Latest / Scaling Up with Fexingo: How Small Businesses Become Mid-Market Companies / How a Commercial Printer Scaled Past 20 Million with Value-Based Pricing
Transcript
- Lucas: So there's this commercial printer outside Cincinnati, does packaging, labels, some direct mail. Owner told me the moment he knew something was broken was when he ran the numbers on his top client and realized they were barely breaking even on the account. Luna: The classic biggest client is the least profitable trap. How did he get there? Lucas: Decades of per-page pricing. Every quote was based on cost plus a thin margin, and the big clients squeezed them on every renewal. He'd won this huge contract five years ago and had been servicing it ever since, but the cost of special finishes and rush orders had quietly eaten the margin. Luna: So what did he do? Fire the client? Lucas: No, and that's the interesting part. He kept the client, but he completely changed how he priced. He shifted to value-based pricing. Instead of charging per page, he started pricing based on what the print actually did for the client's business. For a beverage company, it was the shelf appeal of the label. For a medical device firm, it was the precision of the packaging. Luna: That sounds like a hard pitch when the client is used to seeing line items for ink and paper. Lucas: It was. But he didn't do it overnight. He started with new clients and new product lines, and he brought his sales team into the process. He rewrote their comp plan, too. Instead of paying on gross revenue, he paid on gross profit. That single change flipped the incentive from 'sell anything' to 'sell what's actually worth selling.' Luna: Wait, how did the sales team react? I imagine some of them loved the old way. Lucas: A couple quit. But the ones who stayed, the ones who actually understood the product and the client relationships, they thrive. Because now they're not just fighting on price. They're selling outcomes. One rep told him it was the first time in twenty years he didn't dread the Monday morning pricing meeting. Luna: That's a powerful shift. But let's be real, value-based pricing is easier said than done, especially in manufacturing. How did he actually get a client to pay more for a label that costs the same to print? Lucas: That's the million-dollar question. His breakthrough was a proof of concept. He picked one new client, a craft beverage brand, and offered to redo their label design and print a test run at the same price as the old vendor. The label looked better, the colors popped, and the client's sales in that region jumped eighteen percent. Then he went back and said, 'We can do this for your full line, but it costs more per label.' Luna: And they said yes? Lucas: They said yes. Because he'd shown them the value in their own numbers. He wasn't asking them to take his word for it. He had a case study with a real sales lift. That became his template for every new pitch. Luna: So the proof of concept is what unlocks the premium. That's a concrete tactic. Lucas: Exactly. And it works because it lowers the perceived risk. The client isn't betting on a promise; they're betting on a result they've already seen. Luna: This is exactly the kind of thing that keeps this podcast ad-free for us to share. We never run ads, and if you want to support that, the link is buy me a coffee dot com slash fexingo. Totally optional, but it helps us keep these conversations going. Lucas: Yeah, and we're grateful to anyone who does. But back to the printer. The proof of concept wasn't enough to convert his existing anchor client. That was the real test. Lucas: His anchor client was a national beverage company. They'd been with him for years and they had a procurement team that was ruthless on price. So he didn't approach them with a price increase. He approached them with a redesign proposal, and he offered to do a pilot on one SKU, one product line, with a guaranteed shelf-life extension on the packaging. Luna: Shelf-life extension? That's a big deal in beverages. What did that do to the negotiation? Lucas: It changed the conversation completely. Instead of talking about cost per unit, they were talking about the cost of spoilage and the opportunity to expand distribution because the product would last longer on the shelf. The pilot worked. The spoilage rate dropped, and the client's operations team started advocating for him internally. Luna: So he turned the client's own procurement department against itself, in a good way. Lucas: Ha, exactly. He gave the operations people a reason to want to pay more. Procurement is always going to push back, but when the plant manager says, 'We need this because it saves us money in the long run,' the procurement team has to listen. Luna: That's a lesson in internal selling. It's not just about the product, it's about finding the champion inside the client company. Lucas: Right. And he did that for all his top clients. He went through his top ten accounts, identified a specific pain point that print could solve, and then did a pilot for each one. Some pilots cost him money upfront, but the ones that worked paid for all the ones that didn't. Luna: What about the ones that didn't work? Did he lose those clients? Lucas: A couple, actually. But he said it was worth it. Because the ones that didn't work, they were usually the ones that only cared about price anyway. And those are the clients that are always going to get a cheaper quote from somewhere else. He'd rather let them go and focus on the clients who value what he does. Luna: That's a bold move. Letting go of revenue, even if it's low margin, is scary. Lucas: It is. But he had a number in mind. He looked at the profitability of each account, not just the revenue. And he found that the bottom twenty percent of his clients by profit were consuming forty percent of his sales team's time. So he fired a few of them, and the freed-up time went into the value-based pilots. That's how he scaled to twenty million. Luna: The math is compelling. But the human side of it, the change management, that's the part most people overlook. Lucas: Absolutely. And he didn't just change the comp plan. He also changed how salespeople talked about the product. He gave them a whole new vocabulary. Instead of 'we print labels,' it was 'we help your clients find your product on a crowded shelf.' That sounds like fluff, but it changes the entire pitch. Luna: Right, from commodity to solution. That's a classic repositioning. Did he have to train them on that? Lucas: He did. Weekly role-play sessions for three months. He said it was the hardest part of the whole transformation, because salespeople are used to talking about specs and price. Getting them to lead with business outcomes took time. Luna: How did they react to the role-plays? I can imagine some seasoned reps feeling a little insulted. Lucas: Some did. But he brought in an outside consultant, someone who had done this in other industries. That made it feel more like professional development than a criticism of their sales skills. And he made it voluntary, but he made the comp plan tied to the new behaviors, so the ones who didn't participate started to see their commissions drop. Luna: So the comp plan was the stick, not the carrot. Lucas: Exactly. And the ones who embraced it, their commissions went up because they were selling higher-margin work. Within a year, the average gross margin on the new business was twelve points higher than the old business. That's a huge swing in a manufacturing business. Luna: Twelve percentage points? That's massive. What did that do to the bottom line? Lucas: The owner said his net profit went from about three percent to nine percent over two years. And he was able to reinvest that into new equipment, which opened up even more premium services. It became a virtuous cycle. Luna: What about the risk? Isn't value-based pricing harder to justify when a client's own sales are down? Like, if the economy dips, wouldn't they go back to squeezing price? Lucas: That's the thing. He's now less exposed to that, because his clients see him as a partner who helps them grow, not a vendor to be squeezed. During the last downturn, he actually kept his revenue flat while some of his competitors lost twenty percent. Because his clients said, 'We can't cut your budget, you're helping us launch new products.' Luna: So the relationship changed. That's the real moat. Lucas: Yeah. And the funny thing is, the anchor client that was barely breaking even five years ago is now his most profitable account. They still negotiate hard, but they've stopped asking for the lowest price per page. Luna: That's a great place to end. What's the one takeaway you want listeners to grab from this? Lucas: If you're in a commodity business, the way out is not to compete on price. It's to find a specific problem you can solve for your best clients, prove it with a pilot, and then charge for the value you create. It's not easy, but it's the only way I've seen to break out of the race to the bottom.