One of the pillars of effective key account management is selecting key accounts. This means identifying those customers which offer you, as a supplier, the greatest potential over the medium to long term. Unlike a narrow purely sales focused path, key account management is a strategic approach that is concerned with your total organisations long term growth and market position.
Focusing on key accounts will improve your market share, profit margin and help you continuously build a pipeline of fruitful opportunities. In fact, research by Cranfield School of Management, the Strategic Account Management Association and respected consultancies, shows that well executed key account management can raise suppliers’ profits and revenues by 30% or more.
In this guide, we’re going to look more closely at the process of defining your key account selection criteria as well as some of the considerations to bear in mind when actually diverting resources to grow these key accounts. First though, let’s begin with a short overview of what key account management actually is.
What is Key Account Management?
Key account management is an approach to business aimed at driving exceptional performance for suppliers by identifying and proactively developing those priority customers who can bring the most value for their business over the medium to long term. Such value isn’t always associated with the biggest customers of today, but may be found in those that are expanding and open to collaboration.
Key accounts are pivotal to the performance of a suppliers business. Develop your key accounts and your business will be in good shape.
To build position with these key accounts, the supplier needs to invest the time and resources to understand their business and to create strong and mutually beneficial relationships.
It’s critically important that these activities aren’t just viewed as a sales strategy and that key accounts are proactively managed, combining disciplines across the supplier’s business to bring the full extent of its capabilities to targeted key accounts.
What makes a High Worth Customer
As a Key Account Management principle, the Pareto rule (or 80/20 rule) is often quoted in relation to identifying the ratio of customers your business is most reliant on. The rule proposes that 80% of your company profits will come from just 20% of its customers.
This 80/20 ratio itself is often an exaggeration, but the principle of relatively few customers being vital to performance is sound. These few ‘key accounts’, perhaps totaling five to thirty in number, have high long term demand for your products, services and capabilities and the ability to pay. They have a high potential net worth – or lifetime value – to your business
Below are some important characteristics and traits that might be amongst those considered when selecting the perfect key or strategic account:
Key Account Growth
They are usually big or fast growing customers with significant influence in your target industry sector or market.
Key Account Behaviour
They should excel in business protocols and be generally be good customers to do business with, sticking with promises and actively preferring you as a supplier.
Key Account Innovation
They may present a challenge in areas such as innovation, which encourages you to develop faster and transfer learning and sales potential to your other key customers.
Key Account Collaboration
They are willing to collaborate with you by inputting resources and developing approaches to stretch thinking, actions and performance gains.
Key Account Perception of Value
They appreciate value and are prepared to pay for it and dedicate resources to the relationship when it enhances both their own position and that of the supplier.
Key Account Values
They share similar business values to your own organisation, which is often a strong indicator of culture fit as well as a willingness to engage and collaborate with like minded people.
Key Account Selection Criteria
Key account management, as we have mentioned, is a dynamic discipline. Selecting key accounts is not a one off exercise but part of a proactive ongoing process of evolving your portfolio of key customers. It is a practice that lies between science and art, requiring instinct as much as it does careful analysis and due diligence.
There are two elements to any key account management selection criteria. They are as follows:
The Key Customer’s Attractiveness
Key account selection relies on identifying attractive qualities in a customer. This could be how big the customer is, how fast they are growing, how much it is spending in your area of business and the extent to which the customer’s values align with your own.
The Supplier’s Relative Position
The second pillar of any key account criteria needs to look at the supplier end of the equation; that is your attractiveness to the customer. Any worthwhile strategic relationship needs to be reciprocal. This means ascertaining how well your business ranks in the eyes of your customer compared to your competitors, how strong your reputation is in this particular business area or sector and how good is your business at innovating. Do you have global reach and the capacity to meet rising demand?
These two areas of consideration should form the start-point for debate around key account management strategy, but not the only basis for hard decision making. It is best to start the selection process as an open discussion allowing challenge from across your team.
How to Select Key Accounts
Once you have built consensus around what what your selection criteria looks like it’s time to start creating a more precise and quantifiable framework with appropriate weighting and scoring given to each criteria. This will form the basis of your key account management rationale.
Before you begin applying your selection criteria to your customer portfolio, it’s important to recognise that defining a customer as not a key account also has consequences. The investment required to build better relationships and win business from your newly defined ‘key accounts’ will require a reduction in spend on non-key accounts. This might take the form of reduced spend on innovation or rethinking the routes to market (switching to internet based communications instead of direct visits for example). You may also think of cutting back on additional services offered to these non-key accounts and reducing spend on innovation. Often such moves result in non key account customers becoming more profitable too.
The strongest key account suppliers are those that have established a regular review process that can judge the ‘potential’’ of each key account and proactively make changes to actions and investments when required.
So, in summary, key account management is dynamic approach of balancing and wisely investing for future returns; agility is a crucial trait for any successful key account management strategy.