Three rate policies
| Policy | How it works | Best for |
|---|---|---|
| Spot at reporting date | Convert every contract at the rate on the snapshot date | Cash and balance sheet questions |
| Contract inception rate | Lock the rate each contract was signed at | Auditability, though the blended rate drifts over years |
| Plan rate held for the year | One rate per currency, fixed at the start of the fiscal year | Internal reporting, quota, retention analysis |
Constant currency is the comparison that means something
To compare periods, restate both at the same rate. Growth measured at spot rates in a period when the reporting currency strengthened will understate every international region, and the regional review will spend its time explaining a currency move as a sales problem.
Report both figures when the movement is material. As-reported ARR is what the business is worth in the reporting currency today. Constant currency ARR is what the team actually did.
FX distortion in the retention waterfall
This is where a spot rate policy does the most damage. A monthly waterfall runs from beginning ARR through churned customer ARR, churned product ARR, product decrease ARR, new customer ARR, new product ARR, and increased product ARR to ending ARR. Under spot rates, a currency move alters beginning and ending ARR without touching any of the movement lines, so the waterfall stops reconciling.
The usual fix is an explicit FX line in the waterfall. It keeps the bridge closing and it makes the currency effect visible as its own item rather than smeared across contraction and expansion. Without it, net revenue retention in a European or APAC cohort will read as a performance signal when it is a currency signal.
Set the policy before you need it
Write down the rate source, the reset cadence, and the treatment for contracts that switch billing currency at renewal. Then leave the policy alone for the fiscal year. Changing conversion policy mid-year restates history and destroys the comparability that every trend in the revenue forecast depends on. A model trained on ARR history that was converted three different ways will produce variance nobody can trace back to the market.
Frequently Asked Questions
Which exchange rate should you use for ARR?
A plan rate fixed for the fiscal year is the most common choice for internal reporting, because it holds ARR movement attributable to the business. Spot rates are appropriate for balance sheet and cash questions, where the current rate is the economically relevant one.
What is constant currency ARR?
ARR restated using a single fixed exchange rate across all periods being compared. It isolates growth that came from contracts rather than from currency movement, which is the only way to judge performance in a region where the local currency moved.
Can FX show up as churn or contraction?
Yes, under a spot rate policy. A euro contract that renews unchanged reports lower ARR in dollars when the euro weakens, and the retention waterfall records contraction that no customer caused. Fixed rates remove that artifact.
Should sales quotas be set in local currency or reporting currency?
Set quota in the currency the rep sells in and convert at a plan rate held for the year. Converting at spot makes attainment depend on currency markets, which reps cannot influence and should not be paid on.
Put these metrics to work
ORM builds custom revenue forecast models that turn concepts like multi-currency arr into prescriptive action for your team.
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