Updated: Feb 21, 2020
All customers are not created equal. We’ve all read about the Pareto Principle and how just 20% of our customers make up 80% of our sales. With the B2B sales teams that I’ve worked with, this principle generally holds true. Sales managers aren’t naïve, they get it – but many still don’t have a great system in place to help their Reps prioritize the accounts that will actually move the needle at the end of the fiscal year.
This article focuses on the foundational sales planning exercise that can get you started in the right direction - Account Segmentation.
Account Segmentation is the exercise of dividing all accounts in a Rep’s sales territory into three groups (usually A, B, and C) based on an analysis of each account’s existing revenue contribution and future upside potential. The exercise is performed on an annual basis (to allow Reps the time they need over the course of a full year to develop their A Accounts and grow the volume and size of their B & C Accounts), and is a pre-requisite to the three main activities that should be completed at every annual sales planning meeting – Key Account Planning, Territory Account Planning, and Lead Generation Planning.
Segmenting accounts is a great way to help Sales Reps manage their time and prioritize their workload, but there are a few additional benefits that may be even more important for long-term growth:
Reps will learn to take ownership of their territory and think strategically (like “mini-CEOs”) instead of transactionally.
Reps can develop a go-to-market plan for each account segment, rather than taking a one-size-fits-all or (worse) a spray-and-pray approach.
Account segments can dictate other service SOPs – such as customer support prioritization, customer benefits/perks, crisis management protocols, etc.
Sales Managers can use Account Segmentation to determine both how successful a Rep is at growing accounts in their territory, and when to divide a growing territory among multiple Reps.
Account Segmentation is the exercise of dividing all accounts in a Rep’s sales territory into three groups (usually A, B, and C) based on an analysis of each account’s existing revenue contribution and future upside potential.
How To Segment Your Accounts
Studies show that the majority of B2B revenue is generated from a small percentage of accounts. In fact, Ken Thoreson observed that sales in most organizations follows a predictable distribution:
The top 15% of clients make up 65% of sales
The next 20% of clients make up 20% of sales
The final 65% of clients make up 15% of sales
In total, a whopping 85% of sales are generated by just the top 35% of accounts! Keeping this statistic in mind, let’s look at the 6 steps that you can follow to segment your sales territory:
1. Make A List Of All Your Accounts
The Sales Operations Rep and/or Sales Manager should compile an account list for each Sales Rep, including all relevant sales data (revenue, products purchased, frequency, etc.) from the past 1-3 years. Accounts are defined as all companies (not contacts) in the sales territory – this list should also include prospects (companies in the territory that aren’t currently paying customers).
Note: It’s important that Sales Managers complete an Account Segmentation exercise for each of their Reps’ territories as well – both for context and to compare their results with their Rep in the finalization meeting.
85% of B2B sales are generated by the top 35% of accounts
2. Sort Your List By Total Annual Sales
Sort your account list by the total revenue each account paid to you over the last 1-year. From here on, I will call this figure Total Annual Sales (businesses with a recurring sales model may prefer to look at ARR – that’s fine as well). Now that your list is sorted, tag each account with an A, B, or C according to this formula:
The first 15% of your accounts = A
The next 20% of your accounts = B
The final 65% of your accounts = C
For reference later on, make sure to write down the total number of accounts you have marked A, B, and C.
3. Identify Ideal Customer Profile Attributes That Indicate Future Sales Potential
Identify 1-3 Ideal Customer Profile (ICP) attributes, specific to your customers, that may indicate future sales potential within your accounts. Common ICP criteria include:
Account Size (# of employees, # of physical locations, financial data, etc.)
Account Fit (historical purchase amounts/frequency, type of products/services they have historically purchased, competitive presence, industry fit, etc.)
4. Determine What Type Of Territory You Have
Putting the ICP attributes aside for a minute, draw a chart of your accounts by Total Annual Sales. Each Account should be plotted on the X axis and their Total Annual Sales on the Y Axis. It should look something like this:
Now, look at your chart and decide whether your territory is Mature or Developing. Here’s how you can determine that:
This chart is an example of a Mature Territory. Mature territories usually have a small number of large, or ‘key’ accounts, that comprise most of the territory’s total sales, followed by a middle-tier of accounts that contribute meaningful annual sales, followed by a long-tail of smaller accounts.
Note: Mature territories tend to benefit more from a ‘farmer’ approach.
Alternatively, this chart is an example of a Developing Territory. Developing Territories have few or no clear ‘key’ accounts, and consequently the chart looks visually flatter (because a much larger number of accounts contribute similar level of total annual sales). Developing Territories may also have one or two large accounts, but they would exhibit far less stratification (lack of a defined middle-tier) than Mature Territories.
Note: Developing Territories tend to benefit more from a ‘hunter’ approach.
5. Determine Your A, B, & C Accounts Considering Total Annual Sales & Future Account Potential
Once you’ve decided what type of territory you have, it’s time determine which accounts will make up your A, B, and C segments. As a general rule, you should determine your final Account Segmentation by weighting your accounts according to this formula:
Mature Territories: 80-90% (Total Annual Sales) + 10-20% (Ideal Customer Profile attributes)
Developing Territories: 50-60% (Total Annual Sales) + 40-50% (Ideal Customer Profile attributes)
Let’s explain how this weighting system works through an example:
Stacy covers the Retail Industry (100 total accounts) for Acme Widgets and she has a Mature Territory. Aside from Total Annual Sales, she has determined that the ICP attributes that typically determine the potential of an account to purchase more widgets are the number of employees at the retailer as well as the total number of retail stores.
Her competitor, John, covers the Retail Industry (100 total accounts) for a smaller company called 5-Star Widgets. Aside from Total Annual Sales, John has determined that the ICP attributes that typically determine the potential of an account to purchase more widgets are also the number of employees at the retailer as well as the total number of retail stores.
So how should Stacy and John segment their accounts?
Stacy identifies her A & B Accounts by Total Annual Sales. Out of 100 total accounts, she identifies her top 15 accounts as her A Accounts and the next 20 accounts as her B Accounts. But, these accounts are not automatically marked off as her final A & B Accounts, Stacy still needs to consider the effect of her Ideal Customer Profile attributes on her A & B Accounts and make adjustments. We expect ~10-20% of Stacy’s B & C Accounts to be upgraded to the next tier because they show strong potential revenue upside (to balance this out, she will need to downgrade the same number of A & B Accounts).
For example, let’s say that one of the world’s largest retail businesses isn’t currently her client, so after applying the Total Annual Sales filter, that account is classified as a C Account. However, because Stacy knows this account could have huge potential for her, she may want to move it up to a B or even an A Account (so she can focus on prioritizing her business development efforts with that particular business).
As an owner of a Mature Territory, Stacy’s goal is just to fine-tune her A & B accounts - not to make wholesale changes. There are two reasons behind this:
She needs to protect the revenue in her largest accounts
She already has a blueprint for success (her largest accounts probably didn’t become that large by accident), and should focus on replicating that success across her higher-potential accounts
John, however, faces a different challenge. Most of the customers in his territory are paying him roughly the same amount of money every year. So, for John to simply make his top 35 revenue-producing accounts his A & B Accounts also doesn’t make much sense.
As an owner of a Developing Territory, John’s goal is to allocate a much higher proportion of his A & B to accounts that may not be paying him a lot now, but that he thinks have the highest likelihood of developing into large revenue accounts in the future. Again, there are two reasons for this:
There is minimal down-side risk to him taking a chance on his higher-potential accounts (losing one or two of his larger accounts won’t affect his overall revenue significantly - that statement cannot be said for Stacy)
He needs to build a key account – one that will provide a blueprint that he can follow to grow revenue at his other A Accounts beyond their current threshold
In this case, John would give much stronger consideration to his Ideal Customer Profile attributes, and should make adjustments to ~40-50% of his A & B Accounts to reflect this.
Tip: Don’t make changes just for the sake of making changes. The Sales Rep should be able to justify every selection of an A or B Account with specific data or intelligence that supports it’s fit to your company’s Ideal Customer Profile.
6. Finalize Your Account Segmentation With Your Manager
Now, the Sales Rep & Sales Manager are ready to meet 1-1 to finalize the segmentation. During this meeting - compare both of your segmented Account Lists, identify any accounts where there is a discrepancy, and agree on the final segmentation. If the Rep and Managers’ segmentations don’t match on at least 70% of the total accounts, you should discuss and clarify the exercise and/or re-align on the sales strategy for the territory.
Remember: the number of A Accounts should not exceed 15% of your total number of accounts, and the number of B Accounts should not exceed 20% of your total number of accounts.
Now that you’ve completed your Account Segmentation, it’s time to move on to the three essential planning exercises essential for every annual sales meeting:
Key Account Planning (for your Top 5 A Accounts)
Territory Account Planning (for the rest of your A, B, & C Accounts)
Lead Generation Planning
Addressing Common Challenges With Account Segmentation
Territory Growth Politics
In a growing territory, as revenue from existing customers increases and new prospects are identified, the total number of accounts will increase beyond the amount that can realistically be served by one Rep – thus making it essential to divide the territory amongst multiple Reps for further expansion. If not handled properly, this situation could demotivate the incumbent Rep – especially if they do not feel adequately involved in the planning process. Potential solutions to this challenge include:
Promoting your high-performing Reps to a Manager level, or appointing a Team Lead
Creating a ‘senior’ sales position within a territory (the ‘senior’ sales rep is responsible for A and the top half of the B Accounts, while the junior Sales Rep is responsible for the bottom half of the B and the C Accounts) – this is common practice in many technology organizations
Assigning the incumbent Sales Rep a different type of territory – mature or developing – based on their preference or skill-set (Hunter/Farmer)
Mature Territories tend to benefit more from a Farmer approach, whereas Developing Territories tend to benefit more from a Hunter approach.
The Elephant That Crashes The Party
Every year, a new account will pop-up that wasn’t previously on your radar, and that either places a big order or has the potential to change the fortunes of the Sales Rep’s quarter (or even year). Although it will be tempting to slap an A on the account and move on with it, it is important that any new ‘high-potential’ accounts that arise during the year should be added as a C Account. In the meantime, it can be given special attention by the Sales Rep until its status is re-evaluated at the start of the next fiscal year. Earning an A segmentation for this account next year will be a visual mark of success for the Sales Rep who oversaw its rise.
Striking The Wrong Balance
It is common for Sales Reps to misconstrue an Account Segmentation exercise for an exercise in “prioritizing our largest revenue accounts” or simply just “prioritizing the biggest companies in my industry regardless of how much they pay now.” It is very important for the Sales Manager to work with the Sales Rep to identify appropriate ICP attributes, to help the Sales Rep correctly identify the type of territory that they have been assigned, and to ensure that proper Total Annual Sales vs. ICP weighting is considered when segmenting accounts. At its core, Account Segmentation is a team exercise, and it requires very close communication between the Sales Rep and Sales Manager.