian businesses using Australian currency,” Taruvinga says.

“Its better for the Australian economy, everyone is pulling their weight to build the country.”

Taruvinga isn’t alone. David Pagotto, founder of digital marketing agency SIXGUN, has also experienced a hike in his software costs as the currency has weakened.

“It’s substantial,” Pagotto tells SmartCompany.

Fees bite

Pagotto says he’s been keeping a closer eye on currency fluctuations lately and while he accepts the fall of the Aussie is outside his control, it is prompting him to consider return on investment.

“If costs are going up we would potentially look at other solutions,” he says.

Compounding the issue both business owners say they’re also copping international transaction fees from their banks, sometimes in excess of $50 when transactions are substantial enough.

“It’s one of my pet hates,” Pagotto says. 

“Sometimes they really get you with those fees.”

Why do software companies charge in American dollars?

For both founders, the increases will be filed under an increased cost of doing business, American software platforms are a mainstay in most companies in their industry these days, so they’re not the only ones feeling the pinch.

But Australian companies charging in American dollars for their software has left a bad taste in the mouths of more than one local small business owner in recent months.

As SmartCompany reported earlier this year, e-commerce platform provider Neto caused a furore among its own client base when it increased prices earlier this year, at the same time switching to billing in American dollars.

The company cited a trend in the local SaaS industry as justification for the change, arguing billing in USD has become the industry standard.

Notably, American-listed but Australian founded company Atlassian has confirmed it bills local clients in American dollars, while other software providers SmartCompany spoke with also admitted to the practice.

Nobby Kleinman, owner of wealth management software Money Rules, says software companies who stick with the local currency risk restricting themselves to the Australian market.

“Currency fluctuations do impact sales,” he tells SmartCompany.

“[But] the international audience is far greater … and they are already paying in USD.”

Startups feeling the pain too

Alan Jones, Aussie angel investor and founder of M8 Ventures, says its “very common” for software companies around the world to charge in American dollars.

“For most SaaS startups, their biggest market will be in the US and US customers are unfamiliar with being billed in foreign currencies,” Jones tells SmartCompany.

Jones says he’s witnessed local startups miss out on business because prospective US clients didn’t want to pay in Aussie dollars. 

But Australian startups feel the pain of a weaker dollar as well, he says.

“Most of them are paying multiple SaaS subscriptions each month that are billed in USD,” he explains.

Not everyone is charging in USD though. Jacqui Jones, chief executive of cloud software company Way We Do charges in Aussie dollars.

“I personally hated paying extra for software due to the currency exchange,” Jacqui tells SmartCompany.

“I wanted our local customers to be confident that their subscriptions were not increasing … we wanted to provide consistency.”

Jacqui recently benefitted from the decision, luring over a client from a US-based service.

“[Software companies] can do it just because they can, and they see others in the marketplace selling in US dollars,” Jacqui explains.

“Until Australian businesses say they’re not going to do that … then Australian software companies may not stop.”

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