Vikrant Host

Welcome everyone to Execution at Scale. Thank you for joining in. As you know, this is episode two: pricing that destroys margin before you actually even notice it. So essentially, this series I started because I felt like most conversations in this industry happen in hallways and over coffee, and not actually on the stage. So essentially just trying to change that a little bit. And today I have Bob with me. And me and Bob have had multiple Conversations about pricing. Bob has over 15 years of experience building and refining pricing structures across Kenco, Rider, Stord; all the big names you have heard about. To give back to the community, he also teaches a course at IWLA called the Economics of Warehousing Course, which is actually coming up; we'll share details at the end too; which I believe... I got a glimpse of that back in January, just a two-hour summary, and it was definitely the best two hours I ever spent learning about pricing for warehousing and 3PL. So I hope you guys will learn something and enjoy it. And Bob, welcome. Thanks again for volunteering to come on this. As you know, I'm a new host, so I might mess up, but I appreciate you volunteering for it.

Bob Byrnes Guest

Yeah, I don't believe it exists either. And that's actually; we find that a lot of the people who come to the class every year (we get about 50 people to the three-day class, about 80 people to the Essentials where I have a three-hour segment; they are looking for a model they can just take home and plug in. And the reality is, one doesn't exist. There's a couple of reasons for that, and it probably could be solved easily by someone business-minded who could make something marketable. What I've found is that each of us has developed a tool that serves our own needs and has grown to serve the changing needs of our business on a case-by-case basis. And sometimes it's really hacked together in kind of an amateur way; it's almost like a handbuilt race car, and your neighbor wants to take it for a spin, but he doesn't know all the nuances and intricacies; doesn't know that to turn it on, it's a key switch, or you have to hold the gas down and pull this wire. They just expect to get in and go. And I haven't seen models that let you just get in and go. What you can do relatively easily is take your current profit-and- loss; your income statement; and look at your expenses for, say, the trailing 12 months.

Vikrant Host

Andjust, we do this in the class, but just ask yourself: which of these costs that I pay for every month are fixed, and which ones are truly variable? That also brings me to; this is kind of an out-ofthe-blue question I thought about; are there certain resources, like, let's say I'm a 3PL, or I want to open my business, or I'm an existing 3PL; you mentioned looking at the P&L, right? So I have my P&L in front of me. If I want to know how I compare to a standard, is there any way I can know that? Is there any publishing around that, or no?

Bob Byrnes Guest

Yeah, you know, I don't think there is. And what it comes down to, I think, is you have to look at the situation from a top-down approach. What will the market bear for the services I want to sell? And let's just use the standard warehousing example; 100,000 square feet. If I charge, sounds like everyone charges $20 a pallet, just making up a number; if I charge $20 a pallet and I rent the building available to me today at $9 a foot a year, how many pallet positions do I need to create in this building, and what percent of them have to be occupied until I've broken even? And ask yourself; do you have the tolerance for that timeline until break-even occurs, or when profitability occurs? So again, you might rent a building at the top of the market; it doesn't change the fact that customers are only willing to pay $20. The same way you might decide to buy Lamborghini forklifts, and to cover your cost you need to charge $99 a pallet in, pallet out; no one's going to buy it.

Vikrant Host

Yeah, right?

Bob Byrnes Guest

Socost and price, again; they're cousins, they're not married. So the game becomes: if the price will be X, what can I do to my costs so that my margin is acceptable by my standards?

Vikrant Host

Imean, I can have so many examples around it. There was a customer doing LED lights, right; so they would store all the tubes together, all the different types, one type of SKU with different variations together; same thing, example, all bells together and all that. But the reality is no one is trying to order a brown shoe and a black shoe at the same time. I mean, it also depends; if it's B2B or B2C, there's definitely a lot of variability there.

Bob Byrnes Guest

Yeah.

Vikrant Host

At the same time, a lot of people want to combine everything as a client, right; one client stays in this location, the other one stays here. And sometimes you ask them, why are you doing it? Because that's important, right; if it's a B2B customer, you're building pallets, that makes sense to a certain extent. But for the most part, if it's general storage for e-commerce, you already have forward pick areas — so a lot of people are bypassing good processes because they don't have systems to accommodate those processes, and they just adapt as they go.

And I think one thing you mentioned earlier; I didn't want to cut you off, but I was laughing at the time — I call it the "problem of yesterday and tomorrow," right? And this applies to every business, not just 3PL, but to use 3PL as an example: in November, December, I get a crazy volume of orders, and I'm like, "screw this, I need to..." and we can use this language, you people are from our industry, and maybe our editor can bleep it, but I'll say, okay, I need to change my system, I need a process, I need to do this, I want to train my people on safety because a safety incident happened, whatever; it could be 10 or 20 different things. But now you go on a break, December 31st, January comes back, you're a little slow, you're like, okay, let me start identifying things. I start identifying; boom, a new customer comes in in February. "Oh, let's just focus on that first." Then March, then April, right? And now, oh, I'm mid-year, let me look at it again. But then, one thing after another; I think it all comes down to priorities, like you said. And as much as anything, what I hear the most is, "oh, I don't have time to look at processes right now, I need to look at this or that." There are like a hundred things as a business owner that come in, especially in this mid-size space, because we're trying to do so much. But finding that time is the key. And honestly, I became a member of IWLA this January, and since then I just feel; why did I not do this before? Because honestly, for me, I'm more like a vendor partner, right; for me it was like, okay, it's one organization, I joined it, we showcase our product and all that. But honestly, that feeling of community; I did not know. I wish I knew it four years back, or even ten years back, even before I got into the WMS space.

Bob Byrnes Guest

We all want trusted advisors that are experts in their own field without being sold. And that's what you get in IWLA.

Vikrant Host

Yeah. And that is why I loved it; because I don't need to, say, send someone from my sales team there, because that's how most organizations are. But IWLA is definitely unique; and without this being a commercial for IWLA; I was at Manifest, and I referred like seven people to the IWLA booth, because I truly believe it is a community. It's not something someone is trying to sell or buy. It's about building this community of people who are in the same space, know what they're doing, and are trying to help their peers without thinking of them as competition. So that is very valuable, I feel, and I would always recommend IWLA to anyone in the 3PL space for sure; and even customers of 3PLs, honestly. Maybe IWLA should promote that a bit more too, because it's important to educate them as well.

Anyway, we're kind of deviating from costing and pricing; but yeah, one of the analogies you said, "costing and pricing are cousins," has been going on in my mind, and I think you used it before too. So I just want to use another minute or two; tell me a little bit more about it. I know you've shared a lot around those aspects in different scenarios, but as a standalone; when you think of costing and pricing, which is the agenda of this episode; let's say I'm a 3PL owner, I hear this today live or later on: what is one thing I can do as an action point, let's say this week, to get better?

Bob Byrnes Guest

Yeah. So, in my opinion, we tend to win business less often on price. The price has to be right, but there has to be another motivator for the customer to pick you. And to me, I say: find out what that is, and create processes that make you the best or the most efficient at something; that you can provide at a reasonable margin if the price doesn't change.