Sales: account management myths

Working with a national FM services company - supplying and installing a variety of bathroom facility products such as hand dryers, feminine hygiene units, towels and so on - it was assumed that the very nature of the business meant an annual customer churn rate of around 30%. In real terms it meant that the sales team had to go find 30% of turnover every year just to stand still. That's no mean feat: we're talking about finding close to 15,000 new business customer accounts every year in a highly contested B2B industry.

Industry Standard

This kind of churn was 'industry standard', meaning every similar company in the market experienced the same kind of churn, and the same challenge to win back the lost turnover every year. It's not just FM companies. Think about food service companies supplying big national high street chains and public sector customers like councils, prisons and schools down to single, independent corner shops, or 3PL's managing inventories and distribution for hundreds of different clients. Think any B2B business, with any product or service targeting in the thousands, although in this particular case the service provided is actually hugely more complex than delivering a cage of supplies to a corner shop.

Like every business dealing with thousands of business customers (not end consumers of whom there are millions to target), this company did what everyone does. They accept the churn, and explain it away all too readily on characteristics of the market they're operating in.

Market characteristics

Exploring this a little deeper, companies like this have customer accounts that range in size from the very large to the very small. At the smaller end of the scale we would 'naturally expect' to find customers whose credit and ability to pay isn't the best, whose loyalty is low or compromised, and who when closing the account isn't really missed - their value is low, and any allegiance they might have is easily outweighed by the amount of effort it requires to service their account. There are typically a large number of accounts which fall into this definition - although it's rare that anyone ever properly defines where to draw this 'big enough to bother about' line and rarer still stick to it: cue the 'minimum basket order' idea!

As for the big accounts, these are the crown jewels, where the prestige lies in getting the sale, and where any win or loss is important and is felt. Everyone wants in on these accounts. It's where your big hitting NAM's operate, where business development and commercial attention is focussed, and where glory, prestige and bonuses know no bounds for the ambitious sales exec. Get a few of these babies on the books and it's 'Sales Director' for me!

So far, so normal. This is 'business as usual': the 30% churn, the constant grind of managing and weeding out those tiny accounts which waste so much of everyone's time, working the phones and the high streets back-filling with a load more. Sales superstars chasing around trying to prize some big account off a competitor whilst exhibiting subservient platitudes on demand to the oh so precious big fish accounts who pay everyone's wages, all the while spinning the revolving door of recruitment to exit the low performers in sales and heralding the arrival of new stars in the making.

This is the accepted norm, 'the job'. And yet, if we think about this differently, could we expect a different outcome, a lower churn of customers?

Let's examine first those 'big fish' accounts.

After the champagne has been drunk and the bonus paid out, what is the reality of managing such accounts? In truth, as soon as the ink is dry on the contract that customer is interested in one thing and one thing only: reducing the cost of what they've just signed up to. Shock, horror, disagreement?

In the Sales Director or NAM's mind, this is an opportunity to sell add ons, of course. You've bought this, so why not buy such and such as well? Maybe this is true, perhaps if the account has been undersold to get it on the books. More realistically, the real world experience of servicing the account kicks in. The invoice is wrong, the service level isn't met, this or that product isn't working out, the response to a complaint isn't dealt with very well, your driver was rude last Wednesday, and so on. Every little detail surrounding missed expectation is logged and stored for future cost price negotiation, and picked over by potential competitors to leverage in their next chance of pitching for work.

This is where your best sales people are spending their time, trying desperately to shore up the hard won contract and prevent the further erosion of any margin that was promised when the bonus was paid [although few companies remunerate on the basis of margin - a whole topic in itself!]. When not engaged in this activity, it's working the rooms to identify and exploit the [similar] failings of competitors and be in position to promise the world in the next bid opportunity.

What about the small fries?

At the other end of the scale, vast amounts of company resources are expended on a long tail of tiny accounts.

Finance spend half their time doing data and credit checks, chasing invoices, and moving data around. Service centre staff manning the phones, dealing with hundreds of queries daily. Admin staff checking details, entering data, trying to keep up with the constant changing picture. The company would be doing well simply to keep information up to date; and really well if it has any clue whatsoever regarding how much time is being spent on each tiny account.

An obvious move is made by Senior Managers to determine a 'minimum spend', using some back of a napkin calculation of the cost to serve to justify it. Typically this will extend to the 'materials plus logistics' cost, arriving at a basic 'it costs us ￡25 to drive there so that's a minimum spend below which we won't accept an order'.

Hang on, what's missing?

We have our best people managing the Big Fish, and we have everyone else running ragged chasing the tail. What's happening to all those accounts in the middle?

This is a group of accounts that are neither big tickets nor small fries. It's a group we at AAL call 'The Neglected Middle'.

This is a group of accounts which no one is really paying attention to, yet it's a group of accounts that will make up well over 50% of the turnover, and almost all of the profit. It's actually where all the meat is.

These are the accounts which offer the best opportunity for upselling, are least likely to spend all day looking for a price reduction, least likely to default on payment, and least likely to move on unless...

These 'grey' accounts just want the service they are paying for, and rarely complain when they don't, because no one is there to listen because they're all too busy with Big Fish or tied up wondering why Numpty's Tattoo Parlour hasn't paid their bills [they went bankrupt 7 months ago]. They don't expect very much in terms of attention, but they don't want to be ignored and treated like they don't matter. Yet that's exactly what's going on. They don't get anyone chasing them for money because they pay on time. They don't get continual visits from slick talking, important sales people who make them feel special, take notes, listen and promise. They often don't get any visits at all. No phone calls. No Christmas cards. Maybe if they're lucky they get a call when the contract is due for renewal.

These accounts are the ones that will simply just disappear. They won't bother to give a reason, and no one will ask - at least not until it's way too late to stop them leaving. When such an account gives notice there's a collective shrug of the shoulders - "it's a feature of our market" - the individual account isn't big enough in itself to cause a stir or warrant dedicating resource to try to rescue it, although we'll waste our time trying long after they've decided to move on.

Is this just the way it has to be?

In short, no.

The FM services company mentioned at the top of the article decided to challenge this accepted model of account management. The result was a dramatic reduction in customer churn from 30% to less than 12%.

This is a change that not only rescued a company facing an existential threat from declining turnover, but positioned it for subsequent sale to a trade competitor at a considerable premium.

Whilst they also took a chunk out of the operational cost base, what they did in account management delivered 24 x the financial benefit!

How did they do it?

Well, it was by doing a lot more than raising the minimum order level, and they didn't recruit new sales people or account managers - in fact they were able to reduce headcount.

What they did do is invest in some unique expertise - Applied Acumen. To find out how they did it, why not start there?

Richard Shipperbottom is co-founder of Applied Acumen Limited, a multi-award winning business solutions company. Message Richard on Linked In to find out more.