Sales and finance alignment – let’s continue with account segmentation. The previous post was about the root causes of many misunderstandings and how a GoToCustomer approach can improve cross-functional collaboration and results, based on the example of a GoToCustomer account definition.
Now, let’s build on that definition and the discussed perspectives how to identify net and gross growth potential regarding today’s topic – account segmentation.
Ask finance people and they will give you a list with top accounts, segmented by financial lagging indicators and sometimes by already predefined growth targets. But sales needs a different view. Of course, financials are important, but different perspectives on how to grow your business with different accounts in different ways will add much more value to the entire selling system. Then, we definitely need to consider this:
“Not everything that can be counted counts, and not everything that counts can be counted.” Albert Einstein
Create a charter together with finance on purpose and goals of account segmentation
Profitable growth can be an overall goal, sales and finance can both agree on: Growth is what both want, profitability is what finance is always asked to make sure. Therefore, account segmentation has to be designed in a way that it helps to achieve this goal.
Then, create a mission statement based on a KPI that is essential for sales both and that’s relevant for profitable growth as well – sales productivity. Here is an example of an account segmentation mission statement that worked pretty well:
“Account segmentation is to get more focus and to improve sales productivity by reducing selling expenses for non-strategic and / or less profitable accounts and transactions and by making the right resources available for strategic accounts and to allow better deal decisions to drive our profitable growth strategy.”
Let’s discuss some related segmentation criteria. Each criteria is important, but a decision on an account segment can only be made when the results of all criteria have been synthesized.
Analyzing current performance:
- Financial indicators:
Order entry, revenue and profit over the last few years help to understand the relevance of an account and how an account performed so far. Add the growth rates for all KPIs that were achieved over the last few years.
- Existing and new business:
Split the revenue over the last years in existing business and new business, however that is defined in your organization
- Account Manager Type:
Without having a special assessment at hand, how would you characterize the current account manager, when in interaction with the customers? Focused on efficiency and budget optimization or more focused on effectiveness (business outcomes)?
- Add gross and net growth potential:
Use the data on net and gross growth potential you calculated based on the previous post. Verify the numbers with the sales managers to factor in long term contracts that are currently not addressable and similar information.
- Strategic relationships:
Relationships do matter and relevant relationships matter even more. They are the foundation to create new business and to grow and maintain existing business. Senior executive relationships are important if you want to focus on customer outcomes. You can run a complete relationship analysis, or you can create a matrix with level (C level, senior exec.level, VP level, director level, manager level, SME and others), function (lines of business or IT) and the quality of those relationships.
- Level of value creation:
This is much more than a white spot analysis, which is an inside-out tool. Value creation is the criteria from a GoToCustomer perspective. What is the value you create for this account currently and what do you want to achieve? Is that of strategic relevance for them? Do you tackle their effectiveness and their business outcomes? Or do you focus on budget optimization and efficiency?
Synthesizing – create context across the different criteria to get a holistic view for each account
- Look at the results of existing and new business and the account manager type:
In many cases, there will be a correlation between efficiency oriented account managers and existing business and between effectiveness oriented account managers and new business. This is relevant for an optimized resource allocation
- Look at the results of strategic relationships and account manager type: If a person is more focused on efficiency, this account will normally have less senior executive relationships, if at all. If the person has more an effectiveness focus, you will see more senior executive relationships in better quality.
- Look at the gross and net growth potential, at the relationship potential and the value creation potential together:
Make sure that an account has enough executive level relationships if you want to grow quickly. And make sure that an effectiveness oriented account manager is on this account.
- Check high revenue volume (from your perspective), profitability and an already synthesized view on growth potential:
Decide whether you want to focus on revenue growth and/or on profitability growth.
Finally, how do you define and how do you call your account segments?
This is very specific, depending on an organization’s culture and current situation. In general, I wouldn’t use more than four segments. You can label them with numbers or letters, or you can define a name per each segment, which is easier to communicate.
Try to build clusters that are based on your synthesized results and are focused on e.g. the level of value creation – outcomes, effectiveness on the one hand and efficiency and budget optimization on the other hand.
Create sub categories in the effectiveness/outcome cluster and in the efficiency/budget optimization cluster to distinguish in each category between strong growing accounts (including prospect accounts) and slow growing accounts that are maybe more focused on profit.
There are many more possibilities to define the segments – but make sure, that they support your overall segmentation goal, finance and sales agreed on together.