Your biggest customers are not your best customers. Often they're your worst. Low margins, customisation, and always reminding you how important they are. When they say "jump", you say "how high?" So if your biggest customers are not your best, then who are? To identify key accounts with true growth potential, you must dig deeper.
Your biggest accounts are not always your best accounts. So how DO you find out who your most valuable customers are?
Why large accounts are not key accounts
Key accounts are your most valuable customers, and organisations frequently rely on volume to identify them.
For many B2B companies, their largest customers represent 30 to 50% of total revenue and margin.
So I get it: losing them would be a significant blow.
But size only paints a picture of where your customer is today. Things change. What about the opportunities for tomorrow?
You're sitting on a goldmine of existing customers that:
- can deliver an above-average revenue growth;
- want to invest in your partnership;
- will co-create value in ways that neither of you could do alone.
Like Portrait Software, a small client of mine acquired by Pitney Bowes, a global technology company. Portrait Software became a key account, and within 18 months, that partnership led to winning the larger Pitney Bowes business.
Which is why key account management is so important. Because you're not just searching for your biggest, but your best customers, who'll generate long-term revenue growth and strategic partnerships.
So let's find them.
How to identify key accounts
Let's keep this simple.
You'll select your key accounts with 15 criteria which are grouped into three categories: Growth, Harmony and Value Creation.
- Assess your customers against each criterion.
- Give a score of between 1 (very low) to 10 (very high).
- Apply a weighting too if some criteria are more important than others.
- Disregard irrelevant criteria or substitute your own.
- Add up each customer's total score.
- Customers with the highest scores are your key accounts.
I told you it was a quick guide.
Beware: Not all customers can be key accounts.
How many make the grade will depend on your resources. Nurturing these partnerships is time consuming and hard work. So be ruthless when selecting key accounts if you want a return on investment (or hire more account managers.)
Score clients based on their commercial appeal and opportunities to expand revenue and improve margin.
- Revenue potential. How much do your clients spend? Look for those with consistent growth over the past three years. Are they spending elsewhere? Do you believe you can control the future share of wallet?
- Cost to serve. Can you service your clients more efficiently and cheaply now or in the future?
- Demand stability. Revenue doesn’t tell the whole story. Consider how your clients use your solutions and look for those with consistent adoption.
- Access to new markets. Are they expanding through acquisition? Or have a strong international presence? Or diversified across multiple verticals? Can they help you access new markets?
Score clients based on how well they fit your solution, your culture and your business strategy.
- Products and services requirements. Is your solution a good fit and does it meet your clients’ needs compared to other suppliers? Are customer satisfaction scores high?
- Culture of innovation. How innovative is your customer? They can enhance your solutions by partnering with you on product development. Or they may be early adopters, beta testers and eager to participate in user studies.
- Benchmarking. Customers that use your solution efficiently and effectively are valuable to help optimise product and processes. They’re also useful for case studies and testimonials.
- Corporate reputation. Well-known customers create trust. The brand value of your clients can help develop networks within an industry. New customers may be more encouraged to partner with you if you serve others with strong reputations.
- Buying process. The closer you are to the purchasing process, the more effective you’ll be at influencing and managing the account. How centralised is your customers’ buying process?
Score based on their partnership orientation. To what extent will your customers invest in the relationship and view you as a strategic supplier?
- Strategy. Can you help your client reach their goals or give them an advantage they couldn’t achieve alone? Can they do the same for you?
- Solidarity. Clients that work together to solve problems. They don’t use ultimatums or threaten the relationship, especially when they encounter difficult situations.
- Long-term orientation. Clients that understand it makes strategic and economic sense to create long-term partnerships.
- Planning behaviour. Does your customer engage in proactive, mutual goal setting, take action and review and adapt?
- Mutuality. Clients who believe in joint success and consider you a strategic supplier. Everybody should win.
- Information exchange. Clients who proactively share information useful to your partnership. They’re open and honest.
TIP: Don't do it alone. Invite other departments into the conversation — groups like sales, marketing, customer service and support that know your clients. You'll get a comprehensive view of your customers, and it'll help with the assessment.
Oh say, can you see?
When you evaluate your customers against the growth, harmony and value creation factors, you get a very different view of who your most valuable are.
What do you see?
Are there new opportunities leaping out out you? Are you bursting with fresh ideas about what you can accomplish together with your customers?
It's exciting stuff with unlimited potential and the reason why you should look beyond volume to identify key accounts to create long-term business growth.
Crowdsourced key account definition
There are a lot of opinions on how to identify key accounts. So I asked LinkedIn for some key account selection advice and got some great answers
- Is engaged
- Values your solution
- Welcomes your advice
- Acts on your recommendations
- Puts price in perspective
- Acts as a reference and a referral
- Respects you
- Focused on value
- Opportunities for growth
The post also gathered some incredibly insightful commentary on the selection of key accounts. It would be a shame to lose them to the algorithm forever, so they're repeated here. I'm grateful to all the contributors for their wisdom.
To me there are a number of considerations. First, to what extent does this customer deliver the profitability of a company. If you have an account (however much they engage) that is 15-30% of your business - they are a key account that needs to be managed and retained.
High dependency means key ... as does high opportunity.
I would add that your strategy for resourcing and working with a key account can be different. In our Account Plan application we have four categories of account development automatically calculated.
One is for a "maintain" customer where you have high wallet share and low growth potential and it is important to retain this customer - you wouldn't put your best selling resources here but instead use service resources to ensure great customer experience .... the opposite is an "Invest" customer where you have low wallet share but high growth potential - here you need strong business development people to realise the opportunity. So two issues - how important and how to manage.
I think you need to decide what sort of accounts you need and how you measure success.
Revenue is a vanity number without profit.
If you have unprofitable or marginal accounts then you either need to make them more profitable or let them walk away. Slogging your guts out on both sides to make people unhappy is pointless and will effect the overall morale in the team. You are better to fire the customer than keep them on without value.
Garry Mansfield ‧ Founder at Outside In Sales & Marketing
(1) What you did with the client up to now and (2) What the potential is.
Some examples of what we can use as selection criteria are:
- How much business you already do with the client / share of wallet / hit rate (I like that one) / complexity of the client (that on can be + or -) etc.
- How big is the potential with the client / do you have a good relationship with the client / trustfulness / etc.
- Average revenue over the last 3 years.
- Hit rate (ratio offers vs. gained mandate).
- Complexity of the client (if you can manage a high complex client, maybe you should take it as a Key Account).
- Trust and fairness. Leverage potential.
- Payment moral.
I like to use the BCG Matrix because it offers a neutral and objective view on the selection (assumed the criteria have been selected objectively.
Lionel Ebener ‧ CEO & Co-founder, open2work
Organisations that leverage the data in their CRMs and other systems to optimise their target list and allocate resources accordingly have higher win rates, greater sales velocity, higher margins and more satisfied clients.
Alex Berg ‧ Director of Enterprise Accounts at Corporate Visions
If you are delivering a good customer experience and are good at Account Management, which you should be if you want to be among the best vendors, you will have a significant number of customers fitting with this definition.
Then, you are better off refining the definition of "Key" and evaluate which customers are truly strategic to you (i.e. = they help you implement your strategy).
Why does it matter?
Because in end effect your resources are limited and being very clear on which customers are truly strategic, which are collaborative and open to advice and which keep you at arm's length, will help you prioritise how your resources are used.
A typical and much too frequent example of a poor definition of "Key Accounts" is when sales reps are called Key Account Managers with a portfolio of 20, 30 or even more customers. In such a set-up, the truly strategic customers and the "key" accounts per your definition do not receive the proper level of attention.
Oliver Riviere ‧ Managing Partner, KAM, Sales Enablement & Complex Sales at Powering
- Are key account relationships different? A 2004 study published in Science Direct by Ivens and Pardo examines the factors that drive key account relationships - and those that don't.
- A Configurational Perspective on Account Management. A 2002 study by Homburg, Workman published in the Journal of Marketing on designing a key account management approach.
Identifying key accounts is not an exact science. Nor is it static. As your business grows, your view on what makes a customer your most important will change. Re-calibrate if you need too, stay focused on value co-creation beyond financial measures and your key accounts will lead you to outstanding growth.