Key Account Management (KAM) is a process that helps sustain and expand relationships with important Key Accounts. It involves working closely with multiple business departments to maintain and further develop relationships with key accounts. Key Account Management, also known as strategic account management is responsible for achieving sales quota and is assigned key objectives/metrics relevant to Key accounts.
Key Account Management is a strategic approach distinguishable from account management or account-based selling and should be used to ensure the long-term development and retention of strategic customers.
The one common mistake many organizations, both small and big tend to make and repeat, is to treat all their accounts with the same business model. It is never too late, however, to correct the situation and start looking at your account type and process more closely. You will notice, that there is a key difference in the account types, organizations like yours, have in their portfolio.
A Key Account Management Process is required to manage Key Accounts, which may require more nurturing, different skills, and utmost attention than other accounts.
Download Now: 9 Steps to Build a Rock-Solid Key Account Management Process
The famous management rule applies in this case too, where 80% of your profit will come from 20% of your strategic accounts. What resources to invest and how and where, are the key questions you have to handle. Automated systems and processes will work best for 80% of your accounts, whereas, you can safely invest and focus your time on the sales of the rest 20% of your Key Accounts.
Knowing and serving these two different account types is the key to maximizing the potential of your sales force. Hence it does make sense to look at a specialized Key Account Management Software to help you mine your Key Accounts and enrich your customer relationship for the long term.
- Key account management is strategic in nature with high RoI but challenging to institutionalize.
- Key account management is appropriate to several types of relationships but most clearly manifests when suppliers and customers have a mutually recognized partnership and a degree of trust.
- There are often mismatches between the way suppliers and customers perceive each other and their relationship, so careful communication and vigilance are vital.
- Regular monitoring of the profitability of individual customers by suppliers provides crucial information but is quite rare because customer profitability is difficult to measure.
- Strategic account managers need a broad portfolio of business management skills to deal with interdependent or integrated customer relationships.
Why Key Account Management?
We are familiar with Sales Funnel. Marketing generates thousands of leads & passes on the qualified leads to sales who in turn win deals. So far so good. But for B2B companies who offer multiple solutions with long-term engagements with their customers, winning the first deal is only the beginning of the process. You then farm and mine those key accounts for more revenue. You LAND and EXPAND.
A traditional sales funnel can be extended by adding an inverted funnel at its bottom into an ‘hourglass’ shape. Images are a powerful means to drive home a point – in this case, Key Account Management is a critical component of revenue generation for B2B companies.
Here is the sales hourglass model for Key Account Managers:
For most B2B companies, the bottom half of the ‘hourglass’ generates 80%+ of the revenue in a given year. The most commonly used nomenclature is ‘Hunting’ & ‘Farming’. Hunting is acquiring new customers while demand farming is growing business from existing customers.
A hunter sells, while a farmer helps the customer buy.
The ‘hourglass’ also helps in organizing various functions and processes in a B2B company. As you can see in the diagram it will be easy to define the roles of marketing, inside sales, sales & strategic account management in the revenue lifecycle.
Thus, the role of software/tools for each function becomes clear. Account planning tools, tools for marketing automation, inside sales, lead qualification, sales process automation, and finally Key Account Management.
What is the difference between Key Account Management and Sales?
While ‘Sales’ is an overarching process across industries, Key Account Management is specific to existing customers in B2B companies with complex solutions, multiple offerings, and long-term repetitive engagements. Key Account Management requires a deep understanding of the customer domain, situation, and challenges, and then stitching a solution. In Sales, one would be offering a suite of products already available.
In Sales you ‘sell’. In Key Account Management you help customers ‘buy’.
Read more about Sales vs. Account Management: The Relationship between Sales and Account Management
4 Important Key Account Management Stages of Relationship (with Key Accounts)
Key account management (KAM) is very much concerned with managing the relationship with the customer and it is important to understand these relationships, which vary from simple, transactional forms to intimate and complex liaisons.
Both the key account manager and the supplier organization need to know what kind of relationship they have with each customer, and therefore what they can and cannot do with it.
1. Tactical Relationship
The ‘Account’ is at the tactical stage either because it is new or the nature of the ‘Account’ forces you to keep the relationship this way. You would be one of the several suppliers. The relationship emphasis is transactional with pricing as the main criteria. The interaction is through one person on both sides. The engagements are few & forecasts can be made for the short term. It’s not difficult for either party to exit the relationship.
Please note that it’s ok for some accounts to remain at the tactical stage even after a long time of engaging with them, especially if the ‘account’ does not believe in building a partnership with suppliers or potential, in the long run, is not high.
However, if the potential of the ‘account’ is medium to high, plan to invest more in moving up the relationship stage.
2. Cooperative Relationship
The ‘account’ has slowly started moving beyond transactions. The engagements & interactions are driven by a few people on both sides, but more at an operational level. The customer can still exit the relationship fairly easily, with some inconvenience. The cost of a relationship is increasing from ‘your’ side without clearly visible advantages of cost savings or increased business.
It’s ok to remain at this stage if the ‘account’ is low to medium potential. If the ‘account’ has high potential, evaluate the effectiveness of the previous investments & fine-tune the investments to build better relationships. The returns on these investments might not be evident yet, but you should be on the path to realizing the returns in terms of cost savings, more business, or both.
3. Interdependent Relationship
‘You’ & ‘account’ are locked in mutually beneficial engagements. ‘You’ are mostly the single supplier (or at least the largest) for your offerings. Interactions are taking place at all functional levels. You have a lot of access and training to use ‘account’ information to build better solutions for them. ‘Account’ has started including ‘you’ in their planning. It will be difficult for the ‘account’ to exit the relationship.
The ‘account’ now is very profitable & ‘you’ can also forecast sales acceleration or increased business in the medium to long term.
If the ‘account’ does not have high potential, ‘you’ may want to relook at the investments being made & recalibrate.
4. Strategic Relationship
This is the highest stage of a relationship where ‘you’ and ‘account’ have arrived at a win-win, long-term key account management strategy together. The exit barriers to the relationship are very high & exit will be traumatic. The interactions between ‘you’ and ‘account’ are at all levels & very open. The ‘account’ is very profitable & ‘you’ have long-term visibility of business growth.
If the ‘account’ has high potential, then this is the ideal stage. If the potential is not high, you may want to rethink investing in building this kind of relationship.
Key Account Management Strategy Analysis
Key Account Planning & Management requires strategic thinking. At least once a year we need to look beyond dollar numbers, relationships, and activities to think about our Key Accounts process. A good deal of frameworks is mentioned in the book “Key Account Management-The definitive guide” by Malcolm McDonald & Diana Woodburn.” A framework like the KAM quadrant helps us in knowing the account attractiveness and the strength of the relationship in that account.
- Strategic: Invest in mindshare and ensure profitability
- Star: Invest time & money. Need not be profitable yet.
- Status: Maintain the status quo.
- Streamline: Manage for profitability.
Developing Key relationships
The way to the customers’ hearts is through their business and not yours. The customer expects its key suppliers to at least understand the following:
- Their marketplace
- Their strategies
- What their customers want
- How they add value to their business
- Where they make their money.
Watch Now: Anees Merchant, EVP, Global Growth from Course5i sharing their experience around building processes & strategies for Key Account Management.
What is the role of a key account manager?
Even though a key account manager is required to have a long list of skills and considerable experience in doing what they do, they have two major roles. One is creating trust-based business relationships with the portfolio of key clients to make sure they do not turn to competitors. The other is expanding the business relationships with present clients by continuously executing solutions that meet their goals. Put very simply, the key account manager has broadly two roles:
1. Implementation:
This means deciding what should happen in an account and making sure it is delivered.
Implementation roles:
- Expert in the customer
- Value developer
- Point of accountability.
2. Facilitation:
This involves developing the relationships that will enable the business strategy.
Facilitation roles:
- Boundary spanner
- Conduit
- The focal point of contact.
Key Account Management Best Practices
Key Account Management or Strategic Account Management is the most effective, profitable management of your most important assets. It drives the profitability of B2B companies, and having a Key Account Strategy is the heart of any successful business in this sector.
Smart suppliers are keen to implement KAM., Sadly, however, many KAM implementations fail and are abandoned.
One should keep the following best practices in mind to succeed with their Key Account Management strategy
1. Focus on the customers that matter most
To get started with the Account Planning template, you need to identify some Key Accounts, and you need to develop a criterion or model that differentiates them from the rest of the customer base.
The good advice here is to start small. It is easier to add customers to your KAM program than it is to ‘demote’ customers once you have told them that they are key accounts.
As per an HBR report, Corporations like Xerox keep the number of true key accounts below 100, and they have far greater resources than most and have been practicing KAM for years.
