Editor's Note: The decline in offline foot traffic has become an indisputable fact. However, this does not mean that offline channels are no longer important, or that attention and investment should be reduced. Compared to embracing the endless stream of new retail formats, holding the line on offline channels is more critical in the current volatile market environment. How to hold the line? Only through meticulous cultivation and professional management to increase volume and efficiency.

To this end, New Distribution, in collaboration with Mr. Cao Yang, former General Manager of Channel Management for Coca-Cola China's Key Account Management Group, has launched the "Key Account (KA) Management Practice" series, hoping to provide frontline channel managers with a complete methodology for managing offline key accounts in a "chaotic market." This series consists of about 20 issues, and this is the fourth issue, as follows.

In this issue, we will introduce the key account management system, covering the five main aspects of customer management. First, I would like to ask a few questions to enterprise managers and account managers.

As an enterprise manager, regarding the key account management system:

  • Do you know how much your customer team understands the management system?
  • Do you know how to use the management system to evaluate the customer team?
  • Do you know the deep value of the management system to the enterprise?
  • Do you know how to use the management system to improve the company's overall service capability?

As a key account manager, regarding the key account management system:

  • How much of the management system content do you know?
  • How many management system skills do you master?
  • How much of it do you apply in your work?
  • Do you know where your capability gaps are?

Let's first talk about key account managers.

In actual work, many account managers are experience-based, gradually accumulating experience over time. They excel in certain areas, such as communication, relationship building, and driving sales. However, they tend to rely on their strengths, progress slowly, and gradually form a comfort zone.

Professional customers always impose various requirements on account managers in terms of goals, KPIs, planning, and other aspects. Many account managers cannot meet these professional requirements, such as front-end gross profit, back-end gross profit, and order fill rate.

The key account management system is a methodology designed to better serve customers and achieve company performance goals. It has been developed over many years in response to customers' various requirements and challenges.

The completeness and systematic nature of the customer management system are not designed for show; they are the result of years of "blood and tears" and lessons learned. It was born from customer business needs and has been continuously developed and improved to meet enterprise needs.

Therefore, the completeness and systematic nature of the key account system can help account managers improve their business capabilities and consistently achieve performance goals.

Now let's talk about enterprise managers, which is the focus of my discussion.

There are two misconceptions managers have about understanding the key account management system.

Two Misconceptions about Key Account Management

Misconception 1: Since key account management is difficult, and the company incurs losses after investment, limiting its development is the best policy.

Case 1: Mr. A is the company's top sales executive. He obtained the key account profitability analysis and found that 70% of key accounts were losing money. Despite some efforts, such as requiring the KA department to increase sales and reduce costs, these customers were difficult to handle and repeatedly violated company rules, so the profit target remained unsatisfactory.

To avoid affecting the company's overall profit target, he strictly controlled customer expenses, reduced the number of promotions and displays, resulting in customer sales growth below the company average, effectively controlling customer losses.

Misconception 2: Is key account management a matter for one department or multiple departments?

Case 2: Mr. B is the company's sales head. At the end of the year, the finance department notified that there was a 600,000 yuan discrepancy in accounts with Customer W, including 150,000 yuan in order penalties, 250,000 yuan in price differences, and 200,000 yuan in promotional discounts. Because the company could not collect the payment, it was forced to suspend shipments, causing a halt in business between the two parties, and the account manager resigned.

After analysis, it was found that 40% of the order penalties were due to delivery drivers not being familiar with the customer's operating procedures and not delivering on time, and another 30% were due to non-best-selling small-variety products whose production dates exceeded the customer's acceptable shelf-life requirements, leading to rejection of goods.

In summary, the analysis concluded that the 600,000 yuan loss was caused by problems in multiple departments, involving sales, finance, distribution, and warehousing, not just the sales department.

From these two examples, it is clear that managers and account managers do not fully understand the operation and value of the key account management system, especially the five KPIs.

The Five KPIs Are the Touchstone for Evaluating KA Work

At the beginning, I asked: How can managers use the management system to evaluate the KA team? How can account managers improve their business capabilities?

These are all related to the five KPIs. Let me introduce them first.

1. Sales Revenue

It requires not only achieving the target but also generating profitable revenue, meaning that high-margin products must reach the specified proportion according to company requirements.

2. Market Share

This refers to the proportion of the company's products in the market or customer's revenue. Winning share requires revenue growth faster than the average growth of the market or customer.

For example, an account manager's performance grew 50% last year, the highest in the team, but the corresponding customer grew 60%, indicating that the company lost share with that customer! Account managers often boast about their growth rates, but don't forget to look at the customer or the market growth rate. So market share is a hard indicator.

3. Store Execution

To maintain healthy and sustainable sales growth, store execution is a crucial link. Increasing the number of promotions and displays will bring more sales. Executing signed agreements well requires solid skills.

4. Operating Profit

When you achieve sales targets, win market share, and execute well in stores, if you bring losses to the company, and as the proportion of key account sales in the company expands, the losses will also expand.

This indicator is the most challenging, leading some managers to believe that doing KA is for sales, share, and brand promotion, and can only lose money. This is not the case; with professional methods, profitability is achievable.

5. Order Fill Rate

This indicator is customer data. Achieving it requires not just the sales department but multi-departmental cooperation, making it another challenging indicator.

Professional customers, with their advanced systems and professional management, can use order fill rate data as an indicator for enterprise improvement. This is an indicator that can force the company to improve service capabilities from the outside in.

In Case 1, Mr. A limited key account sales growth to protect overall company profits. This was a last resort; rather than expanding losses, it was better to stop losses in time. However, this approach has significant hidden dangers: what about market share?

Key accounts account for a high proportion in modern channels. To win channel share, you must cooperate with these customers. In the long run, this will inevitably give competitors opportunities to expand market share and strengthen their cooperation with customers, which managers certainly do not want to see.

Therefore, doing key account work well requires achieving all five KPIs; none can be missing!

At this point, you might ask: In actual work, it's too difficult to achieve all five KPIs. How can it be done?

The Key Account Management System Can Achieve the Five KPIs

I have introduced the five KPIs above. You will notice that the indicators are mutually constraining. For example, good sales do not necessarily mean winning share, and winning share does not necessarily mean profitability. So to achieve all five KPIs, professional methods are needed.

The key account management system can support achieving the five KPIs!

The management system is divided into five modules: Product Supply, Planning Management, Execution Management, Resource Management, and Organizational Development. I will introduce them in detail below.

Introduction to the Key Account Management System

The five modules of the key account management system: Product Supply, Planning Management, Execution Management, Resource Management, and Organizational Development.

These organically combine customer needs and enterprise requirements through systems, processes, and operational skills. They have been developed and refined through years of practical operation.

Below, we provide a general introduction to each.

Module 1: Product Supply

This module includes three parts: Annual Agreement, Product Supply, and Account Management.

This module is the foundation for the other four modules. An important sign of doing business with key accounts is signing a cooperation agreement, which includes sales targets, cost investment, displays, and activities. These are commitments of rights and obligations for both parties and are entered into the enterprise system.

The preparation of the annual agreement, agreement preparation, customer negotiation, and agreement signing all have operational processes and corresponding skills.

Product supply is another foundational task after signing the agreement. It involves delivering products to stores in full, on time, and in sufficient quantity. Without product sales, cooperation agreements, store execution, and market plans are all castles in the air.

Product supply includes sales forecasting, order management, production and storage, etc. Each content is organically linked through customer orders, and each link has professional operational processes.

The importance of account management lies in the fact that after delivering products to customers, payment must be collected on time to truly realize sales.

Account management includes credit limits, payment terms, reconciliation, and settlement rules and operational processes.

The difficulty of account management lies in the customer's professionalism and advantage in setting rules. Enterprises may encounter problems in ordering, delivery, reconciliation, and deductions. Sometimes the error is on the enterprise side, sometimes on both sides, and sometimes on the customer side, putting significant pressure on the enterprise's cash flow.

In Case 2, regarding the 600,000 yuan discrepancy with the customer, Mr. B applied to the company to launch a project to improve order fill rate. As the project leader, he worked with the finance director and logistics director to analyze the problems and adjust existing operational processes.

For example, they revised the warehouse shelf-life management system and changed the promotion mechanism, solving the payment problem and increasing the order fill rate from 65% to 90%.

Relationship between Product Supply and the Five KPIs:

  1. Product supply is directly related to order fill rate and also to sales. If sales growth has problems, it will affect market share.
  2. The annual agreement is directly related to sales targets and cost management. High costs without achieving targets will affect profit.
  3. Account issues are related to profit.

Module 2: Planning Management

The planning module includes two parts: Internal Planning and Customer Planning.

Enterprise internal planning involves formulating channel, product, and customer strategies, determining targets, investment strategies, and standards. With a market plan, there can be customer plans and sales execution. A good market plan can lead the sales department to achieve sales targets.

Customer planning is an agreement between the enterprise and the customer, reflecting planning capability. It mainly includes the following three parts:

  • Joint Business Plan (JBP): After signing a strategic cooperation relationship with key accounts, the strategic cooperation is specifically realized through the JBP.
  • Customer Annual Plan: Set next year's targets with all key accounts, along with the resources and time commitments both parties promise to invest to achieve the targets.
  • Rolling Three-Month Market Plan: A monthly promotion plan formulated to achieve the annual plan or JBP, developed and executed on a rolling three-month basis, ultimately achieving the annual target.

All the above plans have professional operational processes and skills.

Case 3: Mr. C is the company's KA general manager. During the year-end summary, the company head pointed out that although the KA department's sales were good, there were too many low-price promotions, leading to negative profit growth for the KA department.

_Mr. C convened the team for analysis and found that 80% of promotions with customers were initiated under customer procurement's urging, with the team applying for price promotions. The average time from submitting the promotional price to the start of the promotion was 7-14 days. Such a short time left the marketing department no time to prepare consumer-attractive promotional methods or purchase promotional gifts, so they could only resort to low-price promotions, resulting in losses.

_In the planning management module, the rolling three-month market plan can solve the problem in Case 3. Practice has proven that the 7-14 days can be extended to 45-60 days. This is an improvement in the overall planning capability of the marketing and sales departments and is a practice welcomed by customers.

Relationship between Planning Management and the Five KPIs:

  1. Both internal and customer planning consider the five KPIs: sales, share, profit, store execution, and order fill rate.
  2. The quality of planning directly affects the five KPIs. If planning goes wrong, many loss, sales, and execution problems are already seeded at the planning stage.
  3. The difficulties of planning are data application, experience and communication coordination, and gaining customer support.

Module 3: Execution Management

Execution management is the operational process for both parties to achieve goals, including customer classification and route planning, various execution processes, and inspection mechanisms.

In customer classification and route planning, customers are classified, service policies are formulated, visit routes are developed, and related assessment indicators are determined, such as visit frequency, visit arrival rate, and visit success rate.

The purpose of execution management is to fully leverage human costs and achieve a balance between efficiency and effectiveness.

Various execution processes include store visit processes for sales representatives and merchandisers, as well as agreement execution and promotion operation processes. The goal is to standardize, professionalize, and simplify professional practices so that all sales representatives and merchandisers can execute them.

The execution inspection mechanism includes setting execution standards, conducting regular inspections, sending execution results to the sales team regularly, and comparing results with targets to identify gaps, find opportunities, and improve in a timely manner.

Case 4: D is a customer group manager. When he first joined the company, he started as a sales representative. After 7 years of hard work, he became a customer group manager, responsible for regional chain customers.

_He has 20 store sales representatives and merchandisers under him, distributed across 10 sales teams. Last year, he won the company's Best Execution Award.

__How did he get these 20 people from 10 teams to achieve the highest execution scores?

_His secret to success was creating a store visit operation manual for the sales reps and merchandisers and providing them with on-site training. Although they were in 10 different teams and did not directly report to D, the manual embodied the principles of standardization, professionalism, and simplification, and they ultimately won the customer system's execution award!

Relationship between Execution Management and the Five KPIs:

  1. Poor execution directly affects sales and execution indicators, and indirectly affects share and profit.
  2. No matter how good the plan, if execution is poor, everything is zero.
  3. The difficulty of execution is that all team members are in different stores, at different times, doing the same thing, and there is also the conflict between execution and planning.

Module 4: Resource Management

Resource management includes data collection, evaluation, and improvement. It is an important means to achieve profitability and avoid losses, and it is also a highly challenging module. It reflects the manager's will and determination, as well as the professionalism of the KA team.

Data collection involves collecting customer and enterprise data through enterprise systems, including sales, revenue, cost investment, brand packaging, prices and discounts, various costs and expenses, and ultimately determining whether the resources invested in customers are profitable.

Evaluation and improvement involve, after obtaining data analysis, finding opportunities through problems, continuously improving market plans and execution links, thereby improving cost efficiency, and ultimately achieving sustained profitability for key accounts.

In Case 1, Mr. A's approach is somewhat representative. The positive aspect of his approach is that he tracked cost investment and controlled costs well, achieving profit targets in the short term. In practice, the role of controlling costs is not necessarily the sales head; it could also be the finance head.

In professional key account management, the approach is not simply to control costs, but to continuously improve cost efficiency. For example, previously, 100 yuan of investment yielded 80 boxes of sales; now, 100 yuan of investment can yield 120 boxes. This is the effect that key account management hopes to achieve.

Why?

Because in the process of investing costs to generate sales, there is another key role that managers tend to overlook: the customer's role and function. Some fixed investments are threshold fees that must be spent, and whether the customer cooperates with the company has a significant impact on business indicators. I will emphasize this repeatedly in later articles.

Relationship between Resource Management and the Five KPIs:

  1. It is directly related to profit and cost efficiency.
  2. The purpose of resource management is to achieve greater sales with costs, improve cost efficiency, rather than restricting spending or spending less. Professional methods can spend more and get more sales; unprofessional practices spend more but get low sales.
  3. The difficulties of resource management are the manager's determination and the professional operation of the KA team.

Module 5: Organizational Development

Organizational development aims to serve key accounts well by building a professional and stable key account team, ensuring the smooth implementation of the above four modules, and ultimately achieving profitable sales targets.

The organizational structure is formulated according to the company's development stage and customer characteristics, such as how to configure regional teams and national teams; as the customer system grows, how to allocate personnel, etc.

Recruitment and training involve finding suitable people to be account managers and equipping them with professional business capabilities to accomplish the tasks of the above four modules.

Team development involves cultivating a pipeline of KA talent so that when predecessors are promoted or leave, someone can fill in promptly.

Implement talent projects, conduct professional assessments of the existing KA team, identify gaps and opportunities, and improve capabilities in current positions to meet the requirements of the above four modules.

Relationship between Organizational Development and the Five KPIs:

  1. Talent is directly related to the five KPIs.
  2. It is directly related to customer management philosophy, i.e., philosophy determines the direction and methods of organizational structure and talent development.
  3. The difficulties of organizational development are the management's philosophy and the full collaboration of management.

Above, we have introduced the content of the key account management system and its relationship with the five KPIs. It is clear that professional methodologies can make enterprises profitable, which is very important.

This professional management system can be used not only by the KA team but also transferred to all sales teams, which is the deep value the management system brings to the enterprise.

Do you know the deep value that key account management brings to the enterprise?

Value 1: Promote refined management in the marketing and sales departments.

Refined management is relative to extensive management.

For example, a city sales team wants to achieve a monthly sales target of 1 million yuan. They could sell 70% of the goods to markets outside the sales area through an intermediary, and the remaining 30% to local customers.

Another example: There are four customers, A, B, C, and D. This month, they overload A and B with inventory that can last at least six months. Next month, they overload C and D. The result is that each month customers have large inventories, leading to a series of problems, such as long shelf-life issues, and the company will have to spend money to solve them...

Another example is sales rhythm. In a month with four weeks, the first three weeks only achieve 30% of the target, and in the last week, 70% of the month's sales are sold, indicating poor sales balance!

These are typical manifestations of extensive sales. The key account management system can improve the team's refined management level.

From the enterprise's perspective, the key account management system is not only about managing some professional, troublesome customers, but more importantly, transferring the key account management methods to all teams in the sales department. Similarly, it can improve the management level of the marketing department, ultimately promoting refined management across the marketing and sales departments.

Below, we introduce the benefits of the key account management system to the sales and marketing departments.

Two benefits for the sales department:

  1. One is to transfer modern channel management to non-KA sales teams, achieving refined channel management, i.e., sales cannot come arbitrarily from certain customers; modern channels, traditional channels, and distributors must complete sales according to proportions, and each channel customer must complete according to reasonable brand and packaging proportions.
  2. The other is to help regional managers improve management capabilities, mainly in formulating annual customer plans, signing annual agreements, business reviews, and rolling three-month market plans.

Two benefits for the marketing department:

  1. One is to advance the timing of market plan formulation. Key accounts require the company to provide customer market plans 2-3 months in advance, so the marketing department must prepare the overall company market plan even earlier. The value to the company is that using customer requirements is more effective than administrative orders.
  2. The other is to improve cost efficiency, integrate brand, channel, new product, and other resources to create customer budgets, improving efficiency and effectiveness. Analyze customer input-output ratios, make targeted improvements, and let one yuan of market cost bring higher sales.

Value 2: Customer-oriented, improve multi-departmental cooperation, and force improvement in service levels.

  1. It is reflected in improving sales forecast accuracy. Managers know that sales forecasting affects the whole system. The starting point is the sales department, but customer demand plays a decisive role. The more accurate the customer plan targets, the more accurate the sales forecast, improving the efficiency of production and procurement departments, thereby enhancing overall enterprise operational capability.
  2. Improve order fill rate. Simply put, ensure products are delivered to customers in full, on time, and in sufficient quantity.

This is an indicator that outsiders may not appreciate, but insiders know its difficulty and importance. It is a customer indicator, simply put, set by the customer for the enterprise, not by the enterprise's supply chain itself. Insider managers know what this means!

This indicator is easy to say, but requires the cooperation of sales, marketing, finance, production, and storage departments. It is another customer-centric indicator that forces internal service capability improvement.

  1. Strategic cooperation with key accounts can systematically drive continuous changes, including the two values mentioned above, promoting the improvement of multi-departmental service capabilities and solving problems that administrative orders cannot solve.

Final Thoughts:

The key account management system is a proven effective management system that helps enterprises achieve the five KPIs (profit, revenue, share, execution, order fill rate).

These five KPIs are interlocking and mutually constraining; none can be missing. Their difficulty requires professional methods to achieve, and the key account management system is a complete and systematic methodology!

The key account management system is not a magic pill that works instantly, but comparing a company that uses the management system with one that does not, or even different departments within the same company that use it versus those that do not, using the five KPIs, the difference is significant.

This shows the value of this management system.

Even more valuable is that transferring this methodology to the sales and marketing departments can improve refined management and help regional managers improve business capabilities.

We often see photos of enterprise and customer executives signing agreements and shaking hands, leading to the misconception that strategic cooperation is just meetings and handshakes.

The true value of strategic cooperation lies in leveraging the common goals of the enterprise and customer, and through multi-departmental alignment and cooperation, forcing the enterprise to reform internal systems and process blind spots that are usually difficult to change.

This is the greatest value the key account management system brings to the enterprise!