Account Classification: Three Types

Managing your account base is often a question of maintaining existing customers and finding new customers who are most likely to buy, then engaging your resources to maximize the opportunity. However, some accounts are more profitable than others and let's face it, profit drives your business. You must maximize your returns by satisfying the greatest number of profitable customers. Return can be measured in a number of ways: ROI (return on investment)—the amount of money and time spent on an account; ROE (return on energy)—energy expended to secure the account; ROO (return on occasion)—leads or referrals you get while golfing or participating at an occasion outside normal selling activities or selling hours. ROO extends your limited selling hours and ROT (return on your time equity)—asks how wisely are you spending your allotted time.

Not all customers have the same buying potential. The portion of unprofitable accounts is usually greater than you think. I remind you of the 80/20 rule: 80% of your sales come from only 20% of your customers. Therefore, sales entrepreneurs need to classify customers on the basis of their sales potential, to avoid spending too much time with low-potential accounts. Remember, there are only 1,760 selling hours in one entire year. We can't afford to be busy servicing unproductive, unprofitable accounts. Don't be fooled by revenue numbers. Revenue alone doesn't keep a business afloat, profits do. Pricing your product or service at or below cost is not smart business, but many sales representatives are seduced into a quick sale where profit is sacrificed for revenue. Your business must be managed by utilizing all of the resources at your disposal, maximizing your return in the most productive manner. To that end I offer a very simple account classification strategy: the ABC analysis. It's not new but it certainly works. Use this method to evaluate and classify each of your existing and potential accounts.

A Accounts
Your A accounts deserve the most attention. Here's why:

They have high potential return: (ROI/ROE/ROO/ROT)

They require minimum invested time

They are low maintenance

They are cooperative if problems arise

They have a high contribution based on margins/profit

They have a short sales cycle

B Accounts
B accounts are not quite as attractive as your As, but certainly worth pursuing. Here's why:

They have good potential return: (ROI/ROE/ROO/ROT)

They require a high amount of invested time

They have higher maintenance

They are patient with problems

They have a good contribution based on margins/profit

They have a longer sales cycle

C Accounts
I fondly refer to a C account as "a pain in the asset." C accounts usually distract you from your A and B accounts, offering little or no return for your investment. Here's why:

They offer low/no potential return: (ROI/ROE/ROO/ROT)

They require an excessive amount of time

They are high maintenance, lots of babysitting

They are impatient when problems arise

They provide minimal contribution based on low or no margins/profits

They have very long sales cycle

These accounts are literally a pain. They whine about this and that, finding the darndest things to complain about. In spite of your efforts they are never satisfied.

As you classify your accounts, I strongly recommend you continue to work closely with your As and Bs, and toss your Cs. That's right, get rid of them. With limited selling hours, you can't possibly maintain C accounts as well as service your As and Bs. Remember, C accounts are a major distraction to your core business accounts. By responding to or pursuing C accounts, your A/B accounts could inadvertently become a silver platter opportunity for your competitor. In most cases the neglect is unintentional but the consequences can be dire. This is a chief cause of lost customers.

However, be aware of potential changes in account status. A C account today may become an A account tomorrow. Likewise a B today may become a C tomorrow, and so on. There is no universal grading system. An A or B account in your territory could well be a C in another territory. Each territory has its own unique account classification parameters.

Here is a fact that may help guide your thinking as you manage and grow your account base. It costs your employer approximately $200 to $300 for every sales call you make (based on approximately one hour of actual selling time). Now let's add $200 for the customer's time and we have a $500 sales call. Not many salespeople think in terms of cost per sales call but as an entrepreneur, you must ask yourself, "Is this call worth $500?" It becomes clear that time with a C account is not only unproductive, but very costly.

Once you have determined that an account has a C status, don't be too quick to abandon it. Four options are available.

1. Use them to practice. Where do most salespeople practice and refine their sales skills? Usually when they are sitting before an A or B customer. Not a good plan. Practice the steps of your Sequential Model at a C account. It's a win-win situation. If you screw up, the customer won't want to do business with you anyway. The big win is that you took a step closer to refining and polishing your skills in a low-risk situation. Practice makes permanent—no different than a professional golfer hitting hundreds of balls at the driving range. A C account is to a sales entrepreneur what a flight simulator is to a pilot developing a new skill.
2. Double their price. I don't necessarily mean literally double it, but certainly a price increase may be appropriate. Visit or call your C accounts with their revised pricing in your hot little hand. No doubt their reaction will be, "Look at this, you increased my price." Your response is, "Yes, I know." The revised price represents the lowest point at which you will do business with them. It's your line in the sand. Anything lower and you are simply not interested. The upside can be rewarding. If they accept your revised price, you now have a B or an A account. It is surprising how often they accept the revised pricing—and if they do be sure to nurture them to a solid B or possibly an A account.
3. Another response you may hear from a C account is, "I can buy it cheaper elsewhere." That could very well be true and the natural tendency of a sales representative is to reduce the price until the customer agrees to buy. However, if the customer is unhappy with your lowest price-point, I suggest you use Lee Iaccoca's line: "If you feel you can get a better deal elsewhere, then buy it." It communicates confidence in yourself and your proposal and quite often customers will reevaluate their decision. Customers today appreciate the old adage, "You get what you pay for."
4. Clean deal. Logic tells us that with limited selling hours we simply can't extend your C customers the luxury of a personal sales call. Explain to them that their situation does not justify or warrant a personal visit. You will no longer make the one-hour trek to visit them. It's simply not a good validation of your 1,760 selling hours. Inform your customer that you are prepared to sell to them, but without direct representation. However, the condition of doing business is that you redefine the rules of engagement. These would include pricing, a delivery schedule, minimum order quantities, and payment terms.
5. Once both parties understand the new arrangement, invite them to place orders with your order desk or inside representative. Or they may want to send you an e-mail order or leave a voice mail. This approach can be effective and represents a clean deal for both you and your customers. Also, it can be an additional revenue stream that contributes to your monthly, quarterly, or annual targets.
6. Fire them. During my years of selling I have never seen a concept so openly embraced by the business community. Fire C accounts. Companies are no longer tolerant of the aggravations and frustrations C accounts bring. Case in point: I recently called on one of my national accounts and asked how his morning was going. He said this, "I spent the morning deciding which accounts to fire." This comment echoes the sentiments of corporate executives. Sales managers have typically challenged salespeople to close every possible account within their territory. They constantly ask, "Are we doing business there and if not, why not?" Managers should now be asking, "Why are we doing business there?" I encourage sales managers to challenge their salespeople—ask them to validate, with sound justification, why an account is doing business with them. Just because an account resides in your territory doesn't mean you have to come hither to their beckoning call. You can pick and choose who qualifies to do business with you. Establish the parameters for your A and B accounts and know what parameters flag a C account. I recently made a sales call and the manager I was visiting had an interesting analogy. The company was in the process of "demarketing" its account base. It was eliminating the Cs and focusing on its As and Bs.

Firing an account doesn't mean pursuing an unprofessional, unceremonious approach. It means engaging in an open, honest dialogue with your customer. It could be as simple as saying, "Although we have both explored the possibility of doing business together, it appears at this time we cannot move forward. I do thank you for considering us."You then suggest the customer research the market for other options. Appreciating how valuable your time is, your choice is simple. You can choose to work more and make less, or work less and make more.

Another aspect to consider is to evaluate each opportunity within existing accounts. Evaluate and classify each opportunity based on its own merit. Don't throw out the baby with the bath water. For example, you may be presented with a C opportunity within an A account. Your options are to fulfil the C opportunity in the interest of the relationship, or to politely decline by explaining your reasons and perhaps suggesting an alternative. An effective strategy is when you and your customer agree to disagree. Rather than aggravating your customer by walking away from a C opportunity, it's preferable to openly discuss your reasons. Come to an agreement and that may be to disagree, all the while keeping the relationship intact.

Parameters that flag a C account or C opportunities are as varied as customers themselves. Typical reasons include poor returns, they insist on a rock-bottom price, they are too demanding, you are unable to fulfil expectations, or they order lower-than-acceptable volumes. However, you may elect to pursue them for corporate or political reasons as the Head Office may deem the account prestigious or strategic to the business—one that looks great on the corporate résumé.