Ep80: How to Drive Powerful Profit Through Price Optimization with Gabe Smith

 

 

Gabe Smith is the Chief Evangelist at Pricefx. He is a Brand ambassador, thought leader, and chief storyteller. Responsible for expanding awareness of price optimization, CPQ, and the Pricefx brand throughout the universe.  

He works with strategic clients and new use cases and feeds innovation back into the product organization. He also develops unified marketing content that extends into the sales process to create a resonant and unique position for Pricefx. 

In this episode, Gabe talks about Pricefx’s pricing system and how it is used across different industries using a single platform. 

 

 

 

Why you have to check out today’s podcast: 

  • Learn about how the Pricefx pricing platform optimizes pricing 
  • Find out about the Pricefx pricing system’s flexibility which enables it to work across different industries using only a single platform 
  • Learn about Pricefx subscription pricing strategies 

 

“Realize that there are potentially different segments of customers that get different value, and package to offer in a way that appeals to those and set your pricing in a way that makes sense with those things in mind.”

– Gabe Smith

 

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Topics Covered:

01:03 – What led Gabe to Pricing 

02:20 – From a pricing consultant to a management role 

02:39 – What monetizing innovation is all about 

04:02 – What is Pricefx built for 

05:36 – What does Pricefx actually do 

09:46 – How does the Pricefx pricing system capability respond to different industries 

11:31 – The different industries Pricefx pricing has served 

14:11 – Thoughts about generation-one customers having tons of custom-versions of their product in the marketplace 

14:58 – What’s the smallest-sized company Gabe would recommend buy from Pricefx? 

16:19 – The advantage large companies have with Pricefx platform 

17:35 – How does Pricefx do Subscription pricing 

19:12 – Thoughts on subscription pricing and the three value levers 

19:54 – Gabe’s pricing advice that will have a big impact on your business 

 

Key Takeaways:

We believe strongly in being able to reflect all of the things that influence, especially the ones that really move the needle with regards to the net margin.” – Gabe Smith 

“Pricefx is really about speed and flexibility – instead of trying to pre-bake things – and make them simple. We have the architectural flexibility to be able to make changes to account for those industry-specific needs as well.” – Gabe Smith 

“What we decided was that our value metric, the thing that aligns most readily to the value our customers get from our solution, is the amount of revenue that they’re managing, and potentially the capabilities.”  – Gabe Smith 

“You’ve got to have the ability to have a subscription that makes sense, but also have the implementation aspect lightweight enough, where they’re not going to have a big IT team and a bunch of pricing people to work on (it), and project management people to manage this whole thing.”– Gabe Smith 

 

Resources Mentioned: 

 

Connect with Gabe Smith:

 

Connect with Mark Stiving:    

  • Email: mark@impactpricing.com    
  • LinkedIn 

 

Full Interview Transcript  

(Note: This transcript was created an AI transcription service.  Please forgive any transcription or grammatical errors.  We probably sounded better in real life.)  

 

Gabe Smith   

Realize that there are potentially different segments of customers that get different value and package to offer in a way that appeals to those and set your pricing in a way that makes sense with those things in mind. 

 

[Intro] 

 

Mark Stiving  

Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the functional relationship between them. I’m Mark Stiving. Today, our guest is Gabe Smith. Here are three things you want to know about Gabe before we start: he was a key employee at Vendavo for seven years, probably where he learned pricing and pricing systems, we’ll find out. He’s the founder of at least two companies that I can find. And he’s currently the chief evangelist for Price FX. And that’s why we want to talk to him today. Welcome, Gabe. 

 

Gabe Smith   

All right, thanks a lot, Mark. Great to be on. 

 

Mark Stiving   

So how did you get into pricing? 

 

Gabe Smith   

Actually, it was a little bit before Vendavo, it was at Cisco Systems. And I started off my career there in the team that did all of the CPQ, logic, and sales, billing materials, all the configuration logic, and a lot of the logic that impacted the pricing as well, and worked closely with the NPI, you know, product teams, the product management teams, and then I got involved also in the channel incentives. And that kind of also led me to understand that pricing was broader than just, you know, getting a price on order or configuration, that there are all these different things that influence the profitability of the deals that you’re negotiating – really that concept of the price waterfall. So yeah, but then I started developing a lot more focus on pricing and profitability at Vendavo in those years. 

 

Mark Stiving   

It was interesting because as I look through your LinkedIn profile, it looks like you’ve done a lot of different types of jobs over the years, and every one of them leads back to pricing and value. I find that fascinating.  

 

Gabe Smith   

I guess it’s my destiny. 

 

Mark Stiving   

Well, even at Vendavo, you went from pricing consultant into a product management role, which – I think product management is phenomenal for pricing. 

 

Gabe Smith   

Yeah, it is, particularly when you’re introducing new products. One of the folks that I respect a lot is a guy named, he’s a… 

 

Mark Stiving   

Really good friend of yours? 

 

Gabe Smith   

Madavhan Ramanujam. 

 

Yeah. And so the whole idea of, you know, monetizing innovation I think is a great one for people that are in product to read and think about in terms of how you actually bring products to market, and how you incorporate the willingness to pay, and the thinking around pricing, into that product introduction process. Because, a lot of times it’s an afterthought, right? You bring something to market and you’re like, ‘Okay, now, you know, what are other people pricing it?’, trying to get it – kind of an understanding of the market, but you’re not really thinking about the value and how you actually design that into the product, and help select what features and capabilities that you’re bringing to market. 

 

Mark Stiving   

Now, I had a chance to work with him earlier in my career, I don’t know, probably 15 years ago now. Really, really nice, smart guy. And you mentioned it, but I don’t know that you said it was a book. So everybody go read his book, monetizing innovation. 

 

Gabe Smith 

Yeah. Madavhan and Georg Tacke wrote that together. And yeah, Madavhan, I’ve spoken with him jointly at TechCrunch last year, and he actually spoke at our first Accelerate Conference in the US at PriceFX back in, 2015. So about five years ago. Yeah. 

 

Mark Stiving

Cool. Well, let’s talk about Pricefx. Because I’ve actually been in pricing quite a while, I’ve seen the name Pricefx, but I’ve never run into the company to know what you really do, how it’s different from other pricing systems. So, give me the sales pitch. 

 

Gabe Smith

Yeah, so at Pricefx, you know, like myself, a lot of us came from generation one pricing optimization providers. And what we saw was that there was something that was kind of broken, and what was broken there was that these systems – they really drove a lot of value for companies that had the time, money, resources, and wherewithal to implement them. But they really were only able to be adopted by the largest companies in the world that have very robust IT groups and these kinds of things, and then after you implemented them, they weren’t very flexible. So Pricefx was really, and a lot of us that are at Pricefx, believe you know, that there’s a better way of doing things, and that’s really the idea on that Pricefx was founded around is, you know, let’s do this 100% cloud-based, let’s really focus on speed. So you know, we call them our F words right: fast, flexible, and friendly. That’s what the company was built around. So speed to value of the primary concern, the flexibility of the solution, and not relying on IT to be able to make changes to it. And then the friendliness of the team, you know, being very customer-centric, being very easy to do business with, not locking people into long-term contracts. These are the fundamentals on which the company was built. And as you can see, it’s going pretty well. And we’ve gotten a lot of interest both from customers, as well as outside investors to get on, you know, the Pricefx train here. 

 

Mark Stiving

Well, first off, tell me what Pricefx actually does then, right. I’m actually familiar with some of the other ones but pretend like I’m not, so that anybody who’s not familiar gets it. 

 

Gabe Smith

That’s it. That’s a good point. So Pricefx is a price optimization and CPQ platform, right? So it’s a cloud-based platform. We have, at this point, seven different functional modules are running, we divide those up into three main areas. So, insight, getting analysis, understanding where there’s opportunity to, you know, price better, to decrease marginal leakage, to optimize segments and optimize pricing and customers and products that feed in and then manage, and that’s really around setting up your price books, your price list or catalogs, etc. Also, managing promotional pricing and contractual pricing is really done on the managed side. And then the realization is really where the rubber hits the road for a lot of B2B companies, especially. So that’s where our CPQ offer is. That’s where our rebate management offer and our channel management offer is. And all of these are wrapped inside of a cloud-based platform that has really robust integration capabilities, and the ability to migrate our own content and third-party content to any of our customer’s instances. So we have, you know, developed accelerators that really allow us to move a lot faster, you know, even than we used to, and that’s really, you know, we’re always focusing on how we do that better. But at its heart, we’re, you know, we’re all about how do you get the right price on the price list on the deal that you’re negotiating on the rebate, you know, including you know, the off-invoice side of things? And then how do you account for all of those costs to serve and cost of, you know, cost of doing business so that way you’re negotiating better outcomes with your clients.  

 

Mark Stiving

So you’re actually capturing cost to serve data in there as well? 

 

Gabe Smith

Yeah, absolutely. We believe strongly in being able to reflect, you know, all of the things that influence, especially the ones that really move the needle with regards to, you know, your net margin, so we absolutely – we’re doing some things – it depends on the industry in terms of how deep we’re going there. But we have customers that are actually free, you know, providers, like brokers and actual carriers, where we’re doing very sophisticated, you know, free cost calculations, as an example. But some of the other types of costs of serve that we’re typically helping customers capture and account for are things like, you know, payment terms, cash discounts, returns, all kinds of those types of things that can really influence the profitability of a customer or a product or, you know, the combination thereof. 

 

Mark Stiving

Yeah, God – I want to go seven different directions all at once. I got to figure out which one I want to go down first. 

 

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Mark Stiving

Let’s talk about the industry for a second. You brought that one up. As I’ve been involved in pricing systems it feels to me like, a pricing system is designed around an industry because that industry behaves in a specific way. And that’s how we build the pricing system. And they don’t work super well once you take it into a different industry. It’s like you have to force-fit it. Do you guys get around that somehow or are you just going industry by industry by industry? 

 

Gabe Smith

No, we actually had a clear idea that architecturally we did not want to design for any one industry, that you know, when you’ve been in this, I’ve been in this pricing software space now – if you don’t include the CPQ days at Cisco and just the time I’ve actually worked for price optimization software companies – about 13 years now, right, in various roles from consulting, sales, product, etc. And one of the things that I have taken away from that is, yes, there’s definitely industry-specific capabilities that are required. But those are not usually unique to anyone given industry. So for example, we developed a dynamic pricing capability within Pricefx, primarily for e-commerce customers. However, we use that capability with other types of customers as well, like in the chemicals industry, to respond to index changes so that when you’re repricing a formula-based, you know, chemical, then you can use that same kind of capability to reflect really any outside market changing, market conditions – whether it’s competition, cost, index data, or what have you, you can use that same kind of dynamic pricing capability to feed into a lot of different use cases, right? So that’s a good example of where you can develop a capability and you want to do it in a way that’s flexible enough to be used across industries. And is an actual market, you know, need, not just for a specific customer. And you design the architecture in a way that it can be leveraged across those industries. So that’s really the type of thinking that Pricefx is trying to incorporate when we’re developing new capabilities. 

 

Mark Stiving

It sounds wonderful. I’m just not sure how you go about it. But I buy the argument that you guys can pull that off. 

 

Gabe Smith

Well, I mean, yeah, to give you a sense, I mean, our first three big customers were; one was a retail and e-commerce player. One was a chemicals company, and one was an automotive aftermarket parts implementation. So they, you know, arevvery different from the get-go. We were able to handle them all under the same architecture. We did add capabilities like the aftermarket parts company needed the ability to manage rebates, so we introduced rebate manager for that reason; the dynamic pricing thing came from the e-commerce side. But, you can use that actually over an aftermarket part. It’s a pretty dynamic environment as well, there’s a lot of competitive data and cost changes that you have to reflect. And actually, we’re seeing that dynamic pricing capability, especially, you know, in both COVID as well as, you know, the trade or times that we’ve been in, a lot of these costs, you know, changes and uncertainty around that is driving a lot of different price moves. So yeah, so that’s, we have kind of figured out how to do that. It’s not easy. But that’s – if you want to build a broad platform that is applicable across many different industries, and we’ve got customers in high-tech, we’ve got customers that are selling services, automotive, aftermarket construction materials, packaging, chemicals, you know, distribution, retail, and they’re all using the same platform. So, I think it’s really about speed and flexibility, instead of like trying to pre-bake things and make them simple. It’s about having the ability to change them. And with the accelerators, we do have like a starting point, and they will be more or less applicable to certain industries. But then we have the architectural flexibility to be able to make changes to, you know, account for those industry-specific needs as well.  

 

Mark Stiving

And since it’s cloud-based, is everybody using the same platform?  

 

Gabe Smith

That’s right, yeah. And that’s one of the big advantages that we have, compared to other – like the gen one providers that have either acquired or moved into the cloud. They still have all of these on-premise customers, and they have this ridiculous support matrix of different web servers and databases, and all this stuff, and different versions that customers are on. And it’s really, it’s a lot to support. It’s a lot of overhead that goes into just kind of keeping the ship afloat. Whereas if you just say, you know what, we don’t have that any of that, we can move really fast and innovate and continue to expand the platform. And that’s really, I think, a huge advantage for us. 

 

Mark Stiving

Yeah, and the other thing that happens with the gen one customers is, they sold the multimillion-dollar deals. And anybody who’s buying million-dollar software says, ‘Oh, you have to customize this for me.’ Right. And so they have tons of custom-versions of their product out in the marketplace. 

 

Gabe Smith

That’s right. That’s right. And that’s really a problem, right? So what we’ve been able to kind of, again, kind of figure out is, how do we allow for that level of flexibility within the configuration layer, and not requiring customization? Because if you’re letting people create custom Java classes, or you’re doing custom UIs, or building, you know, logic into your user interface, it’s just a nightmare, and you got to avoid it. That is kind of you know, it’s much easier said than done, right? 

 

Mark Stiving

So the only thing that happened with the gen one is it was multiple millions of dollars to implement, to buy. One of the nice things about going cloud is you often can go downmarket with your product. So what size – what’s the smallest size company, that makes sense, to buy Picefx? 

 

Gabe Smith

The smallest company that we have using Pricefx at the moment is probably doing $30 or $40 million in gross merchandise value in an e-commerce setting. But that’s the exception, not the rule. Most of our clients are doing more than 100-million dollars in revenue. And more than 50% of our clients are doing more than 1 billion in revenue. Actually, I think it’s close to 55 to 60% now, of our clients are north of 1 billion in revenue. But we have proven our ability to scale, you know, and go down market. And we are always looking to make, you know, our user journey, you know, our buyer journey more frictionless and easier to implement and, you know, move more from, you know, enterprise to, you know, transactional and self-service. So, I think you’ll see part of them, we just got $65 million in series C funding, as you probably saw, the, you know, part of what we’re going to be using that for is to really expand that vision and make, you know, more strides into reducing the effort that’s required to implement and license the software, and just kind of really get down to a place where we can have a, you know – bringing this to anyone that needs it, right? That’s the end state vision, right? And then having the right you know, kind of capabilities and flexibility in the platform to scale as large as needed as well. 

 

Mark Stiving

The thing that’s obvious is that big companies get much more value, because of the fact that they have such complexity in their world, they need that complexity simplified somehow, and to be able to control many different things at once. And then, you just do that change that says, ‘Hey, if I fix your pricing by 1%, that’s, what, 10% profitability to the bottom line” or something like that. A 10% is a really big number for a billion-dollar company, it’s not such a big number for a $30 million company. 

 

Gabe Smith 

That’s right. That’s right. Yeah. So you’ve got to have the, you know, the ability to you know, have a subscription that makes sense, but also have the implementation aspect, you know, lightweight enough where, they’re not going to have a big IT team and a bunch of pricing people to work on, and project management people to manage this whole thing, right? So you’ve got to really streamline all of that, and not only license it effectively, where the ROI makes sense, but also be able to implement it and maintain it. And that’s, you know, a big part of the story as well. 

 

Mark Stiving

Yeah, the advantages, there’s a whole lot more of those small companies, but they don’t, on an individual basis, get as much value from your product. 

 

Gabe Smith

Yeah, can be.  

 

Mark Stiving

Okay, so I got to ask, and you do not have to answer this question. I’m a huge fan of subscriptions and subscription pricing. So what’s the pricing strategy for Pricefx? How do you guys do pricing? 

 

Gabe Smith

Yeah, so what we decided was that our value metric – that the thing that aligns most readily to the value our customers get from our solution – is the amount of revenue that they’re managing, and potentially the capabilities. And at a certain size of the company, that capabilities part really kind of, isn’t really as much of a focus, right. So we’re more focused on kind of solutions rather than, you know, specific functionality or capabilities at that point. But those are basically the two vectors that we use to price our solution. So, for a company, you know, that’s a $500 million distributor, you know, we might be looking at, okay, what are you trying to do? Is this about setting up the pricing? Is it about negotiating, do you have rebates? And looking at like that kind of, you know, capability or functional footprint, and then saying, okay, you’re at 500? And then here’s your price based on the combination of those two things. You know, at some point, for a larger customer, that kind of modular nature of the solution doesn’t really make sense, because they’re, you know, there’s a breakeven with regards to that whole thing. And we want to keep it simple. So we honestly try, you know, to keep it as simple as possible, and not involve too many different moving parts in the way that we license the software.  

 

Mark Stiving

That’s perfect. That’s perfect. So when I teach subscription pricing, I always say there are three value levers. There are market segments, which you talked a little bit about – the really big people and the small people – there’s the packaging, and so packaging is what features and options you’re going to get. And so we talked a little bit about that. And then the last one is the pricing metric, which is how much revenue do you have under management essentially?  

 

Gabe Smith

And that’s easy for us to know because we’re loading the transaction data, right? 

 

Mark Stiving

Well, do you get orders as well – oh you have to get orders, if you’re gonna do analytics. 

 

Gabe Smith

Generally, you’re getting the invoice data and potentially quote data, and then obviously, customers and products, and all the master data that goes around that, and then the costs you know, of goods, and cost to serve, in order to construct that waterfall view. 

 

Mark Stiving

Yeah, absolutely fabulous. Gabe, we are running out of time. I’m having a great time with this conversation. But I have to end with the question I always end with, what’s one piece of pricing advice you would give our listeners that you think would have a big impact on their business? 

 

Gabe Smith

Wow, that’s a loaded question. One piece of pricing advice. I would say to start with the customer, and to understand the value that they’re getting from your solution – and that’s going to vary, depending on the segment, as you mentioned, right? And really, suspend disbelief in terms of how things have been done. If you’re looking at something that’s, you know, incremental change, really think about that, you know, what is the value and what’s the right value metric that I should be basing my pricing on? And realize that there are potentially different segments of customers that get different value, and package the offer in a way that appeals to those, and set your pricing in a way that makes sense with those things in mind. 

 

Mark Stiving

Absolutely fabulous answer. It’s always about value. It’s always about the value your customers are getting. So Gabe tanks so much for your time today. If anybody wants to contact you, how can they do that? 

 

Gabe Smith   

You can get me on Twitter, swevangelist for software for short evangelist. I’m on LinkedIn under Gabriel Smith, and you can just email me also gabriel.smith@pricefx.com. 

 

Mark Stiving  

Excellent! Episode 80. All done. As always, I’m going to ask you, please, please, please leave us a review. It helps us a lot. And I want to start giving shoutouts to people who do leave us a review. So Miller 438 , this week wrote, ‘What struck me is the statement that was made, spend more than 30 seconds on your pricing. I highly recommend anybody thinking about shifting prices to listen to this’. Also, please join our community at championsofvalue.com. It’s absolutely free. There you get access to all of the things that I publish: my memes, my blogs, my videos, my podcasts, we post them all there. So please join us. If you have any questions or comments about the podcast or about pricing in general. Feel free to email me mark@impactpricing.com. Now, go make an impact! 

 

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