Key Account Management in a few figures
Before you drill down into the details and plan out the costs and benefits of setting up and running a Key Account Management program, you first have to think about what the head of the company has in mind when they decide to invest in this sort of initiative. Let’s take a look.
Disruptive events with an impact on the markets—societal, political, economic, technological and otherwise—are occurring at a faster pace, requiring business leaders to continually adjust their strategy, adopt new initiatives and innovate. The goal is to achieve results, which are measured in growth, profits, image, customer satisfaction, etc.
When it comes to the products on offer, companies seek to produce innovations that improve their customers’ performance, mitigate risks, or reduce costs. As the main point of contact between a company and its markets, the sales function needs to convey the increasing competitive advantage of the value proposition, advancing from the sale of products to the sale of solutions, and then from solutions to systems and integrated services, while continuing to zero in on business lines and customers.
That’s where the logic becomes clear: when a company needs to show its customers how it provides more value than its competitors, key account management is one possible—and often the most evident—solution! It’s not the easiest route to take, because corporate leadership will only pull the trigger once they have measured the cost of the investment and the returns they can expect. That’s the topic that we’re getting to!
INDICATORS FOR GAUGING THE SUITABILITY OF A KAM PROGRAM
Three key indicators have emerged from studies and observations at Halifax with our large accounts, corroborated by SAMA studies:
- x2 Revenue growth for key accounts is generally twice the average of the company’s other customers.
- 70% At least 70% of companies with KAM programs see a sharp rise in their Net Promoter Score for their key accounts.
- 20% The margin earned on key account sales is generally 20% higher than the average for the company’s other customers.
These three figures—2, 20 and 70—clearly reflect the direct, directly measurable benefits of a KAM program.
In addition to this trio, there are other benefits that are indirect or harder to quantify:
A shot in the arm for all sales operations at the company, which benefit from the training and often the methods and tools created for Key Account Management.
An improvement in marketing processes resulting from an improved ability to understand customers and listen to what they have to say.
Lastly and most importantly, enabling the company to leverage intangible assets that don’t appear on the balance sheet. This category of assets, which mainly consists in brands but also includes the customer portfolio, accounts for 26% of the market value of CAC 40 companies.
The widespread use of Customer Relationship Management (CRM) and Business Intelligence (BI) is enabling more precise valuation of this asset, which is naturally based on future income (excess earnings). The specialists at Ernst & Young stress that for a company to take full advantage of its customer relationships, it needs to “establish close-knit relationships with its customers which generate lasting financial benefits.” That’s the exact definition of Key Account Management as applied to the company’s large customers or key accounts.
Tangible results can be achieved quickly in these different areas, especially at companies traditionally organized based on their offerings, i.e. their product ranges or technologies. Shifting the focus to customers and their market immediately generates additional sales or cross-selling, which consists in expanding the catalogue of items offered by harnessing synergy between different ranges. The boost in sales volume is often immediate and substantial.
Strategic initiatives that involve co-creating value with customers and sharing it generally require a bit more time, but also produce more lasting impacts, because the company sheds its role as a mere supplier to become a strategic partner with a direct impact on the customer’s performance. Two or three years are often required to achieve tangible results in this area.
…WITH STABLE SALES COSTS
Once the main advantages have been worked out, it’s time to think seriously about how much the program will cost. In most cases, you can create a Key Account Management program while maintaining stable sales costs, by shifting sales resources to a smaller number of strategic customers to improve overall performance. The concept can be summed up in three words: Less is more!
A NEW APPROACH TO CUSTOMER STRATEGY
Pursuing a KAM project involves revamping your approach to customer relationships. The relationships with the least strategic customers at the “bottom” of the portfolio can be maintained through judicious use of digital commerce tools, with support assigned to distributors or newly formed inside sales teams.
Customers with more potential will be incorporated into the Key Account Management program. At this point, you will have to replace some conventional field sales representatives with Key Account Managers, either through training for those able to make the leap or via recruitment. In these specific cases, investments will be needed to assemble a competent KAM team. Especially given the fact that structuring the account teams to focus on more strategic customers often requires assistance from support functions such as project or program managers. Organization by market segment, the most full-fledged KAM organization, also incurs additional costs, beginning with that of the organization for the segment in which the KAMs are working.
Lastly, for your KAM program to operate smoothly, you often need to create a program office in charge of managing processes and measuring performance. For a highly structured, mature program, all these points vital to the project’s success represent an additional sales cost of about 1 to 2% for managing customer relationships.
KAM: IT’S TIME TO GET THE BALL ROLLING!
It’s doesn’t take long to calculate the profitability of the program based on these figures. There are well-documented revenue / KAM ratios for different types of offerings and business sectors. The profitability thresholds have been established:
- Starting at €600/700K for pure service businesses
- Starting at €3 or 4 M for industrial businesses (adjust based on sector profitability)
The KAM organization is a winning formula, which explains its growing popularity. Looking at the change in the number of sales representatives by type over the past five years in the United States, where Key Account Management is currently the most advanced, we see that a million salesperson positions have disappeared due to the development of e-commerce since 2015, according to Forrester Research. The breakdown by salesperson category is as follows:
- 25% decrease in demonstrators, the salespeople who know the offering and how it works inside out and are capable of performing demonstrations.
- 33% decrease in sales agents, the transaction specialists who take in orders from the various players in the sales channels.
- 15% decrease in “navigators,” a combination of the two categories above with a larger prospecting component.
- A 33% increase in “advisor” salespeople who sell but also serve as consultants capable of offering original solutions that boost their customers’ performance.
These are obviously the profiles suitable for work as KAMs, who are able to develop and sell complex, innovative solutions and services to organizations that are complex in their own right and often international in scope.
These figures can certainly be transposed to Europe. The phenomena that underpin the trends are the same. The sales function is turning over a new leaf, much to the benefit of innovative companies with a great story to tell their customers, which leads to success for both parties.
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