In all businesses, the most important strategic planning is built around your key customers as they are the key to the success of your business. The general rule of thumb is that:
“20% of your customers are responsible for 80% of your profit”.
Initially, many of our clients have disagreed with this statement because they have not defined or analyzed their figures. However, this view quickly changes and they are amazed at how they have been distracted from focusing on these key customers. This has been a result of the daily pressures of servicing all clients and running a business.
Key Account Management (KAM) is a philosophy and process for managing these accounts and a planning mechanism for the allocation of resources. KAM focuses on building win-win long-term relationships with your most important customers – relationships that are sustainable, and differentiate both parties in the marketplace.
Managing customer relationships, as opposed to products, allows you to learn what your key customers find valuable.
The results for our clients who have adopted the KAM philosophy have been nothing short of outstanding.
For example, one client has increased his turnover by 50% by just focusing on key customer groups. Another has doubled his sales to his key customers and has lifted his gross margin by 3%. All our clients are having more fun as they are working with clients they like and who appreciate their involvement in their business.
Step 1: How to decide who are your key customers?
This is the most difficult step, as you must decide what are the key criteria to use in choosing the most attractive customers and also analyzing your figures. Unfortunately you may find that some of your friends will not fall within the criteria.
Some customer selection criteria may include a minimum annual sale figure, a potential for volume, the stage of the business lifecycle of a customer, profitability, ability to learn and grow, honesty, cross selling opportunities, payment record and most importantly do we like each other.
Step 2: Prioritize your customers using these criteria, and then select the top 20%.
Step 3: Develop relationship management strategies for each customer in this 20%.
The relationship development process includes prioritizing mutual goals and objectives, establishing action plans to achieve objectives, establishing measuring processes, and developing a joint One-Page Plan for ongoing improvement.
You need to work with your customers as partners with “unprecedented intimacy”.
Even though there are no great secrets in developing KAM systems, it is our experience that you will need help from someone independent from your business to help you.
Our business has been coaching our clients to get the best out of their business relationships. This is a strategic tool that can be learnt, put into “best practice” procedures, and provide significant financial and personal benefits.