Management or Customer Relationship Management
Maintaining a balance between
current profit and future growth
I am often asked to advise sales and marketing executives about their challenges in managing key accounts. Large corporations that are very committed to key account management and
customer relationship management (CRM) also find that at the end of the day the numbers should do the talking.
However, for startups and small businesses, the analysis
and approach needs to be slightly different.
While it is critical for a business to have several key accounts to provide stability
(mostly in cash flow) to the business, it is also important that the key accounts be monitored carefully to ensure that these accounts continue to be profitable at the same time. The reason we
do not always have this at all companies is because of the divergence we have between different participants in the game. The company head is generally responsible for both sales and income and this
typically gets conveyed to the level of sales director
(whose compensation is tied to both sales and profits). However, for the sales
people in the field, the bottom line is less of a concern; their compensation is
typically tied to the top line. In my analysis for
several clients, we were eventually able to show that key accounts end up
getting more than a fair share of their supplier’s resources. I often came across the 80/20 distribution: only 20% of the 'so-called' key accounts were contributing 80% of the operating profits. Rest of them, while providing a
boost to top line, were actually hurting the bottom line.
(Related article: How
to identify key accounts?)
Most executives have to constantly struggle with finding an effective key account management strategy since losing even one of these accounts can have a devastating impact on the company. On the other hand, having account-specific teams is costly, and in most cases, it is hard to cut down on resources committed to key customers.
"Key account value
This is one tool that I recommend that companies use at least once every quarter. In businesses with small
order size, the tool can be used monthly. For each key account, the metrics
shown in the chart on the right should be captured accurately:
In the subsequent paragraphs, I will discuss how this data can be helpful in resource allocation and sales/marketing strategy formulation.
In another analysis that I conducted, the findings were very interesting. A typical key account does provide stable cash flow to a company and this is exactly why suppliers stick to their key accounts. What I concluded, however,
was that key customers were overusing resources of a supplier for awarding additional/new business because of the relationships.
That is why it is important to at least track key account performance by assessing the value of each account to the enterprise. I am not suggesting that a large account be dropped for generating less value. Instead, this analysis should help an executive answer some of the following questions:
Using the analysis for strategy formulation
I typically recommend that companies follow a dual
CRM strategy: one for key accounts and another one for all others. A value analysis of key accounts will clearly indicate
the role these customers play: Are these profitable customers that need to be pampered or are these just large customers that provide good cash flow but the growth will still have to come from other accounts? (Related
your offline customer support online)
Such data will enable executives in serving better those customers that have the highest growth potential and thus create
greater value for their company. There is a fine line here. It is an undisputed fact that finding new customers is always more expensive than retaining the existing ones. In most cases, existing customers switch not because of price but due to problems in receiving the right kind of attention. However, a company that is looking for growth has to make sufficient resources available to pursue customers with highest growth potential. And finally, let me emphasize that such decisions need to be taken at the highest level so that these can be executed without antagonizing the salespeople who depend on commissions.
Recommended links: Customer relationship management
technology solutions for key account management
to decide which conferences to attend?
to improve online customer service? How
to manage important accounts
elements of a key account management program for an MNC
How to build a community of customers
Questions, comments or