Patrick Taylor is a global business improvement expert with over 30 years of delivered value leveraging experience across all domains of pricing and margin improvement as well as commercial and financial processes.
In this episode, Patrick shares the critical aspects of effective pricing strategies and their impact on business profitability. He emphasizes the importance of understanding both the external market and customer needs when setting prices. He also advocates for the use of various data visualization tools, such as scatterplots and Pareto charts, to analyze pricing effectiveness and identify areas for improvement.
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Why you have to check out today’s podcast:
- Gain insights into customer-focused pricing and understand market conditions when setting prices to align pricing strategies with customer expectations.
- Learn about profitability metrics and delve into the significance of monitoring profitability by customer and product.
- Understand sales team dynamics to empower sales teams with the knowledge and tools needed to confidently sell at set prices.
“Listen to your customers, look at your market, look externally first on price.”
– Patrick Taylor
Topics Covered:
01:14 – Patrick describing his journey into the pricing world
04:01 – Sharing his insights on how pricing has evolved over the years and his fundamental approach to it
07:22 – Emphasizing on the importance of focusing on customer value rather than getting overly caught up in tools like Excel or AI
08:54 – How to motivate executives to focus more on the value they deliver to customers and the decisions those customers have to make
11:58 – Aligning product offerings with customer needs and maximizing revenue opportunities
13:38 – How convincing a CEO to focus on pricing requires demonstrating that there is a real problem
17:34 – Highlighting the importance of using data-driven KPIs and charts to understand pricing behavior and sales performance and important thoughts about price variance
22:09 – What is it about the Pareto chart that he considers it when doing pricing
26:24 – Discussing the importance of focusing on margin dollars over margin percentages, especially when market conditions dictate pricing
29:14 – Patrick’s best pricing advice
Key Takeaways:
“At the end of the day, from a pricing perspective, the customer only cares about two things. They care about the value they get relative to what they’re buying and relative to the next best competitive alternative.” – Patrick Taylor
“Putting that customer first is the number one thing you’ve got to do.” – Patrick Taylor
“You can create the best model in the world, but if it doesn’t work easily for your sales team to work, they can’t communicate it to their customer; it’s a problem.” – Patrick Taylor
People/Resources Mentioned:
- Tom Nagle: https://impactpricing.com/podcast/604-insights-into-value-based-pricing-strategies-for-b2b-with-tom-nagle/
- Alteryx: https://www.alteryx.com
- Google: https://www.google.com/?client=safari
- Tableau: https://www.tableau.com
- Pros: https://pros.com
Connect with Patrick Taylor:
Connect with Mark Stiving:
- LinkedIn: https://www.linkedin.com/in/stiving/
- Email: [email protected]
Full Interview Transcript
(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Patrick Taylor
Not all of your sales guys are trying to race to the bottom line. I think most salespeople are decent human beings just trying to make a living. They’re listening to their customer and the customer might be telling them the wrong information about price and they’re listening to it. So, you need to look at the external market to understand the price and arm those guys with good information.
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Mark Stiving
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the core relationship between them. I’m Mark Stiving. Our guest today is Patrick Taylor. Here are three things you want to know about Patrick before we start. He has been in pricing for forever. He was a pricing manager for Perrigo in 1991. He’s worked in a variety of industries, including telecom and oil and gas, and he even did a stint at Pros as a pricing consultant. Welcome, Patrick.
Patrick Taylor
Thank you.
Mark Stiving
How did you get into pricing in 1991?
Patrick Taylor
So, I finished graduate school in ’89, and I went right out of college into grad school. And I did like economics, so I had a minor in that in my undergraduate. But at the time, as you probably, hopefully you’re a little younger than I am, maybe, but you might recall pricing wasn’t even a blip on the radar back then. Everything was pretty much cost-plus, or the airlines were doing some kind of funky stuff that nobody really kind of understood what they were doing. And I had done this kind of an internship, or what do you call that, internship, more of a management trainee program through a trucking company and realized that, hey, look, they were a great company. I just didn’t fit as a truck dispatcher or doing marketing for a trucking company. So I wound up with a family in Tennessee and this cute little drug company down around the corner from me.
I had just met some people and kinda networked my way in and one thing led to another and they’re like we’ve got these product managers and they’re so busy doing pricing work for bids that they’re not able to do product management, and we don’t trust our sales guys to do pricing by themselves. And there it was. That’s how I got into pricing back then. I was very frustrated with it because everything was, like you said, cost-plus. So I started poking around, and this is going to show a bit of dating. Prior to the Professional Pricing Society, there was a thing called Price X. And Price X was a nonprofit organization of a bunch of people who kind of met once a year or once every while, and they just sat around and talked about price and theory. And as a result of that, most of the early pricing books that you will find on your shelf are written by the guys that you’ll see in my network. Many of them are retired now or have passed on or whatever. But I really was exposed early on to some really great minds just really, really fortunate. So that’s so I got into pricing back then. It’s kind of crazy.
Mark Stiving
That’s pretty wild. Was Tom Nagle one of those people?
Patrick Taylor
Yes, Sir. Yeah, Tom was there, and if you looked in LinkedIn, you’d probably see him connected to me. I don’t know if he’s still out there or not.
Mark Stiving
I had him on the podcast a month or so ago. He was awesome.
Patrick Taylor
Fantastic. Yeah, I haven’t talked, I was trying to talk in years.
Mark Stiving
I’ve been trying to get him on for a long time. And I finally got him. So he was phenomenal. He gave us a history of pricing that was very interesting.
Patrick Taylor
I used to have VHS tapes of him and some of the other guys for PriceX and I cannot find them to save my life. I’ve moved one time too many times, but I used to have boxes with all the old VHS types from the PriceX sessions, and it just kills me. I can’t find them.
Mark Stiving
Well, if you find them, let me know. I’d love to see some. That would be pretty awesome. Okay, so, you’ve been in pricing forever. You’ve worked in several different industries. What do you think are some big lessons in pricing? What’s changed over the years? Let me ask you that.
Patrick Taylor
Fundamentally, I think pricing is a craft. It’s not an art, it’s not a science. There are scientific elements, there are artistic elements, but it’s a craft. And I’m going to use this and I’ll come back to your answer. What I see is that when you apply a certain set of skills and trades and techniques to your practice, those common transferable skills are what’s allowed me to cross different domains. And as a result of that, it’s like being a CPA or anything else. You keep asking smart questions. That doesn’t ever change. What’s changed, though, over time, is the technology and the resources we have at our disposal to make better decisions. So for me, if I look at my career, what have I really fundamentally changed? I’m really not doing anything different. I go around. My answer to people when they say, what do you do for a living?
You say pricing, and they get this really weird look, right? Not as bad as they used to, but once upon a time, they used to really look at you like, what planet are you from? So what I found is I just say, I go around dispensing common sense for a living. Okay. And they’re like, what do you mean? Well I’d rather have 10% of a million than 5% of, or 50% of a hundred thousand, right? The math might be the same, but I want the bigger revenue and the cash flow. So the idea being is, if you really think about it, nothing has really changed just the data, the techniques, the tools of trade. So over the years, you have to keep up with tools like SQL or even SQL has evolved into the newer modern versions of SQL from what we learned in the nineties on the green screens, okay.
Alteryx is a wonderful tool. Excel has gone from… It used to be Lotus 1, 2, 3 to Excel. Now we have other tools. So things evolve on the technology side. We have more information available to us. Big data back in, what, 20 years ago or 15 years ago already big data was the topic, and now everybody’s talking about AI. Those tools are just tools in our toolkit. At the end of the day, from a pricing perspective, the customer only cares about two things. They care about the value we get relative to what we’re buying and relative to the next best competitive alternative. So if I understand that one customer, not two different types of customers, but one customer both cares about value and cares about being competitive or reasonably priced relative to other offers, that’s all I need to understand. If I care about my cost, it is of me making a business decision, am I willing to sell to you or do I walk away, take my ball and walk away because I put a price out there based on some ridiculous target. So pricing world, that’s all I got to do. Go ahead.
Mark Stiving
Yeah, I was going to say, I love the simple way you put that. I agree a hundred percent with the comment. And I love the simple way you put it. I have to say, I’ve been in pricing for a long time and it doesn’t feel to me like very many companies, very many people think about what you just said, and that is pricing is really about the decision the customer’s about to make, right? What are they willing to pay, which is based on what’s the value of solving the problem and what’s the value of the next best alternative?
Patrick Taylor
Yep.
Mark Stiving
Right? And I don’t see very many people at all. We focus on Excel or AI, or we focus on conjoint analysis and we’re not sitting there saying, well, what’s the value that we’re delivering to a customer?
Patrick Taylor
I wholly agree with you. I love the toys. And when I pick a book up off the shelf on one of these wonderful pricing books, and they’re all interesting stuff because I’m a nerd, I’m a theater guy, I’m a pricing geek. I’ve been doing it for 30 years for God’s sake, right? I’m out there. I love our pricing books. The problem is, people have said to me, Patrick, why haven’t you written a book yet? My answer is, I think my books would be boring. I don’t want to read it. All I’m going to do is tell you common sense. I’m going to tell you, just do the basic blocking and tackling. Listen to your customer, understand what the customer’s trying to tell you. How are they voting with their feet or their dollars perhaps, right? Look at your sales transactions. Putting that customer first is the number one thing you’ve got to do. When you’re looking at cost-plus, I say you’re looking at your navel and looking at predicting the weather, right? I’m looking internally, and have no idea what’s going on around me. So to me, a lot of it is really kind of common sense. How do you get practical? You can create the best model in the world, but if it doesn’t work easily for your sales team to work, they can’t communicate it to their customer; it’s a problem. And the same thing goes all the way around. So go ahead.
Mark Stiving
So we are in agreement that most companies don’t do this well, right? They’re not thinking about the value they’re delivering to their customer. They’re not thinking about the customer’s decisions they have to make. How do we get companies to do that better? So how do we motivate, let’s say there’s an executive. How do we motivate the executive that says, hey, look, you’re just not even focusing on the right problem here.
Patrick Taylor
What I find is happening for me, and this is how I made my living. Just being very transparent about it, an executive says to me, I’ve got a pricing problem. And I was talking to my PE and they say that there’s something in pricing for a couple points, and they want to hire somebody. Okay? And the executive is like he’s already sold, because his boss basically just told them, you need to go hire somebody. Okay, how do I go out and an existing company if I were just a pricing manager and convince them, it’s going to be really hard. I’m not going to convince you of any words, and you can edit me on that. So, but it is, it’s really hard because you’re pushing the rock up the hill. So there has to be a pain point, just like with our customers, how do I sell you a product, Mr. Customer, if you don’t see the value in it, how do I get it to you? If it’s not competitive, my CEO is my customer for my services, okay? So they have to have a pain point, and they think that there’s something with pricing. Either they’ve been told to do it, or they’re looking at their business that they own, and they’re saying, you know what something doesn’t feel right. I’m not making as much money as I think I should be, or I keep bidding things and I’m losing, right? So there has to be a pain point there that drives that action of inquiry. And then once that happens, Patrick can come in or you, or any of our peers can come in and say, hey, you say you got a pricing problem. Let me do a study for you, and let’s really understand that problem.
Okay? Then when you go through it, oftentimes my analogy is, if somebody were to put a rock on your foot, you have a pain in your foot, and they could give you Tylenol to solve that price, that pain point, right? But the truth is, until the rock is removed, the pain is never really going to go away. Pricing is often that pain in our head. We think it’s price. It could really be the price. Maybe we’ve raised the price so many times using cost-plus that we’re attune. But it also could be the fact that you have a cost problem, right? Maybe you’re buying your materials wrong, or maybe you’re not putting together a product offer that meets the customer needs. One of the things I noticed in big companies programs, and it kept me off, if I get a little too windy here, but in the big capital market, what happens oftentimes is I have a solution and it’s got a hundred widgets in it, and the customer only cares about four of them. All the other stuff is costing me in that product structure. But there’s really little or no value of that relative to the competitive alternatives. So, we insist on pricing to cover the value, when the truth is the customer doesn’t want that stuff. And then some smart competitor comes in and listens to the customer and says they only care about these four things. So you have to remove the value, right?
Mark Stiving
Yeah. So for a hardware product, I think you’re absolutely right. As in, if it costs me money to put this feature in and nobody wants the feature, or this one customer doesn’t want the feature, then yeah, I’ve got to deal with costs and I can be more price competitive if I can take more costs out totally with you. And the world of software costs nothing. so we often just say, hey, look, we’re bundling it in. I don’t care. I mean, what percent of features do you use in Microsoft Word?
Patrick Taylor
Exactly. Well, that’s a perfect example. Well, even an office, right? Like, let’s be really honest, when it comes to the office, I don’t even use access anymore, right? Like I didn’t even really use Word much. I use my email, but I use PowerPoint because I have to do presentations and I’m using Excel, right? And then, even snippets, I still use the old paint art thing, right? So it’s like showing my age here. But you know what, it’s really, again, there’s a lot of value there. Do I see the value? I think in software though, what I’d offer is somebody did develop it, it’s a sunk cost, right? And now it’s about turning the revenue. But if they were really thinking about it, they could actually parse out the ones that people really care about most as the baseline product portfolio like Google has done with their free Google tools. Say, these are the ones we’re going to compare. And then maybe if somebody really wants Microsoft Access, they’ll pay extra for it.
Mark Stiving
Yep. That’s absolutely spot on. So based on everything you’ve just said, one of my favorite sayings that I often say to people is, you don’t have a pricing problem. You have a value problem.
Patrick Taylor
That’s fair.
Mark Stiving
And so it’s, yeah, it’s always coming back to, well, how are our customers perceiving the value of our products? And are we delivering value the right way? Do we understand it so we can actually price for it and win that value or win the prices? So thank you. Okay, so great answer, but you didn’t answer my question. I want to go back.
Patrick Taylor
Put me in politics, Sir.
Mark Stiving
There we go. I want to go back to the question that says, we need to convince a CEO that this is the place he’s got to put more time, energy, resources into. I’m going to say the word value, but we know we’re talking about pricing.
Patrick Taylor
So there’s a couple things in that. And again, don’t let me slip off the slope here, too far. The CEO, what I’m saying to you is, I think the CEO has to realize he’s got a problem or she’s got a problem. And so I can come in and pitch that. One of the things I like about what we do is that because we’re in pricing, we touch marketing, and I love product management. I think that some really cool stuff. I love working with product managers. I love working with my finance peers. I love working with my salespeople. I enjoy my IT guys. They’re really interesting people, right? So you get the opportunity to see everybody across the business in what we do. And especially the c-suite, there’s such a visibility into pricing, okay? So how do you convince them?
So I think what you have to do is, if the executive said to you, I think I got a problem, convince me that it’s pricing, I think you can, you’re going to have to go back to the data, and you’re going to have to create some kind of a view into where you’re losing sales, right? You could say, what’s your win-loss data? You could. And this is, I think early prior to the conversation, you and I talked a little bit about offline, about the KPIs and charts and things like that, right? So as a result of doing pricing and processes around it, I’ve got very heavily into doing dashboards and KPIs and metrics. I’m not as great as some of these guys at building the Power BIs, but you know what, all these different tools, whether it be Tableau, pick one and get some visibility on your data, I think that’s the number one thing.
And I think as soon as you start getting visibility into your data, you very quickly start seeing, like I said, win-loss issues. if I look at the sales trend and relative to a product portfolio, so let’s say I look at my 80/20 rule and I say, my number one top products or services or software, or however you want to look at, right? Whatever those are, how many units am I selling? How’s my revenue flow? You track some of those things using a Pareto chart, and you start seeing where it’s going over time, you start seeing a pattern. And if you’re not in a down sales cycle because you have seasonality in your business, you’re very quickly going to start seeing, there’s something going on here. We’re losing sales on our bread and butter, what happened? And that ought to get somebody’s attention in the c-suite, right?
If that doesn’t make them jump out of a seat, my bet is that this guy probably is a pretty bright person, probably smarter than all of us, or he wouldn’t be in the CEO job. So he’s already knowing something’s not right, and maybe he doesn’t have that visibility into it. So you could show them what that is. And then if you could do kind of a back the envelope thing for them, or do a quick analysis that says, look, if we adjust the price, it looks like there’s elasticity here, or there’s a lack of elasticity. This is our best product, but I’m seeing discounts or discounts going all over the place, or I see price lack of discipline. For example, one of the charts I used, for example, within a sales pitch, oh gosh, about 10 years ago when I was doing consulting, one of the charts I used was a simple scatterplot. And I did a scatterplot and I said, look, here’s your price of this particular service, and it was a service company of this particular service. And I said, when I move the geography, it makes no difference. When I use the size, a company, it makes no difference. It’s a shotgun blast. Your best customer is paying a higher price than the worst customer. Why? And, the answer was, we don’t know why. And the answer is, yeah, well, we need to figure out if I’m segmenting this wrong or if it’s something else, and a lack of discipline by your salespeople. And the truth is, it was the latter, right? Yeah.
Mark Stiving
So, this whole concept of KPIs and charts and things that we show people, I’d love to explore a little bit more. Sure. When I think about scatterplots, I love scatterplots, right? I mean, they just look amazing and they give you so much information. And the question is always, well, is price variance good or bad? And I would say the answer is, it depends on if it’s explainable or not. Yeah. Right? If I can explain why we have price variance or justify why we have price variance, then it’s a good thing. And if I can’t, it’s random stuff. And it just means we have no price discipline. We don’t know how we’re selling our product. We just don’t know what we’re doing.
Patrick Taylor
Mark, I think that’s exactly right. And that’s why I was saying, am I segmenting it wrong, right? Because I’m trying to explain it, and if I can’t explain this variance, you’ve got a discipline problem. And oftentimes, and this is kinda where I got mentioned before about going back to common sense. Common sense is if I have three salespeople and they’re all selling the same kind of customer and the same kind of market and the same solution, why would there be a difference in price? So why is it varying?
Mark Stiving
So I think you’re absolutely right. I’m not a fan of the phrase common sense there, okay. Because although it makes all the sense in the world, right? Okay. But the problem is, people don’t think that way, right? It’s kind of like one of those things where unless we’ve said, hey, let’s go look at average discount by salesperson. Okay. That should be, unless there’s a good reason that we could explain why these guys only deal with China, or these guys only deal with huge companies, right? So now we have a good reason for it, but unless we have a good reason for it, now that’s unexplainable, right? That’s something that we want to go take a look at and say, is this a good thing or not a good thing? And, by the way, I think that’s another great chart or KPI that yeah, that would help a CEO or at least in this case, a VP of sales say, hey, we got a pricing problem here, or a value problem here.
So as I develop charts and KPIs for pricing, because of the data set we need, there’s always a lot of value in those KPIs. So one of the conversations I like to pitch to people is, look, I, I’m, I’m going down this path, I’m going to create some KPIs for pricing to understand it. I’m going to have at my disposal revenue, I want to look at margins and, and profitability by reps and things like that. So I’m going to have cost, I’m going to have volume, I’m going to have a lot of the core things that I think as a business person, we all need to have, you might use it different, Mr. Salesperson, than I’m going to use it. But if I’ve got it here and it’s in a dashboard and I’ve got an automation of some sort, feeding that data in, why wouldn’t I create a dashboard for you as well, right?
Patrick Taylor
That’s just being a partner to the, or greater organization and being a contributor outside of the value I bring as a pricing expert. So if I’ve got to spend two extra minutes to help you out, why wouldn’t I? You know, so to your point, one of the charts I’ve found that I like to work on for my executives in the sales phase is, I like bar charts a little bit too. Okay? So I would put together a bar chart by sales rep revenue and gross margin by period of time, Okay? Because what can happen is you might have your best salesperson, let’s say, all your salespeople in a particular sales office, in a particular sales region with the same types of customers, okay? You can look at those and you can say, hey, Jane over here is our best salesperson on revenue.
But the truth is that Jane may not be your best salesperson because she’s actually discounting it in her gross margins or net margins or however you want to manage your margins. That calculation is actually the lowest. So she’s selling the heck out of stuff by using price discounts. And I can see that relative to her peers. And that’s really important. I’ve known salespeople in the past who are really the, always in the top three sales categories, but they’re never the number one salesperson by the company standards, yet they were probably the most profitable salesperson out there. Because they just, every time a customer wanted a discount, they’re like, hey, you know what? I can’t really give you a discount, but I can take some value off the table for you to lower your price. Right? They made the customer make an exchange of value for a discount.
And as a result of that, they were way more profitable. That’s your number one salesperson. That’s the one that you want to reward and drive and have them mentor all your other people, not the guy who’s running discounts. Yeah. So that kind of data is a simple chart that I have that same information in front of me as I’m looking at Pareto charts or data for pricing or trying to understand the scatter plots. No matter what chart you have, you probably have 90% of that data except the sales rep’s name. How hard is that to add in?
Mark Stiving
Yeah, not that hard. Really. I’m picturing that chart already in my head.
Patrick Taylor
So, and just like I said, just a simple group of stacks of charts, or you can use this, the clustering of bars by rep. And you can have just revenue and profit or however you want to do it. There’s about three different formats you could probably use, but all of them are going to tell you the same answer, and that’s what you’re really after, right? Yeah.
Mark Stiving
Yeah. Okay. Any other charts or KPIs that you think will move a CEO to say, hey, let’s focus on pricing some more.
Patrick Taylor
When I’m doing pricing work, to me, that one’s a great one for sales rep management. I like looking at the Pareto charts right off the bat because if you look at by customer or by product, if you apply a Pareto chart on both portfolios, you can see what customers are pulling the curve back down at the end. So you should fire those customers or address a price increase, right? Just right off the bat, if you look at a customer on a Pareto chart, there’s going to be somebody at the tail end who’s drawing, dragging you down. And you might go back and look at them and say, oh, they quit us last year and we owed them some product credits. Fine. No, there’s going to be some of those anomalies, but you’re going to find somebody in there, you’re going to be saying, why are they dragging us down?
Mark Stiving
And you’re looking at profitability by customer.
Patrick Taylor
By customer, but you can do it by product as well. There are products you should get rid of from the portfolio, right?
Mark Stiving
Or at least raise prices on.
Patrick Taylor
Or raise prices on or acknowledge that the darn thing is a loss leader. And look and start measuring whether or not that’s driving the volume. You think it should be in a profitable category, right? Or a customer’s cherry picking us. So you have to kind of tease down. And that’s the issue is that when you use a dashboard, and this is one of the things I do really did love about the Pros box, okay, I’m not selling for them, but you know, and a lot of them are getting there now, is that you got to drill down in the data. You start with the Pareto chart and you say, wait a minute, I see an anomaly. How do I go to the next level of data and say, what’s happening underneath that? Right? Yeah. So I see a lack of profitability at that customer level. I go to that customer. What’s happening under that customer? Is it a product issue? Is it a pricing issue? Is it a mix issue? Then you start drilling down in, right? You might find out later you just have a cost of shipping issue. Maybe you need to change your freight terms, right? Yeah.
Mark Stiving
How many companies actually monitor profitability by customer?
Patrick Taylor
Well, I would not know that answer. I’ve run into very few who actually are doing that though.
Mark Stiving
Yeah, me too. That’s why I was saying that is, I mean, it’s such a brilliant thing to say, look you’ve got unprofitable customers, you got to go fire them. But you don’t know who they are because you’re not tracking that.
Patrick Taylor
Like I said, there’s two main categories for me as always, if you think about price optimization, like when you look at the engines and the pricing systems and software, a lot of times they’re trying to segment, they’re going to do a segmentation by product and by customer. And let’s say I’ve got a standard deviation, it’s going to get me into a predictability of 0.2 or 0.4 for the product, and then my customer level is 0.4. Then you add the two together, you’re at a 0.8 accuracy in your pricing. Okay? Maybe that’s a little bit simplistic, right? But not being a stat guide, right? You’re just being a guy who uses some and abuses the stats. But it’s getting you more accurate because you’re cross matrixing two different bell-shaped curves to get to the most probable, okay?
So if you’re doing that, then that tells you right there that customers need to be a focus product needs to be a focus, right? So I need to evaluate my customers. Where can I fire, where can I raise the price? Same thing with products. So when I do price increases for something, like one of the things, if you looked at my resume and you were on LinkedIn, so I know you, you’ve got that, but if you look at it and I say, I might get you a two if I got you 2% price increase profitability net, I’m saying I added 2% directly to the bottom line and I was able to prove that okay. Or had a third party prove it in my case, then what I’m saying is I better figure out a way to raise price across the board without doing a peanut butter spread only where people see the value. Sometimes it’s a matter of I actually have to lower the price on products that are non-competitive and look at the overall margin dollars.
And this is the kind of counterintuitive thing. If I’ve got a goal of 30% margin on a portfolio, that might be the problem in itself, right? Because if it’s a highly competitive product, it’s really about managing my cost down. I have to price it with the market that will drive the most volume on that product, that commodity, and look for margin dollars. And this goes back to my comment, about 10% of a million versus 30% of a hundred thousand, right? Yeah. I want to get the most margin dollars because at the end of the day, we don’t go to the bank with percentages. We go to the bank with margin dollars, right?
Mark Stiving
Interestingly, one of the conversations I always have with customers is, look, do we care about margin percent or do we care about margin dollars? Right? You got to make the decision.
Patrick Taylor
That is the first conversation I try to have, like I said, I’ve been interviewing with a lot of companies recently. And what happens is that the very first conversation I have is how do you look at this? Because if you’re only about the percentages, I’m probably not a good fit.
Mark Stiving
You know what they all say when I ask that question? They all say both.
Patrick Taylor
Yeah. I get some of that too. Yeah. They have to show the percentages. I understand that. But if the market won’t bear that percentage using your cost structure, then now you have a business decision about your cost structure. So I’m going to maximize the price of anything that’s proprietary and I’m going to be as competitive as I can or reasonably within a range of common sense to, again, to my customer. Maybe that’s a bad term. But if I have a trapped audience, let’s say, you’re buying a product from me that you can only get from me. I have a machine I make and it’s got some componentry that’s proprietary. Okay, that’s great. I’m going to charge as much as I can get away with within reason. And that makes value-based pricing, okay?
Because at some point you might just buy a new machine and get rid of my machine if I’m stupid. Okay? But, if I’m also in that order, I say, hey, by the way, Mr. Customer, I have these air filters that help make your machine run or clean, keep the air clean that it needs, right? Or water filters something you can buy off the shelf at the hardware store. Okay? Those components, they know the price of those. That’s the milk and bread of the grocery stores. You know, you talk to my mom, she used to be, or my wife. These people who do a lot more shopping than I do. And I’m not saying that’s a role, I’m saying it’s history here because I’m old. I talk to them all day long and they’ll say, oh, so grocery stores are really expensive.
Why? Well, the milk was 350 and it should be three. So everything in that store is expensive. So if I go to my customer and my filter is $300 and then all along all day long, they can buy it for a hundred. They’re going to assume that the dealership, just like we do with cars, is going to gouge me. So if I put that price at maybe 5% more, 10% more, they’re going to look at it and go, hey, he is a little more expensive, but I got it on one PO. He can put it all out in the same order together. It gets shipped together. There’s a lot of convenience. I don’t have to go off and shop for it. Yeah. I’ll pay the 10% premium. Right? And they’re reasonable about it. So there’s a perception, and this goes back to the marketing and branding thing, right? Sometimes the price is so screwed up that we are sending messages in the market that we don’t want to tell our customers, right? Yeah.
Mark Stiving
So, hey Patrick, we are running out of time, but I have to ask you the final question. Okay? What is one piece of pricing advice you would give our listeners that you think could have a big impact on their business?
Patrick Taylor
Oh boy. The one piece of advice on pricing: Listen to your customers, look at your market, look externally first on price. The second thing I’d tell you is, not all of your sales guys are trying to race to the bottom line. Okay? I hear internally a lot of times companies say, our sales guys keep trying to give it all away with discounts. I think most salespeople are decent human beings just trying to make a living. They’re listening to their customer and the customer might be telling them the wrong information about price and they’re listening to it. So you need to look at the external market, understand the price and arm those guys with good information.
Mark Stiving
Yeah. One of my sayings I used to talk about a lot is that if your salespeople ask for discounts too often it’s because you haven’t given them the knowledge, tools, and confidence to be successful selling at your price.
Patrick Taylor
That’s much more articulate. I just said that, Mark. Thank you.
Mark Stiving
Hey, no worries.
Patrick Taylor
That’s great. I like that.
Mark Stiving
Patrick, this has just been fun. I’ve really enjoyed it. If anybody wants to contact you, how can they do that?
Patrick Taylor
Probably the easiest way is right through LinkedIn under Patrick J. Taylor. With the J, okay?
Mark Stiving
And I’m sure we’ll have the link in the show notes. To our listeners, thank you very much for listening. If you enjoyed this, would you please leave us a rating and a review? A PreggieCoach left us a review on Apple Podcasts. She said:
‘Insightful and practical. Mark tackles trending issues in a way that’s both engaging and insightful. His podcast dives deep, offering practical takeaways you can put into action. It’s a must listen.’
So, PreggieCoach, the check is in the mail. Thank you very much for that. And finally, if you have any questions or comments about the podcast or pricing, feel free to email me, [email protected]. Now, go make an impact!
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