Key Account Management
How to identify key accounts?
A lot of organizations appreciate the importance of
account management but fail to identify their key accounts in a strategic fashion. This is simply because of a common misconception that “big” (company size) is also “key,” and that offering special treatment costs more. In this
series of articles, I will highlight the importance and
steps for identification of key accounts, an approach to segmentation
and categorization of accounts, and steps for developing a key account management strategy.
Why “big” is not always “key”?
Most companies try to include big companies in their customer portfolio and it is a good strategy (unless you choose to serve only small customers for strategic reasons). Serving a fragmented base of customers generally raises the cost of doing business and customer turnover can cause severe fluctuations. However, serving big companies too has its challenges:
- Require more attention and typically do not pay for it.
- Leverage their scale and market power to negotiate lower prices and often exploit suppliers by creating conditions for price wars.
- Use small suppliers by giving them small orders and getting the lowest possible prices to squeeze their larger suppliers.
Salespeople learn only the hard way that many big companies rarely give them the business that they deserve based on the effort that they put in. Therefore, it is important to clearly identify what customers are “key” to your business and then serving them using a well thought out plan.
Customer segmentation approach to identifying key accounts
Identification of key accounts should be a quantitative exercise rather than an emotional one based on personal preferences. The recommended approach is suggested
Step 1: Group your customers into three (or more categories) by sales. For instance, more than $1 million (A accounts), $100,000 to $1 million (B accounts), and less than $100,000 (C
Step 2: Include contribution margins and direct profit (or any other financial metrics that make sense for your business).
Step 3: Identify key accounts based on the accounts that have the highest impact on company financials.
In my analysis, I have found that for vast majority of companies, the 80/20 rule applies. In other words, approximately 20% of their accounts create 80% of the value for the enterprise. This set of accounts that you identify in step 3 are your key accounts.
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