Greg Crabtree is a Partner at CRI Simple Numbers, a firm dedicated to assisting entrepreneurs in optimizing business performance through proven financial strategies and quarterly tax planning. An accomplished speaker, author, entrepreneur, and financial expert with over 40 years of in-depth experience, Greg pioneered a metric for measuring labor efficiency and benchmarks for company and individual performance. He is the author of Simple Numbers, Straight Talk, Big Profits! and its sequel, Simple Numbers 2.0, which extends his principles for turning businesses into wealth-building engines. In addition to his publications, Greg has contributed to Verne Harnish’s Scaling Up and chairs the EO Wharton Executive Education Program.
Many businesses struggle with finding the right pricing strategy and optimizing their labor force to stay competitive and profitable in today’s volatile economic landscape. Understanding these key elements is crucial for any business aiming to thrive in uncertain times. How can companies strike the right balance and navigate these challenges effectively?
According to Greg Crabtree, a globally recognized financial expert, the key lies in understanding your market niche and having a targeted pricing strategy. He highlights that businesses must adapt by either growing into their management structures or making necessary cuts to avoid inefficiencies. By leveraging the power of appropriate pricing and addressing labor dynamics, companies can enhance their profitability and thrive even in turbulent times. This approach not only improves financial health but also positions businesses to seize opportunities in a fluctuating market.
In this episode of America Open for Business, host Cameron Heffernan sits down with Greg Crabtree, Partner at CRI Simple Numbers, to discuss strategic business management. They talk about labor efficiency, the significance of proper pricing, and the benefits of transparency in B2B services.
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Cameron: 0:02
Hello everyone and welcome to another episode of America Open for Business. I’m your host for the podcast, Cameron Heffernan, and I’m very glad to have on the show today an esteemed guest, Greg Crabtree, who I’ll introduce in a moment. The episode is brought to you by us, your B2B Marketing. We’re a truly global marketing agency and we help mid-market B2B companies overcome some of the typical challenges they encounter as they enter new markets and grow across borders. So for that reason, we handle end-to-end marketing, from strategy through execution, and that frees our clients up to focus on customer growth and expansion. You can discover how we can drive your expansion by visiting our site, yourb2bmarketingco.
Cameron: 0:49
Past guests of the show have included Brian Smith, the founder of the UGG brand of sheepskin boots and sneakers from Australia, and Ben Tija, the founder and CEO of Earthly Wellness, as well as Jean-Arthur Regibeau, the ambassador from Belgium to the USA. Today’s guest, Greg Crabtree, has over 40 years of in-depth experience, recognized globally as a public speaker, author and entrepreneur. His books, which I’m showing here on screen if it’s the audio not going to pick up, but simple numbers, straight talk, big profits and simple numbers 2.0, rules for smart scaling are really a fundamental guidebook and elements that every entrepreneur and business owner needs to consider as they grow their business. Greg has also contributed to Vern’s book Scaling Up and Greg Crabtree welcome to America Open for Business.
Greg: 1:46
Thanks for having me. I appreciate it.
Cameron: 1:47
All right. So let’s start with a real basic, fundamental question how do you help people?
Greg: 1:56
Well, you know, kind of as a recovering accountant, you know I started a lot of that. 40 years was spent, you know, in a private practice that I built with a couple of partners and you know. But really, once I joined the Entrepreneurs Organization in 2001 and really kind of pivoted to focus primarily on the entrepreneur and really in a different way, not by delivering tax and financial statement services, those were commodities. Financial statement services, those were commodities. You know, it really was by the help of my initial EO forum of what are the things that they expect us to be able to help them with. And as an advisor, I mean, I see the most intimate details of the business, more so than any other advisor, and I see it on a more frequent basis. And so I decided to do something that is deaf to accountants. I decided to spend time working on looking at the data, aggregating the data from my clients, to study it and not get paid for it. But it has a long tail pay back in that.
Greg: 3:01
You know we’ve developed an expertise and we believe we have discovered, you know, critical financial data that’s been hiding in plain sight, that’s not taught in traditional financial circles and I think you know I’ve had the opportunity to you know, to you know, share that around the world and various speaking events that I’ve done. Business groups that we work with we do a lot of group facilitation of business data, where we’ll take the data and put it in a common format. And so our simple numbers P&L structure, balance sheet structure and return on invested capital structure we think is really the key to helping privately owned businesses understand setting the foundation points of your business strategy. So the idea being you know I really got to if I’m going to lay the four cornerstones of my financial strategy you know what is my return on invested capital target, what is my total labor efficiency ratio, which is gross margin to all labor? Second one is what is my profit to gross margin, not profit to revenue. I would counsel everybody in this podcast to just stop measuring anything relative to revenue. It is really about profit to gross margin.
Greg: 4:22
And then the final piece is where do you stand on being fully capitalized? We’re entering in a market that is very up and down, jerky sideways uh, not smooth, I mean much like most of my flights this year that I’ve taken. Uh, the economy has about the same level of turbulence at the moment. Uh, you still get there. You just get there with a few bumps along the way at the moment. You still get there. You just get there with a few bumps along the way. And we certainly believe raising an awareness of being fully capitalized and hitting your profit targets are the keys to being in a position of taking advantage when those opportunities come up. Because I believe we’re moving to a marketplace where opportunities will open and close rather than be constantly available, and largely because I think if you could actually measure US GDP, canadian GDP, you know, I would say that you know we’re not growing in real terms.
Greg: 5:22
You know, and Australia is probably growing a bit just because of their mining sector, natural resources, but if you strip mining out of Australia, they’re not growing either in their service sector and core, for the same reasons that the US and Canada is not. We’re out of labor and we actually ran out of labor pre-COVID. Our data that I started studying for the second book that started in 2013, a data set that I’ve tracked since then of client data, our data shows that we started running out of labor in the fall about September, october of 2019. So COVID didn’t cause it. Covid accelerated a little bit just because of excess deaths, but most of those excess deaths were people that were not in the workforce but some were, there’s no doubt. But we were headed down this path and we would have been here whether COVID happened or not. But it certainly threw everybody’s analysis vision off the scent of the trail and I think you know we’ve got to reset our vision.
Cameron: 6:27
More like a blip versus a continuation of a very long-term trend that we’ve been seeing for generations, and no part of the world is immune to that, correct?
Greg: 6:35
Correct, correct. I mean, you know, the thing I’ve loved about being able to present my data around the world is I get to present it in third world countries as well as first world countries. Data around the world is I get to present it in third world countries as well as first world countries, and the thing that I’ve noticed is business is business, it doesn’t matter where you’re at. The biggest difference between a third world economy and a first world economy is the speed that margin moves through the marketplace and so in the transaction cycles in a developed economy, margin moves in 30 days or less. If that from a cash flow standpoint, third world economies, it could be six months, it could be a year and so much, much, much bigger. You know, barrier to entry with capital requirements and lending is not as formal, you know, and all of those things, but it really is about margin. Speed is what makes an economy a very developed economy.
Cameron: 7:29
Do you think we’re ever going to get back to those years we had five, six years ago with three percent interest?
Greg: 7:37
rates. I made this statement yesterday that I do believe that, regardless of who wins in November in the US political race for president, I think both both elected parties will push rates down just a bit. I mean, I’ve always kind of believed that. You know the you know the federal reserve rate between four and five is kind of the neutral. Um, you know we we’ve got an underperforming sector in the real estate part of the economy right now with with they left it too too low, way too long. Probably never should have been that low in the first place.
Cameron: 8:20
Yeah.
Greg: 8:20
Yeah and uh, and now they’re leaving it too high, way too long, you know, from that standpoint. So you know the, the, the Fed governors, I mean I, you know, I appreciate that they got a very difficult job, but I disagree with their mindset. So, because here’s the here’s, you bring it up. Here’s the number one thing that they don’t get. And it’s because they don’t get out and work in the real world. They say they sit up there in their ivory high towers. And here’s the thing. They said that they’re using inflation as their primary decision-making tool to decide when to raise or lower rates. I got news for you when you’re out of labor, inflation is going to persist. When you’re out of labor, inflation is going to persist. And so tell me this which is better? Do we drive the economy down to a undisputed recession level and cause 2 million people to be unemployed to get interest rates down and not have inflation, or do you keep everybody employed and you learn to live with about three to four percent inflation? It’s like come on, people, I think we can do the math on three to four percent inflation. Yeah, you know, the market’s not going to run away if you drop. If mortgage rates came back two points, the more the market’s not going to run away.
Greg: 9:41
I mean, there’s still lack of energy in the marketplace. You know from the standpoint that you there’s still lack of energy in the marketplace. You know from the standpoint that you know, there’s a finite number of consumers, there’s a finite number of workers, you know, and there’s only so much that you can do. What you don’t want is create, you know, trading through financing. That creates non-productive gain. And so when you are flipping things and people are making gains from financial transactions that don’t require people to put good effort towards it, that creates false gain, in my opinion. I’m a worker economy guy, you know, and so if we keep all the workers employed and we’re all doing useful things, some more necessary than others, but the idea is everybody can find a worthy job to go feed their family with, that’s a good economy. Right, and you know, and I think we’ve got to reset our definition of what a good economy is, because it’s a different set of economic circumstances today than we’ve ever had in the history of the world, much less the US, yeah.
Cameron: 10:53
Yeah, I mean I think I read the other day that we’re at peak population and that’s only going to decline. It’ll decline faster in certain regions of the world. Western Europe is one of those China, us, then it will in India and Mexico, for instance. But there’s also an unprecedented amount of change happening right now. There are three to four major countries that have had or will be having elections in the next handful of months, from Mexico to India, to the US. Tell us about that. You don’t have a crystal ball, obviously, but what your thoughts are on some of those changes on the horizon from different US? Tell us about that. You don’t have a crystal ball, obviously, but what your thoughts are on some of those changes on the horizon with from different political parties coming into power?
Greg: 11:31
Well, I mean, I think you know Mexico just happened, you know, so that you know we’ve got a new president of Mexico and we’ll see what she decides to do. You know, from a party standpoint, I mean I really think things are just going to kind of continue as they are. I mean, my biggest concern, you know and this is kind of the advice I’m giving my clients in the US and anybody who’s going to do business in the US this is we’re in what I call the muddling economy right now. So we’ve got a hundred companies that we track data on every month and we just got through our data yesterday, through April, and pretty much what we’re seeing a trend right now is that it’s about a billion dollars of revenue. So I’m not going to claim I’m the greatest statistician. I grew up on a chicken farm in Alabama, so what do I know? You know. But hey, you know this has actually been pretty darn accurate, you know, for about the last 10 years. So I just I just watch the data and see what it tells me. What it’s telling me right now is we’re up about 5% this year over last year with that, billion dollars of revenue of all different companies, all our client bases all over the US, canada, australia, but these are just US companies, but they’re not all in the same industry, not all the same geography. And it’s telling us we’re up about 5%, which I contend is all inflation. There’s really no net productivity gain. Now I’ll give the economists some slack because I don’t know how you really truly measure GDP in a service-based economy primarily. Now, not all these are service-based businesses, but really, for the most part, I would say the economy is flat to slightly down, but revenues are gaining just because of people adjusting prices.
Greg: 13:22
What’s interesting is we started tracking the ups and the downs, and so what we saw was, in a normal economy, 80% of those companies would be up year over year, 20% would be down year over year. So that’s kind of has emerged as our hey, things are running kind of normal. Well, back in March we got to the worst possible point. We had 66% of the companies were up, 34% were down and the downs were down 17%, the ups were up 15%, and so at that point in March we were actually negative year-over-year growth. Now since April, we had a nice little bump in April and so we’re now back to the positive and we’ve returned to 75% of the companies are up, 25% are down year-over-year. So we’ve seen some stabilization, which was kind of what we were telling everybody, what our prediction was. I think we’re going to kind of be reasonably stable through the election.
Greg: 14:27
And then my prediction glass goes dark and it goes dark for this reason, probably, no matter who wins, the other side is going to complain and challenge and, depending on the veracity of the challenge, no matter who wins, like I said, both sides are going to complain. Yeah, the government becomes dysfunctional. I mean, you could argue the government is always dysfunctional, but you know it’s a big piece of the economy, yeah, and so and you know my office is in Huntsville, alabama We’ve got a ton of government contractors here and I can tell you we can really see it when there’s no governmental direction of program maintenance. So, even though you’ve got spending, we’re not in a debt ceiling fight or something like that. You’ve got continuance of the current contract, but you don’t know what the next piece of the contract and all of these contracts are all built on follow-ons and the next piece, the next thing some require rebid, some don’t but what happens is is you just start slowing everything down and then, if you, then if you get into debt ceiling fights, which the the rules of Congress right now have pretty much tied their hands to, where they have to have this fight about every three months now, which is not good, you know. I mean things basically start to slow down.
Greg: 15:44
And so so I really do believe, depending on if that dispute post-election is 30 days, 90 days, 180, let’s hope it’s not a year, let’s hope it’s not, you know, overly contentious, I mean I believe in the power of entrepreneurs. I mean we’ll figure out how to work, no matter who’s in the White House. I mean, you know, yeah, you may not like what they do and there may be some individualized, specific things that damage an industry more so than another, but we’re a pretty resilient group. We find a way, and that’s what I’ve learned from my client or entrepreneurs I’ve met from all over the world is that I mean, we got it good politically compared to most places in the world, and if they can figure out how to make it work, then okay, get your head out of the clouds and let’s just get to work and we’ll figure it out. Let’s just get to work and we’ll figure it out. But, once again, the way to figure it out is. This is why I go back to my two key mantras of get profitable. With what you got today, I can’t be losing money or breaking even right now. I got to get profitable, which means and the quickest way to get profitable is to cut.
Greg: 17:00
And here’s the major trend we’re seeing in our 100 company model, direct labor is adapting perfectly, both for the up companies and the down companies. If anything, we’re actually seeing a greater increase of margin per labor dollar spent for direct labor, and I worry a little bit about that, because what we’re not doing is cutting management labor enough and people are not adapting. We’ve gotten lazy. We’ve built up management structures. I think we’re in for a new revolution of management restructuring and rethinking. I’ve got to create a management structure that pushes more margin through with less management labor, because at this juncture we’re seeing a reset of the production landscape. We’re not getting workers to work overtime without salaried workers, to work overtime without extra pay, or you know, and you’re seeing some people just won’t do it yeah, I mean, doesn’t matter what you pay them and so that’s created an output issue in the direct labor part of the economy, and so therefore, my management has to carry a heavier load and be more efficient at overseeing a greater amount of margin activity. You know, to justify their role.
Cameron: 18:19
And it’s just like a big parachute that’s slowing down companies, that sort of management bloat. But if you multiply that across the economy it’s just that much larger as a slowdown effect.
Greg: 18:32
It is, it is and, like I said once, we see it in this large of a data set I mean it’s pretty stark, yeah. And I see it in individual clients. I mean we go through when we do our calls with clients. You know we can take our mathematical model and quickly quantify. Here’s how much we’re talking about. So I’m going to give you two choices Are you going to grow into it or are you going to cut? You know, so I’ll quantify the cut and they’re like no, no, we can grow, as really you think you’re right. I got news for you. So tell me where the growth is going to come from.
Greg: 19:04
Because we don’t have an economy with only a fraction of the sectors that may have growth at the moment and even that growth’s a little bit squishy. You don’t have market growth. Okay, oh, so you’re going to go get market share? Well, that’s a little bit squishy. You don’t have market growth. Okay, oh, so you’re going to go get market share? Well, that’s a different discussion. Market share, I mean, we haven’t had a market share game. You know in the last 25 years you know we’ve all been living off of the participation trophy economy of the last 25 years that the market was growing, we were getting our share. We were patting ourselves on the back saying look how great our marketing is and look how great our salespeople are. And no, you were just taking orders of an expanding, rapidly expanding market. Now do you have the ability to go, take your fist and punch your competitor in the mouth and take their business away from them?
Greg: 19:55
And that skill set hasn’t existed, probably very often, if not at all in the last 20 years and it’s a new set of selling and once again it’s what we’re you know. I think you know for people like what you do, you’re in a new age of where you got to deliver. You still got to deliver that quality lead through marketing to the threshold of the transaction. But I’ve got to get a human more engaged, more skilled to get it across the threshold and get it closed.
Cameron: 20:28
Yeah, we talked about policy and changes. One example tangible of that to me is the potential for changes. Example tangible of that to me is the potential for changes. The the usmca treaty between mexico, the three countries, will be renegotiated in 2026, so we’ll have a new potentially a new administration by that point. Mexico’s had their own changes. Uh, last five years the president’s been raising the minimum wage consistently. Consistently, labor has gone up almost 200 over that time and that’s a populist administration that’s going to continue the policies of the last president. But the US changes could be even bigger, right, because there’s things motivating the renegotiation of USMCA formerly NAFTA beyond economics. I’d love to hear your thought on that potential eventuality.
Greg: 21:15
Well, welcome to the age of the worker. I mean, guess who has the power right now? It’s not the company, it’s the worker. And if you have specific skillset or you have power to control quantities of labor that has to be accessed, you know, for business success, you know, you’re, you know you got, you got some leverage that you didn’t, you haven’t ever had. You know, the only thing you had was strikes and unions and those things. You don’t need unions anymore, you just need to be the, the, the, the doorkeeper, you know, for key access to labor and skillset. Now, the other side of it is, you know.
Greg: 22:00
So if you follow people like the Peter Zahn’s of the world and look at the demographic shifts of the potential not the potential the eventual demise of China, I mean China is going to implode. I mean they are a ticking time bomb of population disaster. You know, less than a one replacement birth rate right now. I mean that’s, that’s societal suicide, and you know and you can’t stop it. Um and and. So where’s that going to go? I mean, you know, if you listen to what feeder’s predictions are. You know, probably by the time China collapses, most likely in the next three to five years, we will have moved 50%, maybe 75% of the manufacturing capacity to Mexico, us, canada or other near shore, more accessible places.
Greg: 22:55
But certainly Mexico is going to be the winner, but Mexico has its issues. I mean, I talked to a builder in El Paso that builds both in El Paso, builds over in Mexico as well as in the U? S side, and I said something about you know the, you know running out of labor in Northern Mexico because they do have a labor shortage in northern Mexico. I mean you can’t, just you can go plop a plant there, but there’s not extra workers in northern Mexico. All of the excess workers are around Mexico City and that’s not transportation convenient and Mexico does not have a convenient rail system to move product from Mexico City, you know, up, you know, to the northern border.
Greg: 23:41
And so there’s tons of those issues from a logistical standpoint that we don’t have the things in place and we don’t have a cohesive strategy to make those things be in place by the time we’re going to get to a crisis point, so get ready for disruption place by the time we’re going to get to a crisis point, so get ready for disruption. Yeah, you know, and it’s not going to be. What is the price of this thing that I need it’s. Does it exist and can I buy it? I don’t care what the price is.
Cameron: 24:11
Yeah, that’s the point about labor too, you know, available at any cost. Um, uh, I’ve experienced with some of my clients that are in Mexico labor rates as much as 40 percent higher near border versus the interior.
Greg: 24:23
Well, and when I actually got to see Peter speak in person at the national chapter a couple of months ago and he showed this graph of labor rates from around the world, labor rates from around the world are increasing at a far faster rate than they are in the U? S. I mean we think our labor rates are increasing at a bad rate. Just wait, there’s going to be a point that I mean China wages, philippine wages, mexico wages it. It’s. That’s not. It’s not going to be the wage differential that matters. Who has the breathing humans is going to be who matters, and it’s not a question of price.
Greg: 25:05
Now, granted, we’ll see this convergence. So we’re in a new age of industrialization and automation, and so people will find now that we’re going to push harder on automation and labor elimination as fast as we can. But there’s no easy wins left. You know it’s ones and twos, 20s and 30s maybe, but not hundreds of people displaced, you know, because of automation. Yeah, now you know we’ll see what AI brings. You know, in terms of some of the other softer skill sets which you know, I mean, I’ve seen some of the demonstrations of chat GPT-4. And it’s pretty freaky.
Cameron: 25:45
Yeah, I mean, I think those big gains, we’ve had them already. So now, as you said, incremental gains from here. Robotics are in place. Mexico has robotics too, and I think we don’t yet know how this is going to evolve from here. I’d love to hear your thoughts on Alabama. What recently happened there with the union vote and how that played out, what your thoughts are on that from a as an almost as an economist perspective.
Greg: 26:13
And Alabama guy, I mean, yeah, you know, I mean we’re. I mean you know Alabama is just generally just a non-union, you know mindset, I mean once again. I mean I think the idea being, as labor rates have become very competitive, why do you need a union? I mean. So I’ll give it to you in this way, from a calculation standpoint. So we’ve got some clients in the HVAC industry that we have a mastermind group that we meet with twice a year, compare data across companies in our structure, and so it’s very illuminating.
Greg: 26:46
And so one of the key metrics that we use is total labor efficiency. So have you ever heard the term LER, labor efficiency ratio? That’s a simple numbers. That’s one of our signature metrics. So that’s taking gross margin, so revenue minus cost of goods before any labor. That gross margin divided by all labor, the metric universally in an HVAC company anywhere in the country is a two.
Greg: 27:12
I need $2 of gross margin for every dollar of labor, whether it’s a technician, whether it’s a CEO, whether it’s somebody doing maintenance or somebody sweeping the floors. You get to pick where you’re going to deploy those labor dollars, but at the end of the day, I’ve got to charge my customer $2 of gross margin after I pass through subs and materials. I’ve got to get that $2 of margin for every dollar of labor in my grid. Unless you’re a union shop, that number has to be 2.5. Okay, interesting To get the same equivalency.
Greg: 27:47
Okay, so that tells you, are unions necessary? Maybe in some I mean I, you know, I respect the fact that they were needed and bad actors with businesses that you know were playing hardball negotiation. We’re in a different market now. I mean it’s a pretty level competitive playing field that you know. My good clients who are good at creating culture, fair pay, they charge the right amount to their customer, they hit their appropriate profit target.
Greg: 28:26
That’s when you’re checking all the boxes, everything’s green. But it’s when you’re trying to cut an edge. I think in the economy to come, the edge players kind of get spit out of the system because you might get away with it for a little while but you can’t maintain it and and that’s why I worry, like now when I’m seeing labor efficiency ratios go up for direct labor, it’s one of two things is it a true productivity gain or am I just pushing people to run hot and I can do it for a little while, but I can’t sustain it and eventually those people quit. Either they quit or they want raises one of the two, and that labor efficiency ratio comes back to the norm.
Cameron: 29:14
So we’re going to see more. You see it every day with I wouldn’t necessarily think of it as automation, but you go to the grocery store and there’s maybe two people working there. All the rest is self-checkout. I just think more and more ways in our everyday consumer world. We’re seeing that the kiosk at Wendy’s they’re testing it out here fully AI driven and if you get to a point where you can’t get an answer from the system, someone comes on. But I think machines you said at the session that we did something like machines don’t have attitudes or something like that, yeah, they don’t, but but we’re still humans and we crave human interaction.
Greg: 29:54
So I get you to mention grocery stores, publix, grocery stores, big in the south yeah, and that’s who’s here in Huntsville they have like one self-checkout thing. They have like one self-checkout thing.
Greg: 30:05
I mean they, literally, you know, and now they’re not the cheapest, but that place is always full and they have people manning the checkout lanes. Yeah, and they far better than Walmart. I will tell you, I try to never go into Walmart, but when I do, you know it’s called get used to disappointment. Yeah, you know it’s the mantra, you know. But when you walk into Publix, you know I it, uh, it’s it’s called get used to disappointment. Yeah, um, you know it’s the mantra, you know. But. But when you walk into Publix, you know I mean that is a really, really well run. I mean, you know, I’ve been in. There were like three different Publix here in Huntsville that I may eventually go in for between what path I’m driving home, yeah, and, and they’re all just extremely consistent. But it seemed like I’d read something where their publics had taken a stance to keep the human checkout clerks because that’s what their customers wanted.
Cameron: 30:56
I think in there lies opportunity for companies stores, marketing agencies, where they’re. Yeah, we’re still going to use technology and automate things, but you have a competitive advantage, or that is the advantage of the card you’re going to play to people who prefer that Now.
Greg: 31:11
I will tell you this Now. I mean, you probably fly a lot like I do in an airport. Rather than deal with an airport worker, I like going into the Amazon convenience store, that scan, you put your card in to go in and you don’t check out, you just pick up something and walk out with it. I’ll take that any day. It’s a little freaky at first, you know cause. You know there’s like a gazillion cameras watching you, but the quality of an airport service worker is so bad I would rather deal with that.
Greg: 31:43
And so, once again, I think this goes back to everybody’s got to define, you know, which part of the market do you want to play in? I use this example all the time with my clients when I’m talking about retail. Think of Nordstrom has the fewest number of customers and the greatest price. Walmart has the greatest number of customers and the lowest price. I probably don’t want to be either one of them. I want to live somewhere in the elbow of that price elasticity curve and find where is my niche.
Greg: 32:11
What is it that the tribe of people that I’m going to focus on serving do they want the no human experience? Do they want the human experience? And I just price that in and we do a ton, a ton of work on pricing strategy with our clients because you know, when you look at a company that is deficient, profitability wise, you got to look at it and say, okay, is my price correct or do I have the right people, do I have the right process? And it is sometimes an element of all three, but the answer lies in those three questions. And then do you have the executional capacity to go fix it? And let’s face it, I mean the hardest one to fix is the people part of it, because people hold on to the wrong people, especially in a tight labor market, way, way, way, way too long.
Cameron: 33:04
Yeah, yeah, and you’re limiting the levers you have to pull there and to fiddle with and to mess with. That makes, hopefully, it’s easier to move around three different factors than 100.
Greg: 33:16
Exactly, and it’s not. It’s never that many. I mean it is Well and it goes back to a classic book, the Goal by Eli Goldratt. Well, and it goes back to classic book, the Goal by Eli Goldratt. I mean, when you look at that lack of profitability, there is one glaring bottleneck of is it a person? Is it a process? Is it just my pricing structure? And I’ll tell you, pricing is a big one because I have to fight and beat this out of people all the time when I’m doing talks in that, listen, the example I use.
Greg: 33:50
The client is a concrete contractor in South Carolina and did their first session with them and they had the exact same margin percentage for three consecutive years at about 17 million of revenue. And they go. Well, I’ll give you an A plus for consistency, I’ll give you an F for pricing. There is no way, no way, that you didn’t leave money on the table by having the same margin percentage for three consecutive years at that level of revenue, right? And they hung their head and they said well, it’s funny. You should say that we just found out we were a million dollars short of the nearest bidder on the last contract we won because they, they had opened, they, they could, they do bid work where they could see what the next bidder was, and, and since that time they have just been marvelous and and the way we teach it is method.
Greg: 34:43
Pricing methodology is, but not never the first step. The first step is how much is the customer willing to pay for this? What is market? That’s the price. And then, once I determine market, then I go through my pricing methodology to give me some confirmation and if my pricing methodology comes out higher than the market, I’ve got a decision to go back and do sales engineering with that customer to elevate their expectations of what it’s going to actually be, or decide to pass that.
Greg: 35:22
This is a customer that you know. Why am I wasting my time with them? Because they’re not willing to pay what it actually really is worth. You know in that process versus you know or, but, but more times than not, it’s well above what the cost or what, what you would have bid, and you’re just leaving money on the table left and right, yeah, and you know, and and we see this a lot right now there’s people that are covered up.
Greg: 35:45
They’re winning every bid that they give and I go. Why are you doing this? I mean you’re not, you are not charging enough, right, you know, until somebody says no, you know, and and you’re wondering why you’re, you know you’re, you’re barely profitable and you feel good and it’s like no, that’s why you gotta have a profit target and our belief is that profit target has to be based on return on invested capital. And that is the but. When I set those foundation cornerstones to my targeting methodology to the business, then every decision has to check the box of each one of those, those four cornerstones yeah, do you have an opinion on from my world as a marketing communications person focusing on brand and looking at pricing sorry, pricing transparency?
Cameron: 36:39
we advocate that people should be, that they should be transparent. But you’re going to go to a website whether it’s a SaaS service or buying books on Amazon I want to know what I’m paying. A lot of companies, especially in the B2B services arena, would push back and say, well, I don’t want to give it all away. The competitors are going to know what we charge. It’s too much. I want to keep that tight and talk to my customers first. From a marketing perspective, we challenge that and I’d like to hear your opinion from a financial perspective.
Greg: 37:09
I’m more about transparency. I mean, they’re going to find out what the price is. It doesn’t take too much genius. You know what Jack Stack you know always talked about of you know, in the great game of business and open book management is he didn’t mind if his competitors saw his financials. He said they can see my numbers, they don’t have my people. And I think pricing transparency is much the same, in a sense that, as a customer, if you make me work too hard, I think you waste a lot of marketing dollars. If you don’t share pricing in a reasonable, transparent way Now you may not give away the goodies.
Greg: 39:11
And, to be quite honest, a lot of times where we see clients pick up major margin gains and profitability gains are the extra little tweaks to the core product or service that’s being offered. But it depends on how definable the service is. But I’m like you, the people that won’t give me a range of what something is going to cost me, and then I don’t want to. We’ve become a society of the high tower, and so I’ve been hounding this lately is that how, in B2B sales, how do you penetrate the high tower to get in front of the key decision maker? And it is a really, really big challenge, and I do believe that transparency will get you greater access to that key decision maker, rather than playing the hey, let’s hold a Zoom call and we’ll talk about it then, and you’ve got to have such a compelling hook to get that from the average buyer these days that you’re going to miss a lot of opportunities.
Cameron: 40:22
I think a lot of companies take what we do agencies. It’s a very commoditized space and the trade-off of hiding your pricing and what you do from competitors versus the transparency, the traction, the engagement you get from prospects I don’t think it’s a good trade-off.
Greg: 40:37
Yeah, I agree, I would agree.
Cameron: 40:41
Well, I really want to thank you, greg, for joining us today. I’m going to ask you one last question before we dial off again. Greg literally wrote the book. It does not show up so well today. Here it is. There we go Simple Numbers version one and two Great reads, just kind of the right size to kind of digest and take it all in. And thank you for joining us today, greg, if you look at back in your career, do you attribute your success and what you built over time to your hard work and dedication?
Greg: 41:18
or factors of luck, or a little bit of both. It is both. I will tell you that probably the most pivotal event that I can look back to is joining the Entrepreneurs Organization, and not so much that organization for me you know there’s others. I mean, it could have been YPO, it could have been, you know, others are similar, but that particular organization for me was the right fit. And, as it turns out, my client of mine had moved his business to Atlanta and told me about it and said oh, you got to come check it out. And I did. I joined on the spot. Little did I know if I’d waited a month, I would have been too old to join. Oh wow. And because we had an age restriction we don’t have an age restriction anymore, but we did then. And because we had an age we don’t have an age restriction anymore, but we did then.
Greg: 42:08
And to be quite honest, it was getting into that pool of entrepreneurs and thinking and mindset that got me out of my head. As a practicing CPA and even though I’d already had leanings to want to do more consulting, I just didn’t know what that consulting was. And and then it. But it did lead me to. I mean, our consulting is a very unique thing. I mean it’s really we just label it as simple numbers consulting because we have a repeatable process that I’m not the only consultant. We have a repeatable process that I’m not the only consultant. We have seven other consultants on staff that do. And the greatest compliment I get is people say that they hear me when they talk to them. But that took a lot of work and it took building a team of people that I didn’t do all of it. And then writing the two books does take a little bit of work. I have to admit that. Definitely, definitely.
Cameron: 43:06
Yeah Well, greg. Thank you so much for joining us today. Greg Crabtree, the author of Simple Numbers, straight Talk, big Profits and Simple Numbers 2.0. And his website is simplenumberscricom. Thanks for joining us today, greg.
Greg: 43:22
I appreciate it. Thanks, Cameron. Anytime Bye.
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