The Pricing Advantage Easy EBITDA Wins with Jared Weisel

Welcome back to the Raw Selection private equity podcast. Joining us today is Jared Wiesel, senior Vice president at Revenue Analytics. He focuses specifically on the manufacturing and distribution sector, working with private equity firms and their portfolio companies all around pricing. Today we're obviously going to deep dive into pricing how you can lever your EBITDA and improve margins and equally the percentage increase which typically loses absolutely no customers that you can drive EBITDA and margin improvements immediately.

Let's dive in.

Jared, if you can share a brief insight into you, please.

Yeah. First, thanks for having me on Alex. Really looking forward to the conversation. So I lead the manufacturing and distribution sector at Revenue analytics where we help companies optimize their profits through better pricing and commercial decisions. So really what does that mean? I spend my days working with private equity firms and their portfolio companies about how do we leverage data to help them make more targeted pricing decisions, make sure those pricing actions stick in market, drive better sales compliance and drive a better, more optimal product mix. We achieve this through a unique service that blends technology and strategy to deliver an ongoing capability versus the one time consulting study. And we really think that's kind of a big unlock in in this space. Personally, I've been at revenue analytics for 11 years, but have been in the B2B analytics growth area for the last couple of decades through a variety of consultancy roles as well as leading pricing teams in industry. And then personally I live in Panhandle of Florida, have two young daughters that keep me very busy when I am not thinking about pricing.

The distraction from pricing to young daughters. Love that. What's one mistake that you see private equity firms or portfolio companies making and what would you suggest to correct them?

Yes, we see that most private equity companies don't prioritize pricing in commercial margin as part of their VCPs. And when they do, they think of it as a singular point in time action versus a continuing process. I think maybe just unpacking that a little bit before we dive into how do you correct it? Right. Is, you know, historically we've all seen the stats. Private equity has had a fantastic run leveraging the financial leverage dimension. Right. As well as multiples expansion and then revenue growth and margins really been kind of an afterthought. And historically when margin has been part of it, it's usually more on the cost outside. Right. There's two different ways to drive margin. You take cost out or you get a better price. And historically cost out, especially in the industrial space, feels really safe. But you start to see that there's a diminishing return to that. And so oftentimes where we're really spending my time is educating folks on the power of pricing. And there's been a classic study that's been repeated many, many times by McKinsey that says for a 1% improvement in price, you're going to get more than 50% incremental impact to the bottom line than you would by the same size reduction in cost or increase in volume. Right. And so we really spend a lot of time evangelizing around why pricing should be part of that value creation plan. Then get into how do you actually go about doing it, which is the second part of the trap. Right. Where historically pricing is thought of as a one time pricing action. Hey, it's January, I need to take an increase. Right. While that can be powerful, it's also really scary. And so really we're big believers that pricing should be an ongoing action because you're making pricing decisions every day, whether the company's aware of it or not.

Makes sense. So beyond the simplicity of pricing increases, which makes a lot of sense, a lot of private equity, newly private equity backed businesses are nervous around doing that. Private equity firm comes in, unlocks a load of obviously revenue increase and hopefully profit from that, from that play. Beyond that simplicity of increasing prices, how should companies be leveraging the pricing conversation?

Yeah, absolutely. So there's a couple of different pillars of opportunity here. Some of that it's dependent on how the companies go to market. But a classic one is what about all the new business opportunity you have? Right. And so most think about it as an increase. Well, the increase is mostly really on your existing base of customers. But then every day till next January, your sales reps are likely out there or E commerce channels or wherever the transaction takes place, bringing in new opportunities. And oftentimes we see that's really where the biggest leak point is. Because historically in this space, when you haven't focused on pricing, you give sales reps a lot of autonomy to quote, unquote, get the deal done. Right? They know their customer, they know their market. And what we find is that Prices can vary 30, 40, 50, 80% for a given widget across sales reps for no rhyme or reason, then they're just kind of based on their gut and their last action. Right. And now on the flip side of that, in fairness to them, they usually don't have the capabilities to know any better. Right? So we're really there. It's all about how can we drive a more targeted, segmented price structure, Give them some guardrails to operate around. Right. That's going to drive more consistent pricing in market and that can be a huge, huge pillar of opportunity. The second one is bringing more visibility. Right, Right. So when you have that mindset of I'm just going to take an action once a year, well what do you do? You measure that one action and then you go about the rest of your year until it's time to do it again. Right. And but what happens and we're seeing it obviously exacerbated with things like tariffs. But even in a more stable economic environment.

Markets change, product mix changes, customers change, there's constant leak points of profit that you need to drive. First and foremost that the visibility around where are they and then deploy the actions to go take them. So how do we address unprofitable customers or products? How do we address customers that aren't bringing the volume that they committed to to get that super secret special price?

Right.

You start to get a number of different plays that you can continue to eke out incremental basis points of improvement over the year in a much more risk adverse way than the hey, we're going to take a 10% increase to market January 1st and hope it sticks and hope the customers stick around.

Thank you. Not only am I the host of the private equity podcast, but I'm also the founder and Managing partner of Raw Selection. Raw Selection is a private equity specialist executive search firm with two divisions, one that focuses on portfolio C suite executive hires and one that focuses on private equity direct hires of your back office and investment deal professionals to industry. Alongside the podcast, we're passionate about giving back to the industry and giving people information that they can run and utilize. One thing we do regularly every year is we run salary reports on accurate and live data of people that we've interviewed and people that have shared their information with us. So if you're looking to compare your current compensation or your compensation for your next hire in your private equity firm or portfolio company, then please check out our YouTube channel and see the playlist of salary surveys. So you've got a strong consulting background and work for various different leading consulting brand names, et cetera. When you look at pricing from an initial investment basis, the general premise I see from private equity firms is usually the founder hasn't increased the value of its product or its service and there's an opportunity in play there. But, but from either now or previously, where do you begin to pull the levers as to what market looks like and what good looks like, what great looks like from a Pricing perspective, beyond what I've been taught around pricing is keep putting at the pricing until they don't want to buy it. And then somewhere below that there was a good spot. Or maybe it is that.

Yeah. In fairness, Alex, I think your way, if folks were doing a lot of that, I think there'd be a lot more profitable companies, right? So I think, because there is that to your exact question out of the gate, like there is that emotional hurdle or barrier to pricing, Right. Especially for these founder led companies. They're pillars of their community, they know their customers. And I've been selling you that wager for 10 bucks and I'm scared to go back to you and ask for 12. What if you leave? What if I hurt the relationship? And sometimes it really is just about how do we build the confidence to get them to go try is really a lot of it. But I think where we actually take a little bit of a different approach than the classic consulting mindset, which is I really believe we gotta start with where is the pain? Right. Everybody conceptually believes in the gain of pricing, Right. But that doesn't usually overcome those barriers around emotion and perceived risk. Right. You gotta find that impetus for change that usually is anchored in pain. And that might be explicit to pricing. It might be the, I have a glaring need to take pricing action because this customer's unprofitable. But it might be more of a downstream symptom. Like for a lot of our customers, what we find is they may not be aware it's a pricing problem, but we'll hear things like, well, it's taking longer for us to produce a quote. Right. Or to close business, or we're spending a lot of internal time digging through data. If you go upstream, a lot of that is a pricing problem, Right. And so the downstream implication is you're just spinning your wheels. Like, we had a customer took them two weeks to produce a quote for their paper products. And customers would say, their customers would say, how do you not know the price of your product? It's like, well, we don't know what it is for you. So we got to have free internal debates and meetings about it. Then we got to go pull some more data, then we got to call the factory about capacity. And next thing you know, you've spent two weeks an internal admin, right. When there are analytics that could help you speed that up and so anchor on that pain, solve that pain, find the what's in it for me and then build the capability around that. So really what we're trying to do is just repeat what your best sales reps and commercial folks do at scale.

So if we look at the investment life cycle of a private equity firm into a portfolio company in a special subject of manufacturing distribution, what does the value creation playbook look like from a pricing perspective? From a new investment to medium term hold period to obviously exit process, what should they be looking at at each stage in order to go? This is what we should be doing from a pricing perspective to drive value.

Yeah. So fantastic question. Obviously, as it loops out of the gate, most aren't even looking at pricing. Right. Which is where I'm spending most of my time. But for the folks that are and are doing it well, and I think we're seeing a lot more of this, this rise of this commercial slash pricing operating partner that's being brought in to do this right. In the diligence, it's really about two things. It's about identifying the past pricing performance. So our price is all over the place like I described. Are there loose guardrails for sales reps and when was the last time you took an increase? Right. If you can really answer those three, three things you're going to probably hone in on is there a good pocket of opportunity to act on price? Right. Secondary becomes did they have the systems and capabilities to go execute it? A lot of these companies are so old school from a technology perspective that you got to make sure think about how do you blend those two together. When we partner with private equity companies then to do the diligence and then early in the whole period. The early whole period is all about a dual combination of how do you find some quick wins. Right. So how do you go after that pain that I was talking about? Because you really have to build momentum in our experience, when these companies are being bombarded with all these different strategic plays that the private equity team wants to make and all these different moving parts, we gotta find some early wins to anchor the change on. And then it's about getting the foundational capability in place so that in the middle and back end of the whole period, it's really about extracting that optimal value. Right. How do we keep tweaking and tuning the knobs to shut off the margin leak points to be more optimal in market, deliver the type of impact pricing could have and then help them paint the exit story that with this capability in place, there's more to be had for for whoever the next owner may be.

Excellent. Not only am I the host of the private equity podcast, I'm also the Founder and managing partner of Raw Selection. Raw Selection's an executive search firm working exclusively within the private equity industry, supporting the portfolio companies and the private equity firms with securing exceptional talent. With our motto of de risking executive search. When you look at when a company does focus distribution manufacturing for simplicity increases its prices and goes down the simple process of. Right. We've just been taking over. We're going to put the numbers up. We've not done it for 10 years. Inflation, there's a bit of a bit of a gap in there.

If there is any correlation here. Is there an area where. Look, if you typically, from what we've seen the averages are you will usually lose no customers if you make this level of increase. Our recommendation usually is to make this level of increase because the number of customers that you lose means that you actually increase overall revenue and you've got less customers for it. What do those kind of numbers look like so people can actually go away and hopefully take some action?

Yeah, I think of course in classic consulting answer fashion and Alex, a little bit it depends. But where I'll give you some more concrete answers. It depends on kind of two factors. You know, the various sub industries had different kind of pricing behaviors. Right. So if we're talking a paper and packaging company versus a building products you might have different kind of ranges there. And then it's really how outdated they are in their pricing. Obviously could lead to how much of an order of magnitude to move you could make. Right. Without experiencing the major risk aversion. What we traditionally see though if I were to roll that all together into one number, you should absolutely be able to go achieve somewhere between a 3 to 7% increase with minimal to no loss in volume. Now the devil's in the details there though, right? Is we are not believers in what we call the peanut butter spread increase which is. Okay, great. I'm just going to take five points to everybody. Right. If you where you think about it is if your customers are highly varied in their pricing today, you have to be very surgical in this, right? In that it's the folks that are disproportionately paying below their peer set that maybe you could get away with a 10, 12, 15%. But the folks that are already paying well above their peer set or market maybe you don't touch at all and so have to take a little bit more of a portfolio play. That's really the key to reducing their risk versus a lot of folks will just say raise everybody and then they get surprised when some small customers that were already paying 50% more than everybody else walk out the door.

Where should people go from? I find when people are in specialist areas, they tend to have specialist knowledge that isn't just from the company that they're in. If I'm a CEO of a private equity backed manufacturing business or into any industry really, where would I go about finding out more about what I should do with pricing to begin to understand where the potential levers are and what I should, you know, to give me a baseline of knowledge if I've previously avoided the subject through fear of customer loss?

Yeah, no, absolutely. I mean, I think there's a couple of different watering holes and candidly it's probably underserved in terms of, you know, specific kind of manufacturing and distribution content. But you know, pricing Brew, which is a blog and newsletter and training platform, has a lot of really good tactical content for those operator executors. Right. How do I think about segmentation? How do I build sales rep buy in? Those are the types of webinars they had or podcasts I've spoke on. There is the Professional Pricing Society pps, which is kind of across industry. Probably the biggest pricing play out there. The third bucket is probably more specific books. Right. I mean, I gotta give the shameless plug. Our retired chairman who founded the company with his sons multiple decades ago, wrote kind of the seminal book on the space called Revenue Management Hardcore Tactics for Market Domination. That really brings real life use cases to bear on concepts like customers having different willingness to pay. Right. And how do you optimize and vary pricing based on different signals in the market? I think is a really core one. The last plug I would make, I've been reading it recently. There's a book called Pricing the New CEO Imperative. I think what we typically see in this space, and I love your question, but most of the time pricing isn't on the CEO's radar screen, at least until something like tariff comes up. Right. And this is actually a collection of articles and viewpoints from pretty much all the major pricing vendors out in the space, packaged into a book written specifically for the C Suite on why pricing should matter. So those are a couple of things that I would throw out there. Of course you can come to the revenue analysts website. I'm always happy to chat as well, but I think it's. I'm much more of the evangelist that just says let's just get started in something, whether it's with us or somebody else. Right. There's just a huge untapped opportunity in this space for sure.

What do you say to people that are maybe a little hesitant, ignore this opportunity for price increases? How do you encourage them to at least giving it some further consideration?

Yeah, so I think the, I think the identification of the pain, as I alluded to earlier, is a big piece to that. I think another angle we're often talk about is the disconnect between the other actions you're doing and the value they're gonna drive versus what you could be doing with pricing. Right. And I'll give you kind of a quick story. Right. So you know, we worked with a paper products manufacturer and incredible operators. Right. That's just where they came up on that side of the business. And for the longest time they had these strategic initiatives about how do we drive literally pennies of cost out of a pallet of these paper goods? That's a great aspiration if you're selling hundreds of thousands or millions of pallets. But then we have the discussion with them. Okay, well then what happens when the sales rep goes to market? Well, the sales rep can negotiate a discount up to 50% off.

And so that just illuminating that disconnect of like your team is breaking their back to save two pennies a pallet. And a sales rep can literally, with the, you know, flick of an email, give away hundreds of dollars of a pallet and discount. And not all discounts are bad. Right. But just trying to educate on that value prop disconnect of, you know, the leakage point completely offsetting and by order of magnitude eroding the efforts of the other part of the business. And you need to take that blended approach, I think was the way I love to talk about it. Of course, the third one candidly is, you know, the last number of years when you go from, you know, Covid to inflation now to tariffs. It's just forcing pricing on the docket for a lot of folks because they have to act. And then it's about how do you broaden the aperture from the media pain to this needs to be something that is always on. Kind of going back to one of my earlier points is pricing can never be a point in time solution because there's always going to be that next event, if you will, that you have to be prepared for.

You referenced some books on where we can find pricing. But aside from the pricing topic, what are your influences? What do you read, watch, listen to that. You recommend others listening to the podcast to check out, please?

Yeah, absolutely. So of course I do listen to this podcast very earnestly saying that a number of others in the pe Space like of course, Bain's dry powder. You know, I'm just constantly trying to consume what other trends are out there and think about how it starts to overlay with the, you know, my area of focus. So I think those are big ones. Lots of reading in the private equity space and of course like Adam Coffey, you know, one of the go tos there, the private equity playbook has been fantastic. Foundational. Dan Cremen's weighing moves actually is probably one of my favorites just because I love how he's kind of decomposed the different levers of value creation all the way down to tactical plays. Right. And I think to me as you can probably pick up some of this conversation, like because we stick around and help companies execute like that's where the rubber hits the road. It's one thing to just say you should lower your costs and raise your prices, but it's like how do we actually get you down to like these are the moves that are going to help you go after that. So I think that's, that's probably more industry specific. I'm also just kind of a finance geek, so. And obviously this day and age, spending a lot of time just trying to understand what's going on in the world and reading various, you know, financial news articles. Those types of things I think are the big, big buckets from a professional perspective.

Yeah, a lot of people are trying to work out what on earth is one of the.

Let me know if you figure it out because I sure haven't yet.

But try and get somebody on the podcast to tell us. But I'm not sure anybody, anybody truly knows you. Reference the website and finding you on there. Is that the best place to reach out to you, Jared?

Yeah, absolutely. They can also reach out, you know, to my email is Jay and then my last name wieselvenueanalytics.com you can also find me on LinkedIn. Happy to connect. As I mentioned, I spend most of my day just evangelizing on why pricing should be part of that value creation plan. I think it's seeing that as I mentioned, kind of a small but rising tide of commercial operation focused flow folks in this space. And I think there's just a huge opportunity to continue to tap into a lot of the value that these fantastic manufacturing distributing companies have built around kind of delivering exceptional products and service to their customers. Just want to make sure they get fairly compensated for it going forward.

Well, thank you very much for coming onto the podcast. Thank you very much for sharing very narrow approach to something which I actually quite like on the podcast. It gives us really clear actions we can drive on. So thanks for coming on and discussing everything, Bryce.

Really appreciate the opportunity, Alex, and thank.

You very much for everybody, yet again tuning in to the Private Equity Podcast. If you haven't done so already, please do subscribe to the podcast. And if you do have a moment, leave us a review as that helps us reach other people within the private equity industry. But till the next time, keep smashing it and thank you very much for listening.