Why B2B Leaders Should Rethink the True Cost of Large Accounts
Leaders should proactively discover the major drivers of poor profitability among their unique customer bases.
by Jeff Durr and John Fleming
- Large B2B accounts do not guarantee strong profitability
- B2B customer engagement is a powerful indicator of future account health
- Evaluate resource allocation and account management to maximize big-dollar accounts
In the business-to-business (B2B) world, large accounts typically attract a lot of attention.
While winning with big clients can certainly lift revenue, consider that bigger may not always be better when it comes to engagement and long-term profitability.
In Gallup's experience, large-revenue B2B relationships are often more challenging -- and more demanding -- to service, manage and keep profitable compared with smaller accounts.
A B2B customer's level of engagement with a company is a powerful indicator of future account health, as demonstrated by:
- share of requirements
Major B2B customer relationships tend to have lower customer engagement than smaller revenue relationships -- a finding that holds true across multiple industries.
Strong profitability is not a given with larger accounts.
A company's largest accounts can, counterintuitively, have lower profitability when contribution margins are taken into account.
The demands of maintaining accounts can also strain employee engagement levels, with the stresses of servicing larger accounts taking a toll on workers.
To mitigate potential problems with larger accounts, B2B leaders must know the causes. Gallup has identified the main three:
1. B2B companies often make lofty promises.
To win business, B2B companies understandably promise services and value-added activities that stretch their capabilities and budgets.
This helps attract and win big-dollar contracts -- but often at a price: lower profitability and strained employee engagement.
2. Major accounts are often larger-sized organizations.
With greater company size comes greater bargaining power and more involved procurement.
Compared with smaller companies, larger companies tend to drive a harder bargain for the best deal and terms, while still expecting top-shelf service.
3. Economic pressures reduce profitability.
Poor economic growth has forced companies to hit earnings targets via cost-cutting and accepting low bids.
This pressures sales professionals and B2B leaders to deliver exceptional service at bottom-dollar prices.
B2B leaders should evaluate their resource allocation and account management strategies to overcome the challenges associated with big-dollar accounts.
The following best practices can help B2B companies improve business outcomes -- across all account sizes:
- Determine if middle-tier accounts are more profitable.
For some B2B companies, medium-size accounts are more fruitful across a variety of key measures, including profitability, growth, gross margin and customer engagement.
Leaders should rely on world-class analytics to evaluate their customer segments and determine the smartest way to prioritize and focus limited company resources.
- Diversify company metrics and strategies.
These analytics should examine factors such as cost of sales, cost of acquisition and customer profitability -- not simply growth or size.
While large accounts can often keep the lights on, it is easy to overlook additional kinds of business that support other strategic objectives such as long-term growth, product diversification, new product adoption and higher profit margins, among others.
- Identify and address low profitability.
Early in the sales process, companies should evaluate the extent to which these drivers might affect the new relationship -- never being afraid to walk away from bad business.
All B2B customer segments have unique challenges. We recommend combining customer segmentation data with leading analytics and tactical account management to optimize profitability, customer engagement and employee engagement.
- Learn how Gallup can advise your company on B2B customer strategies and help you maximize profitability and employee engagement.
- Download our guide to sustainable business growth through customer engagement.