Dealing with existing clients falls into two camps, customer service, and account management. I made virtually no distinction between the two terms and used them interchangeably out of ignorance for a long time. Then one day, I learned that the two terms were almost entirely opposite. Since then, I have made it a point to show clients the difference. Customer service is a reactive and defensive strategy to keep clients from defecting. Account management is a proactive and offensive strategy for growing your sales within an account and driving new business.
Customer Service
One of the first questions I ask new clients is what makes them special. I ask something like, “If your clients were to say what they like best about working with you, what would that be?” Many clients respond that their superpower is providing excellent customer service. Whenever I hear that response, I can’t help but ask if their offering requires a high level of customer service. I remind them that customer service is reactive. Customers reach out to customer service when they have an issue, are unhappy, or want to return a purchase.
Just about every business touts its great customer service. Today, consumers expect great customer service because it is a given. Great customer service is not something that differentiates your business from the competition. These days, great customer service is the table stakes for remaining in business. Few customers walk away from a business transaction and rave that the customer service was excellent. What I hear more often is a customer saying that a company had horrible customer service. Therefore, great customer service is something that you have to maintain to remain in business, but not something clients will use to make future buying decisions. If offering great customer service is your point of business differentiation, it is a flawed strategy. What drives differentiation, increases sales, and confidence in your business is how they feel about your account management efforts.
Account Management
Account Management is in many ways the polar opposite of customer service. While customer service is reactive, account management is proactive. Account management is an investment that your business makes in building stronger client relationships. Account management is the value that a customer gets beyond what they receive when they buy your product or service.
The goal of account management is to create client delight. This delight will ensure that you remain the incumbent provider and drive higher revenue and profit. However, account management requires an investment on your part, and not all clients deserve the same level of account management. Therefore, the first step in defining your customer service strategy is to determine which clients deserve the most investment on your part.
When I ask clients if they have a way to rank their clients, few have any formal process, and those that do, simply give them a letter grade such as A, B, or C based upon their revenue contribution. While revenue is important, revenue alone is a misleading metric.
Lee B. Salz, in his book, Sell Different! included five dimensions to rank customers to understand their real value and potential to the business.
1. Recognized Revenue
Recognized revenue is pretty straightforward, but Lee offers a slight twist. He recommends using the Pareto Principle, often referred to as the 80/20 rule, which is the phenomenon whereby the top 20% contribute 80% of the results in the ranking.
Therefore, to rank your customers in terms of recognized revenue:
Give the top 10% a High rating.
The next 10% a Medium rating.
And the remaining 80% a Low rating.
2. Wallet Share Percentage
Wallet share percentage is the portion of the clients’ total spending with your business compared to their total possible spending if you got 100% of their spending on what you offer.
One of my companies provided documentation service. It often happened that a customer retained our services just to keep another incumbent honest. Although we only had a fraction of their overall documentation budget, there were significant benefits if we could chip away at the larger incumbent’s share of the client’s business with a well-targeted account management strategy. So, even though that client only contributed to a small portion of my overall business’s revenue, we would never want to treat them the same way as clients for whom we were the incumbent and held 100% of their wallet share for a similar recognized revenue level. Therefore, you need a way to award additional points based on the client’s wallet share upside potential. Of course, few customers will share their total spending levels, so you have to look for other ways to create an educated guess.
Therefore, to rank your customers in terms of wallet share percentage:
Give them a High rating if you are the incumbent and already have more than 75% of their wallet share.
If you have less than 75% and more than 50%, give them a Medium rating.
And if you have less than 50%, give them a Low rating. Obviously, having a lower wallet share has greater upside potential and is more desirable.
3. Account Profitability
Revenue is nothing without profit. I attended a workshop delivered by IBM on Customer Profitability Analysis (CPA) many years ago. One of the key metrics was the account’s profit contribution. What good is a high revenue client that contributes nothing to the bottom line? All it does is lower the overall company’s profit margin (Net Profit divided by Revenue) because the client added more to the revenue side of the equation and less to the net profit side, lowering the company’s profit margin.
As a side note, most businesses are valued on the basis of their profit margins, i.e., the degree to which business activity provides a return to the owner(s) or investors. Because ranking a client’s overall attractiveness is designed to justify the investment of time and energy for your account management efforts, the business needs to provide additional weight to those clients that generate higher profit margins.
Therefore, to rank your customers based on account profitability:
Give a High rating to customers with the highest profit margins.
If their profit margins are adequate, they will get a Medium rating.
And finally, if the client’s profit contributions are below acceptable levels, they warrant a Low rating.
Laggard clients are those that have a negative profit margin. Laggard clients need to be fired so they can become the competition’s problem.
4. Strategic Account Value
Sometimes, you might have a small customer in terms of revenue or low account profitability, but their brand could elevate your marketing efforts, so we need to consider their attractiveness as customers in ways other than money.
At one point, my company did a small project for Microsoft. Adding Microsoft to our client list had significant marketing value even though the project was not much more than a loss leader.
Strategic account value may also be related to market segment diversification. When I started my documentation and training company, we had one large client, Digital Equipment Corp (DEC). During one of my meetings with our business banker, he told me that, although our projects had good profit margins considering our industry, and our customers had excellent credit ratings, we represented a risk to the bank since we were restricted to one market segment, computers, and only had one large client, DEC. I got the message. We prioritized the diversification of our client base and market segments by adding telecommunication, construction, industrial, and pharmaceutical companies to our client base.
So, in addition to brand recognition, a client may have a strategic account value if it represents diversity in industry or client concentration.
Rank your clients, excluding their revenue and profit contributions, solely on their strategic account value.
Rate a client with high strategic account value with a High rating.
Mid-level accounts Medium.
And clients with no strategic account value Low.
5. Pain Factor
Some clients are just a pain in the ass. They are challenging to work with, hard to please and take up a lot of your time. Sometimes, a client is not properly aligned with your strengths, and you must work harder to provide an acceptable level of value.
Therefore:
If a client is well-aligned with your strengths and easy to support, rate them Low.
If the client is well-aligned with your strengths but challenging to work with, rate them Medium.
And finally, if the client is poorly aligned with your strengths and challenging to work with, rank them High.
Overall Grade
After having rated all your clients based on the five attractiveness factors, it is time to enter their ratings into a matrix. Place each customer in a row and the five overall attractiveness attributes in the columns. Once done, you will want to add one more column for an overall rating.
Review the attributes of each customer and give them a letter grade of A, B, or C based on their overall attractiveness to the business. To get to the overall letter grade for each customer, consider the following:
Customers’ overall Recognized Revenue compared to their Wallet Share Percentage and the likelihood of increasing your share of their wallet.
Recognized Revenue to Account Profitability. Higher profitability will elevate the overall ranking.
Customers with Strategic Account Value must get an A or B ranking.
Pain Factor to Account Profitability. Customers with a high pain rating and low account profitability should be a client to shed from your customer portfolio or, better yet, introduce them to your competitors so they can absorb their negative energy.
Remember, account management is an investment and not all customers should be treated the same. Your greatest account management efforts should be reserved for your highest-ranked clients. Customers that earn an overall C rating may deserve just great customer service, while A’s should get the lion’s share of your account management efforts.
What Account Management Looks Like
Account management efforts can take the form of the following six actions:
1. Sponsorship = The A’s should get executive-level support, i.e., the owner or most senior person in the small business must act as the customer’s account manager. The B’s should have a project manager as their account manager. C’s get no sponsor, just great customer service.
2. Meetings = The higher the overall ranking, the more frequently you need to meet them. They also deserve more in-person meetings than video or phone meetings. The A’s may deserve you to travel to their facility or offer to pay their expenses to visit your headquarters or facility.
3. New products or features access = The higher the ranking, the more access they should get to new products and features. Moreover, A-rated customers should get priority when it comes to ordering.
4. Account monitoring = A’s require that you monitor their account very closely by setting up Google alerts to inform the account manager of any press releases or news about the company. The account manager should also keep a close eye on the customer’s purchasing patterns to see if there are any changes.
5. Focus group or advisory board service = Make A’s part of your intelligence gathering. Invite them to become advisors to your business to strengthen your relationship. Maybe extend it to some B’s as well.
6. Data analysis = Don’t just send a report but provide an analysis of the data.
Account management is a proactive effort you provide to your high-value clients that goes above and beyond what your product or service offers.
How do you delight the clients who have the most value to your company to increase client tenure, revenue, and profit through account management?
