The definition of key account management
If you're not sure what key account management is, don't worry, you're not alone. It's a difficult concept to nail down and often misunderstood. So let's answer what it is, what it isn't, and how to do it well.
Here's the dull, academic definition of key account management:
[Key account management is] the process of allocating and organizing resources to achieve optimal business with a balanced portfolio of identified accounts whose business contributes or could contribute significantly or critically to the achievement of corporate objectives, present and future.
Burnett, K. (1992). Strategic Customer Alliances. London, UK: Pitman.
The importance of key account management as a business strategy is because
- Existing customers are up to 70% more likely to buy from you than prospects.
- 80% of a company's revenue comes from just 20% of existing customers.
In other words, if you want to make money, spend more of your time and resources on the clients with the best growth potential.
It's a little more complicated than that, but before I explain, let's take a look a quick look at how key account management came to be.
Key account management origin story
Once upon a time, not only did sales reps win the client, they also supported them long after the deal was done.
But, it was tough to find new business while still looking after the old business. There was too much to do and not enough time to do it in.
Over the years, as
- buyers became more powerful;
- customers went global;
- costs came under pressure;
- the supply chain became more complex
It was obvious that one person couldn’t do it all. So somewhere in the 1960’s responsibilities were split.
Sales people won the clients. Key account managers kept them.
It took a while to take off, but by the 1980s key account management was the moment.
And still is.
More resources and attention on the needs of existing business helped companies accelerate revenue and retention. Clients developed strong relationships with their suppliers and achieved better results, faster.
And everyone was happy (mostly - some clients are never satisfied!)
How do you classify a key account?
How do you decide which clients to swipe left and which to swipe right?
You might think your biggest accounts or your most complex accounts are your most valuable customers.
But you'd be wrong.
Key accounts can be big or small, local or global. They can be strategic or opportunistic.
Because what makes a key account is its future value. Not what clients spend today, but what opportunities may become available tomorrow.
Do you have clients that have these qualities?
- Growth. Clients with opportunities to expand revenue, improve margins and reduce the cost to serve.
- Harmony. Clients who are a good fit for your solution, and you meet their needs better than other suppliers.
- Value. Clients who consider you a strategic partner and want joint success. They know you give them an advantage they couldn't achieve alone.
If you do, they're good candidates to become your key accounts.
The role of key account managers
What does a key account manager do?
Glad you asked.
They partner with a company's most valuable clients to understand their challenges and needs and use those insights to come up with new ideas to create mutual benefit.
By following a systematic approach to creating action plans they identify opportunities for growth and mutual benefit.
And they prevent the risk of clients leaving (like stopping competitors sniffing around).
Establishing influential business relationships with decision-makers is a primary goal. That's how budgets are approved and things get done.
Key account managers also coordinate any internal resources needed to achieve their plans and ..
You know what I could go on, so let me sum it up by saying key account managers make it easier for clients to do business with you.
Implementing key account management
Like the salesperson that came before them, key account managers can't do it all.
You must align everyone in the supplier organization to your key account management vision and put supporting processes in place. Otherwise, your strategy will be in trouble.
- Value proposition. Create a differentiated value proposition for key accounts. It should not be the same service you offer every client.
- Tools. Install systems to help build long-term strategies, gain insights, manage knowledge and grow sales. That will mean an investment in technology.
- Resources. Key account management needs the help of finance, legal, IT and others to reach their goals. Set expectations across the organization.
- Performance. Decide how you will measure and communicate results. Reporting should be in place to track account performance.
- Key Account Team. Define roles, responsibilities and qualification criteria. Identify development programs to enhance the range of skills required.
Questions to ask
- What are the selection criteria for key accounts?
- What will it take to get clients to recognize your business as a strategic partner?
- What indicators are appropriate to measure a key account manager's performance?
- What are the essential skills and competencies key account managers need?
- How do we calculate the Return on Investment (ROI) of key accounts?
- What is the role of top management in developing key accounts?
- What elements of key account management create a competitive advantage for us?
- What are the contingencies to manage the risk of defection for key accounts?
Challenges of key account management
There is a big upside to a key account management strategy, but also risks.
- Not all accounts are equal. If you classify a key account incorrectly you won’t get a return on investment. They could even cost you money as you divert resources to clients with no growth potential..
- Unclear expectations. When clients don't know why they're a key account and what the difference is, it leads to dissatisfaction. Without context, expectations become too high, or they don't value the relationship at all.
- Limited opportunities. Clients may not like you working with their competitors, especially if they're a large global firm. For example, if your client is PepsiCo, they may say you can't work with Coca-Cola as well.
- Cost. Key account management is resource-intensive. And it's not just people. There are processes, systems, technology, equipment, training and more needed to achieve results.
- Organizational change. Key Account Management is an evolving strategy. You'll need to frequently review processes, team structures, reporting lines, compensation plans and more. That can lead to disruption and severe consequences if those reviews are not well thought out.
What key account management isn't
By now, you should understand what key account management is and its value as a business strategy. But there are some things it isn't:
- Short term. Key account management needs a long-term investment of energy and resources. It takes time to see the benefits to the bottom line. So be patient.
- Sales. Yes, key account management grows revenue. But it does so by linking opportunities with solutions that improve the client experience. That comes first. Cross-sell and up-sell are tools, not targets.
- For everyone. Keep the number of key accounts small. The greatest return on investment requires a portfolio of clients with significant opportunities for account growth and a key account manager who has time to convert them.
- A single point of contact. Key account managers aren't the sole face of the business to the customer. It's impossible to deliver strategic outcomes when distracted by day-to-day issues. Connect subject-matter experts across both organizations to develop institutional relationships.
Key account management is a great strategy to build long-term business relationships with your most valued customers to turn buyers into partners.
Yes, it requires greater resources and increased costs, but if you do it right, you'll achieve greater revenue and retention long-term.
If you'd like to chat about your key account management strategy, and how Account Manager Tips can help you, let's talk! You can find a time in my calendar that works for you.