I am often asked to advise sales and marketing executives about their challenges in managing key accounts. While it is critical for a business to have several key accounts to provide stability 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. It is quite common to see in our industry that key accounts end up demanding more than a fair share of their supplier’s resources.
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 analysis’
This is one tool that I recommend that companies use at least once every quarter. In businesses with small size orders, the tool can be used monthly. For each key account, the following metrics should be captured accurately:
- Total sales
- Percentage profits (over sales)
- Growth rate of sales in existing product line
- Value of new products/services
- Order size distribution and average
- Price comparison with other customers in the same category
In the subsequent paragraphs, I will discuss how this data can be helpful in resource allocation and sales/marketing strategy formulation.
What does it mean?
There are numerous advantages of working with key accounts. Most large companies have excellent R&D resources and are generally more active in new product introductions. As packaging materials suppliers, some of these pressures from customers mean a lot of opportunities for innovation in developing the right package. However, the thing to remember is that the key driver at these customers is not the profitability of the packaging supplier but their own efforts to come up with the cheapest package that can result in a successful launch of their product.
In an analysis that I conducted, the findings are very interesting. A typical key account does provide stable cash flow to a packaging company and this is exactly why suppliers stick to their key accounts. What I concluded, however, is that key customers are more likely to overuse resources of current 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:
- Which of these key accounts are profitable?
- Is growth rate at key accounts higher/lower than other accounts?
- What kinds of business opportunities have emerged from key accounts – several small orders, few large orders, a mix of both?
- Is the price offered to key accounts justified in terms of revenue/profits/new business generated?
- How much resources need to be dedicated to which account to maximize value to the enterprise?
Using the analysis for strategy formulation
I typically recommend that companies follow a dual strategy for managing their customers – one for key accounts and another one for all others. A value analysis of key accounts will clearly indicate to a company 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?
Such data will enable executives in serving better those customers that have the highest growth potential and thus create 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.
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