Impact Pricing Podcast

Ep109: Pricing Big Deals with Brian Sharp

Brian Sharp is an Innovative Sales, Marketing & Pricing leader with a track record of driving step-change improvement in the enterprise’s financials through institutionalization of value-led disciplines. His expertise is integrating pricing and value disciplines across Sales, Marketing, Innovation, Supply Chain, Technology and Finance functions in large or complex organizations.  

In this episode, Brian talks about value over cost and contract packaging pricing in the petrochemical and personal care industries. He shares how Velo provides service that prepares you for negotiation readiness and places you on the advantage against other negotiators. 

 

Why you have to check out today’s podcast:

  • Learn and understand negotiation readiness as a process to save you worth millions of dollars 
  • Find out why companies need the best relationship managers more than the best negotiators 
  • Learn how you price value over cost 

“What we find consistently is less than 4% of customers almost always drive more than 64% of margins and revenues. And if you really want to change pricing in your business, figure out how to impact that concentrated mix and those monumental episodic negotiations.”  

– Brian Sharp 

 

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Topics Covered:

01:16 – How Brian’s Pricing career started 

02:23 – Why does he stay in pricing and why he shuns the pricing title 

04:05 – How people define pricing 

05:22 – What is a rise-fall mechanism in pricing 

06:33 – Thinking in terms of value over cost in the petrochemical industry 

07:43 – Pricing in contract packaging 

08:46 – How businesses in commodities are invested in the value chain 

10:16 – How incumbent transactional relationships are often shaped by context 

13:01 – Understanding negotiation readiness as a process 

15:57 – Effective relationship managers versus savvy negotiators 

21:00 – Why wouldn’t we go sell to the committee, and then pass the negotiations off to procurement 

22:44 – Why process beats individual skill in large complex transactions 

24:31 – The training you do when you purchase the Velo software 

26:23 – How the Velo service works a deal from the minute the clients engage them 

 

Key Takeaways:

“The way to think about it [petrochemical pricing] is its value over cost. So, it’s easy to sell, it’s cost-plus pricing. But really that base price, especially the base price, at the beginning of the contract period, is where value pricing manifests itself in these kinds of deals.” – Brian Sharp 

“One of the things that we do in Velo is, we deliver an outcome that is driven by negotiation readiness as a process and part of that process is telling our clients, and in many cases, pulling our clients executives out of the foxhole, we’re getting them off the front line.” – Brian Sharp 

“Many companies have their best relationship managers, not their best negotiators. Because they’re managing three- and four-year relationship cycles against the contract.” – Brian Sharp 

“In large complex transactions, process beats individual skill, and it’s not even close. There are several irrefutable fact basis. And what does that say? It says preparation, and structured process to get ready. The negotiator that’s better prepared is going to win.”  – Brian Sharp 

“Our Velo service is, from the first minute our client engages us we’re working a deal. There’s a name, we’re looking at stakeholder, who are the stakeholders who’s going to be in the room.” – Brian Sharp 

 

Resources / People Mentioned: 

Connect with Brian Sharp:

Connect with Mark Stiving:   

  • Email: mark@impactpricing.com
  • LinkedIn

 

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.) 

Brian Sharp   

What we find consistently is less than 4% of customers almost always drive more than 64% of margins and revenues. And if you really want to change pricing in your business, figure out how to impact that concentrated mix and those monumental episodic negotiations. 

[Intro] 

Mark Stiving  

Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the big relationship between them. I’m Mark Stiving. Today, our guest is Brian Sharp. And here are three things you want to know about Brian before we start. He is the Chief Revenue Officer at Profit Velocity. He is a SaaS business builder and advisor. And he’s in the middle of a new startup called Hello Velo, which I’m looking forward to hearing about today. Welcome, Brian.

Brian Sharp 

Thank you for having me.

Mark Stiving 

It’s going to be fun. How’d you get into pricing in the first place? By the way? Nowhere in your LinkedIn does it say pricing as a title?

Brian Sharp  

Yeah, it’s interesting. I’ve shunned the pricing title. That’s another story. But I can address that. My background is sales marketing. I started out in petrochemicals. And at one point, my career I found myself in the path of an acquisition, the company I worked for Castrol Lubricants was getting purchased by BP. And I made a jump across the other side, the dark side to the BP side, and I managed the post-merger integration of Castor Oil into BP. And that’s really where my pricing journey started. Because in order to do post-merger integration, you have to understand what it is you’ve got, what it is you have. So, you start looking at the products and customers and transactional relationships and trying to figure out how to drive step-function improvement and profitability. That was the point I went from being a sales marketing guy to a data-driven marketer that catapulted me into pricing.

Mark Stiving 

Yeah. Okay. And so why do you stay in pricing? Because I know you’re pretty involved in it right now.

Brian Sharp 

It’s interesting. I’ll try and answer that. And also, the reason why you won’t see pricing in my title. I think, ultimately, pricing is around what is the trade, the exchange between the deal and the offer, and the other side of the table. And holistically, pricing sits within the commercial side of the business, there’s debate whether pricing should be in finance, or marketing or sales. What I’ve done is I tried to find roles that put me in the C-suite, where I’m directly reporting to the chief executive and I can drive a step function improvement and profitability, which is kind of the mission of every pricer. But then use pricing, that other things like product management, mix management, and yes, sales, demand management together. But I would suppose that some people know me as a pricing expert, but you’ll see in my titles, I’ve really worked hard to shun that title because pricing means something different to just about everybody. I like to kind of flatten out the language and say, ‘What do you do?’ ‘I drive profit improvement.’

Mark Stiving 

Nice. And you could actually define pricing…some people think of pricing as, I have to put the number on the product. And in that case, it’s a really tiny thing. Or you can think of pricing as, how do I create and communicate and capture the value of our product for marketplace? In which case, it’s a huge thing. It really depends on how people look at it.

Brian Sharp 

Yeah, and that’s almost a setup for Velo, this joint venture between Profit Velocity and Pricefx. A new to world business called Velo. Our website is hellovelo.com. Velo is bicycle and French. The two wheels, Pricefx with the data analytics and Profit Velocity with the strategy and service. But back to the setup. If you look at large, complex transactions, especially where there’s a product getting exchanged (I’ll step away from service businesses for right now) but a product could be a chemical, could be metal-based, could be wood, could be anything, plastic. If you ask what is the price, there’s a current price, there’s a current transactional exchange for the unit. But usually there’s a rise-fall mechanism into large deals, into contracts. The actual change in price is negotiated at the beginning of the contract. And then those rise-fall mechanisms might change every month, might change quarterly, might change once a year, the adjustment period.

Mark Stiving 

Give us some examples of rise-fall mechanisms. What are you talking about?

Brian Sharp 

Everybody in petrochemicals will operate both sides of the table, they will operate where the current price is a base price. And they’ll use third party market indices that are set up primarily to support these price change mechanisms as a means to take the ongoing haggling out of the relationship for both sides that provides a certain level of transparency and fairness to the ebb and flow of price against the input costs during a two to a five-year contract. So that translate that for petrochemicals, food, all industries use these mechanisms.

Mark Stiving 

Yeah. And to make sure that everybody understood that what you just said was in the petrochemical industry if the price of oil goes up, we expect the exchange rate, the price that the deal is closed at, also to go up. And we’re just pre-negotiating, you could almost argue, and I’m not going to, you can almost argue it’s cost-plus, but we’re just pre-negotiating what the cost part is before we do the plus part

Brian Sharp  

The way to think about it is its value over cost. It’s easy to sell, it’s cost-plus pricing. But really that base price, especially the base price, is where value pricing manifests itself in these kinds of deals at the beginning of the contract period. And it truly is value over cost. Because that starting point price from which the rise-fall mechanism is going to move can start up here, or it can start down here. Well, what does that gap — is the value. It’s the premium.

Mark Stiving  

Actually, I’d never heard those words before, but I think it’s brilliant value over cost. Oftentimes, when I’m coaching a company that says, ‘Hey, we’ve got this really high-cost components, and we’re not going to be able to get our margin on that piece, because they can buy it on the street, it’s a much, much lower price, etc.’ I try to coach them to just price it at no margin or very, very tiny margin, and then price all the value stuff besides that, right? You get the main product that you’re talking about. And in a lot of ways, that’s what you’re talking about. But you’re bundling in the commodity, whatever that product is.

Brian Sharp 

Yeah, that’s actually what you just described in contract packaging. Think about a company that might be making shampoos or something for Procter and Gamble, but their businesses are we’re contract packager. A lot of times they’ll let Procter and Gamble buy the materials, and their price will be that value over cost. It’s the value of contract packaging. And that can have in a business during the pandemic, where suddenly the value of hand sanitizers and production assets are worth a whole lot. There’s a lot of value over cost pricing in some categories and personal care, just as an example.

Mark Stiving 

Since you hang out in the C-suite quite a bit. Let me ask, why is it that a company can’t say, ‘Look, I’m going to go ahead and sell you the oil at my cost plus, here’s my value. And so, I’m going to get the margin that I expect on the value part. But I’m not going to get anywhere near the margin I expect that I would normally get on the oil part’. Whatever the commodity part is.

Brian Sharp 

Yeah, it’s pretty complicated. But a lot of businesses that are in commodities, they’re invested in the value chain. And they have a lot of investment in insight and foresight, looking backwards and forwards. A lot of companies are going to try and shy away from that if they believe they actually have the ability to create value through smart purchasing as an example. If your procurement function is, creates value add, you’re going to want to have your procurement function, find ways to create value in the way they buy and put that in your pocket. If you do what you suggested you’re basically devaluing that position that you have that may be because you’ve got assets, but it may also be because you’ve got assets and intelligence, you’ve got a really smart supply chain function.

Mark Stiving  

Yeah. I agree with you completely, in that if we can add value in procurement, we should get paid for that value. There’s no doubt about that. But let’s say that we can’t add value in procurement, we buy at the exact same price somebody else buys that. The difference is Wall Street expects me to get 20 points on margin on everything I sell, but I can only get 2 points when I sell oil. Therefore, I’m not going to sell the oil, you have to go buy it, or I’m going to try to charge you 20 points for it, in which case everybody’s upset. This just seems like something we ought to be able to solve.

Brian Sharp 

I think it’s solved when you’ve seen one deal. And I think many companies are in that position you’re describing, and they have one foot in each business model, each revenue model. I see a lot of hybridization going back again. I’ve never been in contract packaging, but I know enough about contract packaging. You know, sometimes they sell the shampoo, all in. And of course, they’re buying basic ingredients that are known commodities. In other cases, they’ve negotiated with the case, I’ve described Procter and Gamble, where they’re just making a wedge of value for the blending activity in the value of asset augmentation (if you will) so that Procter and Gamble can flex contract packaging around their fixed assets to make sure they meet the demand that comes in the market. And this gets into this business Velo because what we realize is that when you go to the top of the pyramid, and you talk to any business, their largest, incumbent transactional relationships, often they’re always shaped by context. And context could be how long is the contract? What’s the mechanism? What’s the basis for value exchange, this debate we’ve just been having? They become very unique, customized. And what I found in my career, is that power prices have been shunned for like, ‘Hey, if we let you in the conference room, we’d have to kill you’. And as a result, those large deals have been made by executives largely on intuition and bereft of the kind of quantitative analytics that we pricers think about. What I find is that quantitative pricing is kind of like, with a lot of leadership teams can, that’s great for the mezzanine of our business and the fragment detail, but our big customers, the five customers that might drive 50% of our revenues. That’s my deal and trust, and what we find when we get into those deals is that some of the worst deal-making, some of the most egregious concessions actually occur in the largest deals in the business.

Mark Stiving 

First, I got to make this comment, because I dearly love it. When I teach, I often say, if you have any ability, don’t let your executives negotiate prices. And the reason I say that is, in negotiations, patience wins. And what are executives not? Patient?

Brian Sharp 

Well, not only are they not patient, but in the larger deals, those deals are personalized. I mean, their fingerprints, oftentimes their reputation, yes, their jobs are tied to that. You let the person with the largest bandwidth to concede to the front line, it is the worst. One of the things that we do in Velo is, we deliver an outcome that is driven by negotiation readiness as a process and part of that process is telling our clients and, in many cases, pulling our client’s executives out of the foxhole, we’re getting them off the front line. And we’re saying you do not want to be involved in this negotiation. Guess what? The reason why the customer is calling and asking for you is not because you’re magnanimous and they like you. The purchasing guys are delighted when you walk in the room. That should tell you, do not walk in the room. You’ve got to be on the back line. From a process standpoint, we methodically pull senior executives with the biggest discounting itch out of the field of fire, and that move is worth millions of dollars, candidly.

Mark Stiving  

There’s no doubt, there’s no doubt.

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Mark Stiving

Okay, so I’m a little confused, you have to tell me what Velo is. Because I’ve heard you say to me, we’re going to combine data-driven decision making in one-off decisions. How do we do that?

Brian Sharp 

I’m going to start by not answering the question, but it’ll be an analog. This is a hit. Let me tell you what procurement is doing. Procurement has a field of software, similar to pricers, pricers have price optimization software and CPQ software. You see companies like Pricefx, Pros and Davos, Zillion. Go on, and on. On the purchasing side, they’ve got their own suite of software. And it’s called procure to pay. It manages the procure to pay process. It’s a huge market of software. What they’ve done is they’ve created mathematical software that helps procurement organizations manage large, monumental, episodic buying events. What would they be, they’d be contract negotiations, they’d be category assessments, they’d be RFPs, RFQs, the whole RFX drill? They’ve applied software, (and by the way, they have service, not consulting, not projects) but they have a service called sourcing event management services. And what we realized over the last 20 years is that our largest customers on the other side of the table, I’ll use an example of Kaizen Foods, a big, massive company. I was managing multiple successive deals, each deal being three years coming back again, and we were negotiating with A.T. Kearney, a procurement specialization firm now using Coupa software, Coupa, C O U P A. Many pricers might go, ‘Who the hell’s Cuopa’? Well, that’s a company that has $400 million in revenues, but is valued today, market cap above 20 billion is the fastest-growing tech stock over the last 18 months on the NASDAQ stock index. Here’s the point, Velo is an analog to that. We bring software from Pricefx. It’s fit for purpose to look at both quantitative information, but also qualitative and contextual analysis like differential competitive advantage. And we bring our service, which is not a consulting project, but it’s a service that is to drive for single deal teams, negotiation readiness, so that on the eve of the opening call, those negotiators are at world class peak readiness. And if you think about it, this is another interesting thing. The other side of the table, not only have they been gunning up with process, they’ve been gunning up with software (as I mentioned) Cuopa is not worth $20 billion because corporations aren’t buying their software. They’ve got fame firms like McKinsey and A.T. Kearney that have figured out how to bottle their service to specific buying events. But they also do that, they go to that rodeo, most of them 40, 50 times a year on large deals. Many companies have their best relationship managers, not their best negotiators. Because why? Because they’re managing 3 and 4-year relationship cycles against the contract. The talent that the sell-side puts into this situation are often chosen because they’re effective relationship managers not because they’re savvy negotiators. And then you get this other impact where they only negotiate many of the lead dogs that we work with. They only negotiate once or twice every 3 or 4 years. Think about that. Companies today invest in training and sell-side negotiators, but sell-side negotiators, especially in large deals, may only use those skills once every three or four years. It’s preposterous.

Mark Stiving 

Yeah, it’s actually pretty interesting. If you think about the procurement cycle for a second. I’m not sure if this is true if you’re selling a consumable, but certainly, if I’m selling a durable good, procurement is buying durables 20, 50, 100 times a year, where we’re selling them each salesperson selling them once, twice, three times a year. Think about the difference in negotiation skill and experience in that one conversation. But what’s really happening is, when I go sell a durable into a company, I’m not selling it to procurement, I’m selling it to a committee of people. They’ve said, yeah, we want this they pass it off to their agent called procurement. And they do the negotiation. Why wouldn’t we do the same thing on the sell side? Right? Why wouldn’t we go sell to the committee, and then pass the negotiations off to our agents?

Brian Sharp 

I would say with Velo, we see in our client base, has asked us, ‘Can you just do the negotiation?’ Now, from our point of view, we’ve drawn the line because at the end of the day, we don’t have P&L accountability and we coach and guide our client, which typically the economic buyer for Velo is a general manager or president of a division, or it’s somebody in the C-suite for a large corporation. We tell them we’ll get you to that start point of the negotiation, at peak readiness, you’ll have a detailed tactical plan where you can anticipate call and response, the likely counters, will even coach you through that negotiation. But do the negotiation right now, what is happening on the procurement side? They are bringing in third parties actually to drive the negotiation. So, they moved from sourcing event management services that provide guidance on procurement readiness on monumental episodic purchases. But they’re also now moving in taking the chair and senior-level procurement executives are stepping out of the room and watching through the one-way mirror. That is happening. Yeah, it’s asymmetric. We call it asymmetric war; the other side is way ahead of the sell-side on large deals.

Mark Stiving 

Without a doubt, and it’s true on small deals, too. If you think about the amount of training procurement gets relative to the amount of training that we train people in our company on pricing or negotiation, it’s hugely different.

Brian Sharp 

In our view, again, we think training is, there’s a fact base here. In large complex transactions, process beats individual skill, and it’s not even close. There are several irrefutable fact basis. And what does that say? It says preparation, structured process to get ready. The negotiator that’s better prepared is going to win. It also means that an average negotiator, if they’re really well-prepared, can dominate. Here’s the data: 98% of large corporations, their purchasing organizations have a defined process and a defined set of tools to manage and govern large purchases. On the sell side, fewer than 20% of companies have a defined negotiation readiness process, in advance of large proposals or negotiations, contract negotiations, less than 20%, less than 10% have any tools. Throwing a bunch of sellers training, especially on complex deals is like throwing people on the front line at a wet noodle, just, the mice will eat it.

Mark Stiving 

Okay. So, Brian, I think you’re pushing a little too hard against training. Here’s why I say that. Let’s pretend that I’m buying Velo software, you still want me trained on how to use it. You still want me trained on what the process and procedure look like. And so, when I train people on anything, I’m training them on a process. I’m not disagreeing that the tool is important. But so is training.

Brian Sharp 

Here’s where on large complex I would agree training, I’m not dissing training, but here’s what I asked you to think about because I realize your business model is training. When you think about that 70, 20, 10 organization, human development. 70% is on the job learning people learn, so people get trained by doing, 20% is structured learning, thinking or coaching. And then 10% is learning, I don’t know what the 70, 20, 10 model is exactly that you probably understand. What we do with Velo is we provide a process where no process exists. We guide and we actually do these large deals as when you see one large deal, you’ve seen one large deal, let’s get to work. We typically engage 3 to 9 months ahead of the opening call. And in our immersive service, you could call it training, you can say people are learning, they’re learning by doing. We choose not to look at it that way because we don’t want to marginalize the fact that we’re pulling together a cross-functional team that’s working on a $98 million deal. And they’re going to be facing the end of the barrel in 3 months. It’s just, what do you want to call that? I call that we’re going to do it. And if you learn by doing this, and you take that to the next deal, God bless you. If you reengage Velo, then that’s our business model. It gets at, you might ask, what are we selling? We’re selling books and deals.

Mark Stiving  

So, you’re actually doing something I would say similar to consulting with a software tool to support it.

Brian Sharp 

Yeah, it’s certainly an advisory, we’re providing an advisory and a point of view, whereas consulting oftentimes is not working in the field of fire. A consulting project on pricing, they wouldn’t start pricing at day 1. Our Velo service is, from the first minute our client engages us we’re working a deal. There’s a name; we’re looking at stakeholder, who are the stakeholders who’s going to be in the room. On the day that bill goes down. There’s no getting ready to get ready so that process has an immediate impact, because there’s no warm-up.

Mark Stiving 

All right, Brian, we are running out of time. So, we’re going to have to wrap this up. But can I ask what’s one piece of pricing advice you’d give our listeners that you think could have a big impact on their business?

Brian Sharp 

I’d look at your concentration, we see that there’s actually an 80, 20 and 80, 20 across most businesses. What do we mean by that? Most people know 20% of my customers drive 80% of our revenues. If you multiply 80 times 80, you get 6420 times 24. What we find consistently is, less than 4% of customers almost always drive more than 64% of margins, and revenues. And if you really want to change pricing in your business, figure out how to impact that concentrated mix and those monumental episodic negotiations, which pretty much are going to set your prices in place with those rise-fall mechanisms or whatever guardrails are on the contract for 2 to 5 year periods of time for each tranche of revenue. I would say, ‘Man, get your head out of the tail. The tail is easy. There’s outlier pricing, you can kind of put up guardrails, nobody’s going to fight you, but if you get into the head of the dragon; figure that out, oh my God, you can completely change the profitability of the company.

Mark Stiving 

I love the saying the 80, 20 has an 80, 20. I think that’s pretty cool. Nice. Yeah. Brian, thank you so much for your time today. If anybody wants to contact you, how can they do that?

Brian Sharp 

brian.sharp@profitvelocity.com or go to hellovelo.com.

Mark Stiving 

All right. Thank you very much.

Brian Sharp 

Thank you for having me.

Mark Stiving 

Yeah, Episode 109 is all done. Would you please take a moment and leave us a review on whatever platform you use? It could be Apple podcast, Stitcher, Podchaser, more of them. And if you have any questions or comments about this podcast or pricing in general, feel free to email me mark@impactpricing.com. Now, go make an impact!

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