A More Strategic and Equitable Approach to Setting Growth Targets for Key Accounts

When assigning Net Revenue Retention (NRR) targets to Key Account Managers whose roles involve retaining and growing existing strategic accounts, sales leaders can be prone to taking an overly simplistic and uniform approach that fails to recognize the unique potential (or lack thereof) of a Key Account Manager’s book of business. Instead, they should consider the current state and potential of each account and assign targets accordingly. Not only does such an approach help leaders determine where to allocate support resources such as account-based marketing and customer success, it enables leaders to more accurately and fairly evaluate whom the top performers are across the Key Account Team.

Avoid This Approach…

A flawed approach involves assigning the same NRR percentage growth target for all people in the role irrespective of the composition of their individual books of business. For example, if the “top down” aggregate growth target is 112% NRR for the strategic account category, each Key Account Manager has a corresponding NRR of 1112% for their book regardless of which accounts they oversee. This is analogous to assuming that because a lot people are playing golf at the same time in the State of Georgia, shooting five over par is an equal accomplishment, in spite of the fact that some are playing at the local pitch-and-put and others are playing at Augusta National. Instead, recognize that while all Key Account Managers on a team are playing the same game, they are not all playing the same course with the same equipment.

Better But Not Great…

A somewhat more thoughtful approach involves categorizing accounts by certain criteria, such as industry, and assigning growth targets tied to said criteria. For example, if financial services represents an industry with established growth potential for the company, all accounts classified in the financial services industry are assigned an NRR target of 120%. This approach has a number of pitfalls. One is a lack of recognition of the unique potential of each account. Another involves categorizing customers in highly distinct businesses in the same manner. If your company’s solution is best suited for investment managers, assigning the same growth target for commercial banks makes little sense in spite of the fact that they are both technically in “financial services”.

The Best Approach…

While it involves more upfront work for sales leaders, an ideal approach involves evaluating each strategic account in terms of its maturity, penetration level, and growth potential, and assigning targets at the account level. While it is ideal to do so, this approach does not necessarily need to involve assigning a unique NRR growth target percentage to each account. For organizations with significant installed customer bases, it can be impractical to do so.  A more practical approach is to place each account into a category that reflects its current state and relative growth potential:

• At Risk: These are accounts that require serious work to retain, let alone grow. An 80% (or even lower) NRR may be appropriate, with anything over 100% being aspirational. For these accounts, an “all hands on deck” approach may be needed in terms of resource allocation, including customer success, product management, and sales leadership.
• High Potential: These accounts are underpenetrated and present the greatest opportunities for near-term growth. It’s possible that an NRR of 125% or even higher is perfectly reasonable. Resources such as account-based marketing should be prioritized for such accounts.
• Mature: These accounts are solid but lack significant growth potential because they are well penetrated or for other reasons. An “inflation-plus” approach to NRR typically makes sense for such accounts. If inflation is forecasted at 5% year/year, perhaps an NRR of 110% is appropriate.

Keep in mind that each account’s classification is not stagnant and should be reassessed annually.

Reconciling Gaps to Aggregate Growth Targets

In taking an account-based approach to setting NRR targets, it is unlikely that the aggregate revenue target at exactly 100% achievement for each Key Account Manager will align perfectly with the “top down” team target assigned by senior leadership. In cases where it’s higher, the Key Account Management team has a healthy cushion against negative events such as the unexpected loss of a “safe” account or an economic downturn. In cases where there is a manageable shortfall, consider assigning a supplemental growth quota at the rep or manager level. If the gap is sizeable, leaders of Key Account Management teams may need to go back to drawing board or determine if/how their new counterparts in new business development may be able to overperform.

The Benefit to End-of-Year Evaluations

Many of those who have served as Key Account Managers have been the beneficiaries of an attractive book of business relative to our peers, or the opposite. If one has been around long enough and held roles at more than one company, they have likely experienced both scenarios. When companies take an account-based approach to Key Account growth targets, sales leaders will have more accurate insight into who their top performers really are, and Key Account Managers will have less reason to be bitter when their peers are lounging  by the pool at President’s Club.