In the early days of the cloud, companies focused their sales efforts primarily on new account acquisition. As cloud business models mature, account management takes on greater importance. The account manager role aims to not only retain the current stream of recurring revenue but upsell and cross-sell the customer on the broader set of offerings. This begs the question, “How many account managers do you need?” Certain overlay and support roles are commonly deployed based on a ratio to the account executive position (the “hunter” role). This ratio tends to work well for solutions consultants, product specialists, and sales development representatives. But, this simple ratio approach does not work so well for sizing the account manager team.
Figuring out the right number of account managers you need is much more nuanced than a simple ratio of AMs to AEs. This ratio varies too much depending on how well the market is developed, customer penetration and product maturity. Established markets will have a heavier weighting towards account managers whereas emerging markets usually have a heavier weighting towards account executives. Business in emerging markets is focused on rapidly acquiring customers. Thus the need for account management is limited. Meanwhile developed markets often see customer acquisition slowing and so more focus is needed on the expansion of existing accounts. By depending on a ratio of AMs to AEs, we run the risk of massively over- or under-investing in this critical sales role.
Instead, the size of the account management sales force is best determined based on three factors; 1) the dollar value of your current book of business, 2) the total number of accounts, and 3) other post sales investments such as Renewal Reps and Customer Success Managers. Let’s consider each one briefly.
1. The Dollar Value of Your Current Book of Business: The size and composition of the book of business is the primary determinant of how many account managers you need. The account manager has a finite amount of time to sell, and as such you need to understand the typical amount of time required per customer. Some key questions to consider:
a. Customer Success and Retention:
i. What is the account servicing load? Do I have high attrition risk?
ii. How many contracts do I have in each account? Do they co-terminate?
iii. How “sticky” is my solution? Are there high costs associated with switching? Are there substitute solutions that could replace my solution?
b. Upsell and Cross-Sell Opportunity:
i. How much wallet share do I have in each of my accounts?
ii. Have my clients purchased my entire portfolio of products? Or is there additional opportunity for cross-selling?
iii. Have my clients maximized their usage of the current products they buy from me? Or is there additional opportunity to upsell?
The “Net Ratio” is a simple way to convert the above factors into a single metric. The Net Ratio is the upsell / cross-sell net of churn as a percentage of the book of business under management. The higher your Net Ratio, the more opportunity there is for increased penetration and the greater your investment opportunity in account managers to penetrate your existing customers.
2. Total Number of Accounts: The more accounts that an account manager oversees, the less time she has to focus on each account. In a transactional environment where there is limited upsell opportunity, this is less of an issue. But in bigger accounts with upsell opportunity, overloading the account manager can have the opposite result than desired – lower than expected bookings and possibly even account attrition due to insufficient account servicing.
3. Other Post Sales Investments: Roles such as Customer Success Managers and Renewal Representatives will often support the adoption and retention efforts of the account manager. These support roles help free up account managers to focus on selling activities that result in deeper penetration in customer accounts. This means each account manager can be more productive, therefore reducing the overall headcount needed.
Combining these three factors, you create a sizing chart to determine the right number of account managers. The table below is an example of how this might work.
Determining the right number of account managers is a delicate balancing act. If you invest in too many account managers, you could negatively impact rep productivity and costs which hurts the bottom line. If you underinvest in account managers, you do not fully realize the growth potential in your existing account base, or worse yet, you lose your customers for lack of service.
Take a moment and look at your account management team. Are they able to execute on their assigned growth objectives? What is the net growth within existing accounts? Is this target growth achieved through healthy means (not churning too many accounts)? Is their productivity being hindered by having to manage too many accounts? Are you providing them the appropriate amount of support infrastructure?
How does your sales force of account managers size up? Learn more about evaluating and sizing your sales force for cloud companies at the Alexander Group’s Cloud Sales practice page. Practice.
Originally published by: Dale Chang