Let’s assume for the sake of this discussion that the key account team is established and you have gone through the key account selection criteria we’ve discussed previously. In addition, you have determined those clients that opted into the key account program.
The problem we’re trying to solve for is; am I over or under staffed within my key accounts.
Let’s start with calculating what success would look like within the account by estimating customer life time value (LTV). This assumes the account meets the minimum LTV to qualify for the key account program (use a minimum of 3 years). The following metrics need to be captured, measured, estimated or calculated to support a view of the total value and cost of the account.
- Retention Rate of existing business
- Orders per Year
- Average Order Size
- Total Revenue
- Cost of Sales
- Acquisition/Mkt. Cost
- Gross Profit
- Discount Rate
- Net Present Value
- Cumulative NPV Profit
- Customer LTV
After determining the client LTV, we now understand what the reward to our company will be if we’re successful within the key account program.
The next question is; do we have enough resources to support the sales activity required to meet the customer LTV goal? We also need to consider whether we’re over staffed and upside down in the account or will we in the future as defined by the client profitability.
The process of determining how much time each key account team member requires in order to close a deal is not a simple task. Like anything else, it takes time, a standardized approach and a method for capturing data accurately.
Start with reviewing the following links provided by my colleague Scott Gruher, an expert in this field that explains how to accurately measure selling time: Baseline Selling Time to Improve Sales Force Effectiveness and Create Time and Print Money
Leverage the above reference tools to capture the amount of time by position required to close a new sale within the existing key account. Refer to http://www.makingthenumber.com/ for sample formulas on calculating selling time, including closure rates by position.
We have now calculated:
- Customer LTV when we’re successful
- The amount of time by position required to close a deal
- The amount of deals required to attain quota or match the client potential
- The number of selling hours per position (example: target 1440 for the sales rep)
The result is a fact based analysis on the amount of resources required to adequately staff your key accounts.
In my next post we’ll discuss how role corruption impacts the key account teams overall effectiveness in support of the Key Account Management program.