“I don’t know the key to success, but the key to failure is trying to please everybody” ~ Bill Cosby
In many companies 80% of revenue come from only 20% of their customers, and other benchmarks show that 50% of a company’s revenue comes from 5% of its customers… Whichever the measure, it’s clear that a small and disproportionate number of customers are responsible for a large percentage of a company’s revenue. In fact, strategic accounts are critically important for a company’s growth and profitability and must be carefully managed as a valued company asset.
Competitive pressure on companies has never been greater. Sluggish economy, globalization, mergers and acquisition, eroding margins, out-sourcing, the technological revolution, shrinking customer bases; these and other developments are creating unprecedented challenges for business executives, especially for those who manage strategic accounts. More than ever, maintaining and building relationships with existing key customers has become essential for sustaining the P&L profile, and is an imperative for company growth.
There are two approaches to maintaining a healthy P&L. Cut costs or improve revenue (ideally, of course, you do both). By now the first approach, which dominated the last 10 years, is approaching the stage of limited returns, as organizations realize that there is only so much excess fat any company can eliminate. As a result the second approach, revenue improvement, is fast becoming a universal imperative. Recognizing that revenue is the lifeblood of their organizations, executives are increasingly following the mantra “back to growth”.
There are two approaches for business intent on growing revenue. Expand into new markets and new customer bases, or optimize the business in your existing strategic accounts. These approaches are meant to be complementary, but with global competition severely limiting market expansion, leading firms are focusing on the second option, seeking to develop untapped potential in their existing customer bases.
There are two approaches to improving business with your strategic or large accounts. The old-fashioned methods of try and sell them more and bill them accordingly. Or, a more enlightened method with focus on the development of a long-term, profitable relationship by delivering significant value that improves the customer’s business. In fact the “secret” for business success in the twenty-first century is exactly that; make significant and valued-contributions that ensure the success of your key customers.
The need for a reliable strategic account management process is more urgent today than it has ever been. If you doubt that, try to find an institutional banker with less than a 30 percent churn rate or a telecom that doesn’t worry about customer retention. And this brings up a whole new topic: What does it costs to acquire or lose a customer? This is a highly debated subject with answers that vary from; “it depends” to “3-times” to “10-times” to “it doesn’t matter”. Here are a several opinions:
“Calculate the customer life-time value. Calculate the customer asset-replacement cost. Would you be able to replace this account with another of equal value? What is the acquisition cost? Is there 5% or 10% or 20% rule for acquisition: If a customer is worth $10 million annually is the firm willing to invest $500K or $1 Million annually to keep it or to acquire it? What is the return-on-investment (ROI)? Go through a lifetime customer-value exercise. Consider the value you deliver to the account, the replacement cost, and the investment you need to make in the relationship.”
“There is a spurious “fact” that circulates widely alleging that “it costs five times as much to acquire a new customer as it does to retain an existing one,” although sometimes people say it is seven times as much or ten times as much. This fact originated with a Harvard Business Review article a couple of decades ago, which was the result of a general study of retention policies compared to acquisition policies across a range of businesses in different (consumer) categories.”
“The idea that “it costs X times more to acquire a customer than retain one” is an urban myth. First off, acquisition costs vary by industry. The auto industry needs to spend a whole lot more to acquire a customer than, say, ‘ING Direct’ who can jack-up their interest rates on CDs and quickly acquire a lot of new customers. Second, costs to both acquire and retain customers ebb and flow with economic cycles. In good times, acquisition costs decline. Third — and most importantly — retention costs are INCALCULABLE. A firm has to first determine what it includes and excludes in the definition of retention costs. For example, do you include all the costs associated with providing customer service in retention calculations? After all, if you don’t provide service, you will have less chance of retaining them. Do you allocate all IT application maintenance and enhancements to retention calculations? If you don’t continually improve transaction and interaction service capabilities, the ability to retain customers diminishes.— The REALITY– is that no one has the slightest clue what it costs to retain a customer, because no one has defined a standard for what costs to include and which ones to exclude.”
In the article “Why Strategic Account Planning is Necessary for Sales Success” by Mark Kilens writes: An account plan must be a blueprint or guide for engaging a strategic account. It must answer the 5-Ws: who, what, where, when and why, and have a well-designed roadmap identifying different routes and options that connects your positioning to the final destination: closing the sale. The account plan is dynamic and ever changing and it must be continuously updated with the most recent information to verify that the connected dots will, in fact, win the sale. But, more important that the plan has the right roadmap to maintain and sustain a productive win-win business relationship.
In the article “Beware of “Strategic” Accounts!” by Geoffrey James writes: A strategic account is a good thing, right? Wrong. A strategic account can be a freakin’ disaster unless you’re a strategic vendor. Contrary to popular belief, a strategic account is not a customer that generates a lot of revenue and profits. That’s just an “account.” An account is strategic if, and only if, your overall go-to-market strategy will fail if you lose that account. That’s what makes it “strategic” rather than just “tactical. Here’s the rule of thumb: if you’re willing to lose money to keep the account happy, they’re strategic. And that’s the problem. If the account figures out that they’re strategic, they’ll realize they can tie you down and demand basically anything…
Whenever the subject of strategic accounts comes up, I’m reminded of the time I was part of a team negotiating a “strategic” agreement with Microsoft. I asked my manager “what position would our executives be taking at an upcoming high-level meeting?”. My boss, a man of few words but much wisdom, said: “Well, since it’s Microsoft, the only position we can take will be over a barrel and very unconfortable“–True Story. Anyway, Sam Reese, CEO of the sales training firm Miller Heiman, says “that there’s only one safe way to have a strategic account, and that’s to become a strategic vendor to that account”. “In other words, you’ve got to set things up so that you’re as important to the account as the account is to you. That way, if the relationship goes sour, you’re not the only one who gets, uh…, hurt.”
In the article “Managing Your Top Customers for Retention, Profitability and Growth” by William Hortz writes: Strategic account management is the art and science of maximizing the most important asset(s) in your business – your top customers. For many firms, the “80/20 rule” applies where the largest concentration of your revenue (80%) is being derived by a relatively small subset (20%) of your customers. These customers, due to the leveraged impact they have on your bottom-line and infrastructure costs, need to be carefully managed and made a key focus of your business strategy. This is equally true whether the customer is a huge multi-million dollar conglomerate or a relatively small professional practice. Strategic account management is a mindset and a methodology, a series of carefully thought out decisions and processes that enforce and ensure that you truly place your top customers at the core of your business. This discipline needs to be internalized, formalized and made into a culture of action by all, at all levels.
The science of strategic account management is not in leaving relationship building to chance or serendipity but by establishing repeatable processes and programs to manage your top relationships, and constantly measure and analyze the results. A consistent top customer relationship process begets more top customers, and will effectively manage limited resources as you invest your time, money, and effort with strategic accounts that give you get the best results.
In the article “To Drive Your Sales, Adopt a Major-Accounts Strategy” by Barbara Bix and Beth Somers Stutzman write: Consider redistributing sales resources to concentrate more energy on strategic accounts; companies that currently buy more products/services and have the potential to become a long-term partnerships. Chances are good that you can develop these “big spenders” into higher volume purchasers and long-term relationships through a major account strategy. A major account strategy concentrates on building relationships with a few high revenue accounts based on your unique differentiated and valued-added products, services, and expertise over a long period of time, and across different product lines. The major account salesperson’s role is to cultivate or “farm” a few select high revenue potential accounts for new and repeat business.
The emphasis is on investing in the relationship and creating future opportunities, rather than merely consummating the sale. Each interaction gives both parties the opportunities to learn more about each other, strengthen the relationship, and ideally create additional opportunities to work together. The desired result is to sell more valued products and services to each major account, create win-win relationships that block competitor entry, build long-term customer loyalty, and ultimately develop a sustainable growing business from each major account. In essence, you are asking the customer to collaborate in the selling/buying process. Over time you and the customer will develop a joint interest in the success of the business as they relate to each major account.
Implementing a “strategic accounts strategy” does not mean jettisoning your current sales strategy. While the strategic accounts role (people) focus on potential strategic accounts, the remaining salespeople sell to everyone else. Whether they are assigned to a territory, a vertical market, or a particular product line, these salespeople continue to perform business as usual. Strategic account salespeople farm; everyone else hunts. Most important: Ongoing evaluation and tracking of each strategic account’s success is critical for providing the management information needed to steer the strategic account program effectively.
What Frederick Reichheld, market analyst, calls maintaining “The Loyalty Effect”; long-term strategic account relationships are a make-or-break proposition for business today. Whatever their size and whatever their markets, companies everywhere need to protect their key account as valuable “assets”. They need to deliver real customer value or risk being “re-positioned” as a commodity supplier. They need to invest appropriately in the strategic relationship and safeguard against account erosion…
“Trust is essential for a good enough relationship. It is possible to be naive and trust too much while at the other end of the continuum is not being able to trust at all. Building trust in a relationship is a process that takes time” ~ Anne Ream