Key Account Management can be a costly strategy to adopt. It requires dedicated employees, long-term partnerships with customers, and a lot of resources funneled into building specific accounts. With all the hassle and the resource-intense nature of Key Account Management, is it actually worth it as a way to build revenues? This can depend on the nature of your business, but for many companies it’s a strategy that proves to be more profitable in the end.
Growing Existing Client Revenues
The biggest difference between Key Account Management and other customer-centric revenue strategies is that it relies entirely on a few select customer accounts. Known as your key accounts, these are customer accounts that are already important to your business and have potential to become even more significant with some effort.
By helping those specific clients to succeed, you will be building a greater need for your company’s services while also creating strong opportunities to upsell or cross-sell. The result is an increase in revenues without having to focus strongly on new client acquisition.
Complex Buyers Demand Attentive Sellers
The way business is done has evolved with every new generation. In today’s B2B business environment, large customers demand a higher amount of service and are more inclined to do business with companies that can consistently provide excellent service before and after the sale.
McKinsey & Company’s 2016 Large-Buyer Survey illustrated that even though larger business customers stated that product reliability and price were the biggest factors in their buying decisions, they actually purchased based on service and support from the seller. The stated importance of product over service did not match up with what drove these buyers to specific sellers. When buying decisions were accounted for, service and support was nearly twice as important as any aspects of the product itself.
This shows us that the level of service a selling company provides may differentiate them from other competitors, despite similarities in product features or differences in price. Many buyers care far less about the price of the product if the seller is providing enough value in other ways, such as with superb service and attention to the customer.
Key Account Management works because it gives your largest clients a strong positive bias towards your company. You’re providing them with value they can’t find from your competitors, so they’re willing to work even more closely with your company. They are also going to be less willing to consider excellent short-term offers from competitors because of the high level of long-term value and reliability you’ve shown through proper Key Account Management practices.
Playing the Long Game
The strongest argument for Key Account Management is the long-term benefit of the strategy. While focusing on sales and efforts to acquire new clients will increase the top-line revenues of your company, Key Account Management focuses on the lifetime value of larger key account customers. The emphasis is on how to get the most value from each of these clients in the long-term, rather than focusing on increasing only top-line revenues.
Top-line revenue increases don’t always lead to bottom-line increases. New client acquisition can be more uncertain and less profitable, especially if it’s used as a long-term strategy to build revenue. A study by Bain & Company showed that existing or repeat customers are more likely to spend more than new customers. The study was focused mainly on B2C companies, but the principle applies to B2B companies as well.
Consumers of all types are willing to spend more with companies they know and trust than with unfamiliar companies. Once they know they can trust the quality of your products and your service, your key account clients are likely to remain your biggest customers and are more likely to increase their spending by a larger amount than new customers.
Preventing Revenue Loss
While you’re focused on growing revenues, you cannot afford to lose focus on keeping your current revenue streams open. What would happen if you lost just one of your key account clients to your competitors? How much would it affect your revenues? In most cases, it would take a lot of new clients or a huge increase in current customer spending to make up for the loss of one key account, let alone grow revenues in that same quarter.
If you practice Key Account Management well, you’re helping pad your business against a severe loss of revenue from a key account leaving. By creating a strong, strategic partnership with key accounts, you are growing their loyalty to your company and making the cost of switching higher for them because of the value you provide. But, you can only do this if your focus is truly customer-centric.
You cannot hope to breed strong customer loyalty in a key account if you do not devote the resources necessary to give them the value they’re looking for from a seller. By providing them with value beyond discounts or short-term offers, you’re helping prevent the loss of revenue caused by a key account migrating to your competitors. This makes your other revenue-building plans more effective, since they will be adding onto current revenues instead of having to make up for lost sources of revenue.
As the CFO, profits are more just as important (is not more so) as top-line revenue increases. If you focus on increasing the lifetime value of customers through effective Key Account Management, then you can expect to see revenues from key accounts increase and overall profits raise. New client acquisition is much more costly than Key Account Management, and the rewards are often not as predictable or consistent. By focusing on key account client growth, you can expect higher long-term returns on your investment.