Key account management is a simple enough concept but is quite complex in practice because it encompasses a number of moving parts. At the crux of its success is how you and your team choose to categorize all of your customers and select the few that become key accounts. In this post, we will discuss a simple framework for making this easier. Keep in mind that key account relationships share at least four common characteristics: 1) they must be built on a foundation of mutual respect and trust, 2) their long-term operating strategy must be closely aligned with yours, 3) they don’t have to be your largest customers by revenue, but 4) they must have significant growth potential.
The importance of choosing the right customers to develop as key accounts cannot be overstated. Your key accounts should be the customers that not only make a significant contribution to your current revenue, but have the ability to grow substantially over time. Ideally, they are also leaders in their industries whose success in business will have a trickle down effect on your company (and vice versa).
Unfortunately, many companies make the mistake of building a portfolio of key accounts based on the name recognition of certain customers, long-standing friendly relationships between executives, or by simply turning their most demanding customers into key accounts. Another common mistake is for companies to treat today’s largest revenue generating customers as key accounts by default. The flaw in this logic should be obvious: just because the account is large today doesn’t mean it will always be that way. The problem with elevating any of these kinds of customers to key account status is that, unless they share your strategic vision for the future, they are unlikely to help you take your business where you want it to go down the road.
Real strategic account management requires companies to select a small group of customers to whom they will deliver truly customized services and solutions. As such, all companies would be well-served to focus on the customers who show signs of emerging as leaders in their respective industries and whose long-term strategic initiatives most closely align with their own. This is because those accounts are critical to the company’s ability to achieve its long-term strategic objectives.
In our last post on key account management we mentioned that mature companies can feasibly handle anywhere from 15-30 key accounts while young companies should probably focus on no more than five of their most interconnected relationships. Since no company can hope to effectively service a large number of key accounts, choosing them wisely requires a systematic approach based on well-defined criteria.
Key account selection criteria
It is imperative that you dedicate time to establishing easy-to-understand criteria for selecting your key accounts. Taking a systematic approach enables you to make informed decisions today and helps you avoid having to re-categorize customers down the road, costing you credibility with your customer and wasting valuable time and resources.
Key account selection criteria should be chosen by a senior management group representing all departments within your company. This is important because you need to ensure that the long-term strategic objectives of the company are at the heart of your selection process. Account management teams have incredibly valuable insights into the needs and wants of their existing customers but don’t always have the cross-departmental perspective of the senior management team.
Weighting a small number (no more than eight!) of selection criteria and carefully evaluating every customer against them helps you to assess the attractiveness of each of your customers as a potential key account. Ultimately, this helps you determine how best to categorize each relationship to ensure they'll be most successful with your company. Measuring your accounts against your criteria matrix will give you a very strong idea of their long-term potential.
Coming up with selection criteria can feel like a daunting task. The trick is to think holistically about what is most important to your business now and over time. I find it helpful to examine my company’s most successful customer accounts and identify their common characteristics and shared attributes. Instances of overlap are usually good indicators.
Next, I recommend spending a considerable amount of time researching each of your best customers. What are their deep-seeded needs? What is their position in their market? How quickly is their business growing and innovating? Are they a leader or laggard in their field? What is their long-term growth potential and that of their industry? Do their business objectives and growth ambitions align with yours?
At this point it is equally important to consider how your customers view you as a vendor. As can be expected, each of your customers will have a different opinion of you and you attractiveness as a key supplier!
Finally, I suggest taking all of that research and using it to come up with a list of selection criteria that takes into account the outcomes you and your customers are seeking. It is important that whatever criteria you establish make it simple to differentiate between your customers, that they are unambiguous, and can be easily measured and reported on.
Once you have established appropriate selection criteria, you can run all of your customers through a simple selection matrix to properly categorize your customers and whittle down your list of key accounts. Take a look at the criteria evaluation template we’ve included with this post. Feel free to use it as a template to create your own or use it as is. Now that you have evaluated each of your customers according to your selection criteria, you can properly categorize them.
Key account selection criteria
In our last post, we introduced the four core customer relationship stages: Exploratory, Basic, Collaborative, and Interconnected. By default, all of your key accounts must be in the interconnected relationship stage. Interconnected relationships are true partnerships in which both organizations coordinate on activities across a broad range of functions. Customers with whom you have yet to develop a deeply interconnected relationship simply cannot be considered as candidates for your key account program.
To be clear, not every interconnected customer relationship qualifies for key account status. I break interconnected relationships up into three categories: Integrated, Non-Key Accounts, Strategic Key Accounts, and Core Key Accounts.
All interconnected relationships are true partnerships in which both organizations coordinate on activities across a broad range of functions. Both organizations spend significant time together working on strategic plans, coordinating on growth initiatives, product development priorities, and oftentimes, joint marketing efforts. They have reached a point in their relationship where they both openly acknowledge the importance of each to the other. Companies at the interconnected stage share a unique feeling of trust that is the product of working closely together through good times and bad.
Integrated, Non-Key Accounts
These customers are some of the very best, most loyal, happiest, and successful of all. While they do not necessarily have the potential to grow substantially or help open new markets for you the way key accounts can, they play a vital role in the success and profitability of your company. They require a high level of service and support but recognize - and pay for - the value your company creates for them. In fact, these accounts tend to have the highest profitability profile of all customers.
Strategic Key Accounts
Strategic key accounts have the greatest upside growth potential. They are some of the most fun and exciting customers to work with because both sides align to jointly architect strategic plans that will benefit both parties. Because you expect significant medium to long-term growth in revenue and profit potential, it is justifiable to manage these accounts at break-even or even slightly negative margins. While you probably can’t afford to have too many loss-leading strategic key accounts, these are your real needle-moving customers so you definitely want a few.
Core Key Accounts
Your core key accounts are your stalwart giants. Over time, both companies have invested aggressively in the relationship resulting in the formation of a deep and enduring partnership. Although you can’t expect more than moderate growth from these customers, they are your absolute best relationships. Your goal is to optimize the profitability of these customers, not maximize it. Ideally, as your company grows and matures, you wind up with a portfolio of key accounts that is heavily weighted toward core key accounts that will continue to push you in new directions and help you grow your business as you help them grow theirs.
As we’ve discussed herein, developing your key accounts involves more than just choosing the biggest names in your portfolio, paying them a bit more attention and hoping it pays off. Selecting your key accounts and then appropriately categorizing them based on growth potential and business fit is hard work. The success of your key account management program is directly proportional to the time and energy your team commits to planning and preparation. Making an honest assessment of your accounts means putting in the time to truly understand each company, the relationship you have with them today, and where it could go over time. It’s an exercise that, when done correctly, facilitates immense growth, stability and opportunity for your organization and is worth every bit of effort.