Definition of key account management
If you're not sure what key account management is, don't worry, you're not alone. It's a difficult concept to nail down and often misunderstood. So let's answer what it is, what it isn't, and how to do it well.
Here's the dull, academic definition of key account management:
[Key account management is] the process of allocating and organizing resources to achieve optimal business with a balanced portfolio of identified accounts whose business contributes or could contribute significantly or critically to the achievement of corporate objectives, present and future.
Burnett, K. (1992). Strategic Customer Alliances. London, UK: Pitman.
In other words, spend more of your time and resources on the clients with the best growth potential.
But that's not all.
Before we get to that, let me explain how key account management became a business strategy.
Key account management origin story
Once upon a time, not only did sales reps win the client, they also supported them long after the deal was done.
But, it was tough to find new business while still looking after the old business. There was too much to do and not enough time to do it in.
Over the years, as
- buyers became more powerful;
- customers went global;
- costs came under pressure;
- the supply chain became more complex
It became clear that one person could not do it all, and so the responsibilities were divided.
Sales people won the clients. Key account managers kept them.
More resources and attention on the needs of existing customers changed client relationships.
- Vendor. Undifferentiated. Viewed as a supplier of products and services. Limited access to the client and usually via gatekeepers
- Preferred Partner. Has the most significant share of the clients' business and advises on using products and services effectively. Has access to middle-management
- Business Consultant. Consults with the client on how to achieve their long-term business objectives. Access to all or most levels of management.
- Partner. Provides expertise and integration to create value the client can't achieve without you. Has access to all levels of management - including the C-suite.
(Kurzrock, W. (1996), The Sales Strategist, Irwin )
See the difference?
As a result, organizations accelerated revenue and retention. Clients developed a strong relationship with their suppliers and enjoyed greater benefits.
And everyone was happy (mostly - some clients are never satisfied!)
How do you classify a key account?
How do you decide which clients to swipe left and which to swipe right?
You might think your biggest accounts or your most complex accounts are your most valuable customers.
But you'd be wrong.
Key accounts can be big or small, local or global. They can be strategic or opportunistic.
Because what makes a key account is its future value. Not what clients spend today, but what opportunities may become available tomorrow.
Do you have clients that have these qualities?
- Growth. Clients with opportunities to expand revenue, improve margins and reduce the cost to serve.
- Harmony. Clients who are a good fit for your solution, and you meet their needs better than other suppliers.
- Value. Clients who consider you a strategic partner and want joint success. They know you give them an advantage they couldn't achieve alone.
If you do, they're good candidates to become your key accounts.
The role of key account managers
Key account managers lead the client relationship with your most valued accounts. They learn about client challenges and needs and use those insights to come up with new ideas to create mutual benefit.
By following a systematic approach to creating action plans they identify opportunities for growth.
And prevent risks of client's leaving (like competitors sniffing around).
Establishing influential business relationships with decision-makers is a primary goal. That's how decisions get made and budgets approved.
Key account managers also coordinate any internal resources needed to achieve their plans. Communication improves, friction reduces, and consistency increases across products, prices, processes and locations.
In other words, make it easier for clients to do business with you.
Implementing key account management
Like the salesperson that came before them, key account managers can't do it all.
You must align everyone in the supplier organization to your key account management strategy and put supporting processes in place. Otherwise, your strategy will be in trouble.
- Value proposition. Create a differentiated value proposition for key accounts. It should not be the same service you offer every client.
- Tools. Install systems to help build long-term strategies, gain insights, manage knowledge and grow sales. That will mean an investment in technology.
- Resources. Key account management needs the help of finance, legal, IT and others to reach their goals. Set expectations across the organization.
- Performance. Decide how you will measure and communicate results. Reporting should be in place to track account performance.
- Key Account Team. Define roles, responsibilities and qualification criteria. Identify development programs to enhance the range of skills required.
Questions to ask
- What are the selection criteria for key accounts?
- What will it take to get clients to recognize your business as a strategic partner?
- What indicators are appropriate to measure a key account manager's performance?
- What are the essential skills and competencies key account managers need?
- How do we calculate the Return on Investment (ROI) of key accounts?
- What is the role of top management in developing key accounts?
- What elements of key account management create a competitive advantage for us?
- What are the contingencies to manage the risk of defection for key accounts?
Challenges of key account management
There is a big upside to a key account management strategy, but also risks.
- Not all accounts are equal. You may not get a return on your investment if you classify a key account incorrectly. They could cost you money as you divert resources to clients with no growth potential.
- Unclear expectations. When clients don't know why they're a key account and what the difference is, it leads to dissatisfaction. Either expectation is too high, or they don't value the relationship at all.
- Opportunity limitations. Clients may object to you working with their competitors. It's not uncommon with large global firms. For example, if your client is PepsiCo, they may say you can't work with Coca-Cola as well.
- Cost. Key account management is resource-intensive. And it's not just people. There are processes, systems, technology, equipment, training and more needed to achieve results.
- Organizational change. Key Account Management is an evolving strategy. You'll need to frequently review processes, team structures, reporting lines, compensation plans and more. That can lead to disruption and severe consequences if those reviews are not well thought out.
What key account management isn't
By now, you should understand what key account management is and its value as a business strategy. But there are some things it isn't:
- Short term. Key account management needs a long-term investment of energy and resources. It takes time to see the benefits to the bottom line.
- Sales. Key account management improves the customer experience by linking opportunities with solutions. Revenue comes from up-sell, cross-sell, expansion and improved margin.
- For everyone. Not all customers are key accounts. The greatest return on investment requires a portfolio of clients with significant opportunity for account growth.
- A single point of contact. The key account manager isn't the sole face of the business to the customer. It's impossible to deliver strategic outcomes when distracted by day-to-day issues. Connect subject-matter experts across both organizations to develop institutional relationships.
Key account management is a great strategy to build long-term business relationships with your most valued customers to turn buyers into partners.
Yes, it requires greater resources and increased costs, but if you do it right, you'll achieve greater revenue and retention long-term.
If you'd like to chat about your key account management strategy, and how Account Manager Tips can help you, let's talk! You can find a time in my calendar that works for you.