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Key accounts that are not key

Key accounts (KA) are crucial for nearly every technology company. They are the "20% that brings in 80%" customers and often companies do not spare effort to setup special infrastructures, or assign special resources to those customers to support them. It is surprising therefore, that the process of selecting and reviewing key accounts does not get similar attention or energy. An incorrect list undermines the profitability and growth of the company. How to make sure that the ‘right’ customers receives most of your valuable resources?

Who is key

It is not easy to decide who is ‘key’ or who is not. How do you compare a large customer that brings the volumes with a much smaller customer that brings the profits or the needed innovation? Does one deserve more support than the other does, and if so, which one?

For most, a key account is either one of following or a combination of those: 
  • One that generates the highest revenue 
  • One that has the highest potential or fastest growth 
  • One that has a leadership position in his market 
  • One that has a reference reputation in his market 
  • One that is very loyal to your company 
  • One that is very demanding or has a large grip on your business 
  • ... 
These customers are usually given:
  • A higher priority 
  • A special infrastructure or dedicated resources e.g. a key account (support) team 
  • Preferential terms and conditions 
  • The best price 
  •  ... 
Whilst often these accounts help to generate the revenues, they do not necessary create the profits if you calculate the real cost of serving them.

The problem lies in the KA selection process

There are countless good books, articles and software systems about the key account management and the key account selection process. Mostly they assume that you have full insight in your customers and that accurate information is available to make the right decisions or input this in systems that help you to make right decision.

In reality, many companies do not have the resources, time or sufficiently accurate information at hand to feed the above processes. Company politics, organization structures, individual preferences can further undermine any objective process. To tackle this, some resort to a very small key account selection team and process e.g. the top marketing executive together with the CEO or top sales executive. Others use a bubble sort method, which reviews on an annual or bi-annual base the KA list and downgrades key accounts to major and upgrades major accounts to key.

The issue is that deciding on KA’s is not a simple one or two-dimensional problem. It is an n-dimensional problem and there are no clear rules to help you decide what is ‘n’ and what axis is more important; this depends on your company and environment. The use of fixed formulas, that combine and weigh various criteria into one parameter like ‘attractiveness’, can put you on the wrong foot – see an example below.

There are alternatives. This is one

How, given limited time, resources and possibly incomplete information, can you still come up with a smart process that generates a sufficiently accurate KA list and one that makes reviewing the list with others easier?

Based on the assumptions that:
  1.  Customers do not fit a single dimension classification like key, major or small and,
  2. (potential) revenue/share and profits are always decision factors and,
  3. there are a maximum of three x-factors, sufficiently describing the value of each customer for your company,
we created a model and process that addresses this.

The picture above represents a simplification of the model in which the total cube represents your customer base, your total market or a sub segment of your market. The customers that give you the maximum revenue, profit and x-factor are the ‘true key customers’. Furthermore, there are six groups to classify customers: ‘Important’ customers are those that bring the profit. ‘Volume’ customers are those that bring the revenues, but at lower profits. ‘Lead’ customers are those that bring you an edge in your x-factors followed by ‘cautionary’ and ‘don’t touch’ customers.

The execution of the above is straightforward, and gives fast and accurate results. Main discussion points to agree lie in the decision phase and the review phase.
  1. Define the x-factors: this could be innovation, execution excellence, quality etcetera. The x-factors need to be sufficiently specific and of strategic importance.
  2. Define how you measure revenue or share and profit. E.g., revenue could be the forecasted next 2 years sales, profit could be product margin minus direct support cost etcetera.
  3. Define on how x-factors are measured and weighted e.g. innovation is measured from 0 to 10. The weighting should reflect the priorities and strategy of the company.
  4. Define customer classification. In the illustration, we use six customer classifications. It can be less or more, but over 10 in most cases is unpractical.
  5. Create a list of (potential) customers and gather all the information, this is often the time consuming phase of the process
  6. Process the data and start the review process. You may need a few iterations to get the right classification cut-offs and weightings.
  7. Inform the organization on the outcome
What we found was, that not only is this process fast, it gives sufficient information to have in-depth discussions and get fast agreements on who are the ‘true key’ accounts. Sometimes with interesting new insights: accounts dropping from ‘key’ to ‘don’t touch’…

Final words

In almost every business, key accounts get the highest priority and the most resources. Spending resources on the ‘wrong’ customer can slow your growth or even set you back compared to competition. Having a structured KA selection in place, modelled according to your business and which can be reviewed regularly and easily, will help you to minimize the misappropriation of valuable company resources.

Are your key accounts the right ones? The litmus test is a simple question: "Are you willing to lose money over this customer?” We are not saying you should, but if the answer is ‘no’, then you may want to review your key account selection process – the customer could be a ‘don’t touch’.

An simple example of a revenue driven approach.

If innovation and profit are chosen to be more important, then many customers drop of the key account list. Note that the attractiveness score in this case is way off. Customer 3 and 5 are still important as the generate good profits.

(c) 2011 - EnFeat Pte. Ltd.