Issue link: https://www.e-digitaleditions.com/i/571132
14 FEDA News & Views ny's business provides all the reported earnings and even subsidizes the losses on the remainder of the business. For example, one very success- ful, industry-leading company earned over 150 percent of its profits from about 15 percent of its business, and an amazingly large portion of these profits were simply eroded away by the majority of the business. Importantly, a number of the strategic accounts were pro- viding most of the profits, but a shockingly large number of major accounts were key profit drains. And, it was not at all clear at the onset which accounts were "good accounts," and which were not. This is very typical. Good Accounts, Bad Accounts The key to sorting your good accounts from your bad accounts—and your good products from your bad products— is profit mapping. I have explained profit mapping in my Harvard Business School Working Knowledge columns and in my award-winning book, Islands of Profit in a Sea of Red Ink. In essence, you can build a profit map by doing an all-in P&L on every invoice line. This yields a very detailed picture of the company's profit landscape by account, product, vendor, service, cost factor, and numerous other dimensions. Profit Isle has very powerful software to do this and to create game plans for profit improvement. It's critical to do a full P&L by invoice line because account- ing systems aggregate revenues and costs in separate buckets. This makes it impossible to match each of your revenue sources to the cost of generating it. Think about this: Are all your products priced the same in every account? Is the cost to serve all accounts equivalent? If not, you need to understand how to match specific costs to specific revenue streams on a very granular basis, and this is especially critical for major accounts with substantial bargaining power. My father used to tell the story of an elderly couple living in a small New England town. The husband had worked his entire career polishing the can- non on the town green every day. One day, as he neared retirement, he came home and announced to his wife, "For 20 years, I've worked for the town, and now I'm going into business for myself. I bought a cannon." Stop Polishing the Cannon Strategic account management in the most forward-thinking companies is undergoing a transformation that is increasing sales effectiveness and company profitability by 33 percent or more. The most effective strategic account managers are shifting their focus from maximizing sales and gross mar- gins to going directly after major net-profit increases in key accounts–without the false assumption that more sales equals more profits. In fact, nowhere is this false assumption a bigger mistake than in major account management. Strategic accounts certainly have the scale and scope to provide critical revenues and gross margins. They are very important to revenue growth. However, major accounts also have massive power to reduce prices and to extract costly service packages. For most companies, and certainly for most strategic account managers, this pressure is very hard to resist. This major account power leads to the extreme- ly difficult situation in many companies, in which major account revenues increase while net profits actually decline. All too many strategic account managers find themselves in essence polishing the cannon. What can a strategic account manager do? Sell Profits, Not Revenues The most important factor in strategic account management is the vast difference between selling revenues and selling net profits. Most selling systems simply assume that these are equivalent but nothing could be further from the truth. In years of work on maximiz- ing profitability, and in the billions of dollars of annual client revenues that run through Profit Isle's, my company's analytical systems (see www.profitisle.com), I've found that a surprisingly small portion of a compa- continued on page 16 By Jonathan Byrnes, Author of Islands of Profit in a Sea of Red Ink How to Turbocharge Your Strategic Account Management