What is a key customer, anyway?

Introduction

The next time you meet with senior leaders from different functions in your organisation, take a moment to reflect on these two essential questions:

Who are our top 10 customers?
How did we decide they should be in the top 10?

You are really asking, who are our key customers, and why?

You might have this nailed down and have absolute clarity and alignment across your business. If so, congratulations—it's well done. Having worked with hundreds of organizations in multiple sectors, I've noticed that these two questions often leave leaders somewhat unsure about providing clear answers.

Some typical responses are as follows:

"Why do I need to know who our customers are? That's a job for sales – I'm in R&D!"

"Oh yes... These are the top 10 customers..."

And from the same company but a different senior leader:

"Oh yes... These are the top 10 customers." (Both responses were delivered with confidence but were completely different.)

And my favourite response:

"We identified our top 10 customers 5 years ago – a strategic project we conducted with a major consultancy. We didn't want to release the findings because it might have upset the customers that weren't regarded as strategic or key.... I've got the file somewhere if you can; give me 10 minutes to find it..."

These responses stem from a lack of focus and appreciation of the importance and potential competitive edge that establishing a KAM program can provide.

The critical importance of customer clarity

You might wonder if it is really that important to understand what defines a key customer and who the customers in your portfolio become when they satisfy those criteria and are "anointed."

The simple answer is absolutely clarity.

How can your organisation focus on its customers' needs without a clear, aligned understanding of those key customers?

A lack of clarity creates a fundamental disconnect in any attempt at customer-centricity. If different departments and leaders can't even agree on which customers deserve special attention, how can you expect to deliver exceptional, coordinated value to them?

Customer management truly embodies the Pareto Effect, where 80% of results come from just 20% of causes. This principle repeatedly proves its value, especially among suppliers, where it's common for 80% of sales or profits to stem from 20% of customers—and sometimes, this can be even more pronounced!

I've encountered cases where an astounding 90% of profit originated from just two customers. While such scenarios are remarkable, I'd not advise this strategy... just imagine the impact on your business if you lost one of those customers.

Understanding the importance of identifying your key customers is absolutely essential for the success of your business, and here's why:

Four reasons to be clear what makes a customer "key"

Focus is your competitive advantage: When you clearly define your key customers, you can allocate your limited time, resources, and energy appropriately. This helps you avoid spreading your attention too thin across your entire customer base, which inevitably leads to mediocre service for everyone.
Superior service creates loyalty: By identifying your most significant customers, you can provide them with the exceptional service they deserve, ensuring their loyalty and support, which is vital for your business's sustained growth.
Risk management is paramount: Losing a key customer can profoundly impact your revenue today and in the future. I've witnessed firsthand how one lost customer can significantly harm a supplier's commercial and reputational stability. When you know who these critical accounts are, you can implement specific risk mitigation strategies.
Competitive pressure never sleeps: If you're benefiting from a key customer's business, be aware that competitors are certainly eyeing them too! It is better to consistently support and add value to them by enveloping them in your best efforts and attention rather than assuming their business is secure.

By nurturing these relationships with dedication, you set your business up for success and sustainability.

Organisation-wide alignment:

An often missing piece of your strategy.

Perhaps the most overlooked aspect of key account management is the need for cross-functional alignment. The disconnect revealed when different leaders identify different "top 10" customers isn't just amusing—it's alarming. This misalignment creates several critical problems:

Inconsistent customer experience: When R&D, operations, finance, and sales all prioritize different customers, the result is inevitably a disjointed customer experience.
Wasted resources: Functions may invest heavily in initiatives for customers that aren't actually strategic priorities.
Missed opportunities: Without alignment, your organization can't bring its full capabilities to bear on your most important relationships.
Diluted competitive advantage: Your ability to differentiate through superior service is compromised when internal confusion exists about which customers deserve special attention.

True customer-centricity begins with organizational clarity about who your key customers are. Every function—from product development to delivery logistics—needs to understand which customers represent your strategic priorities and why they've been selected. Only then can the entire organization rally around creating exceptional value for these accounts.

These reasons are apparent and send shivers up the spine of any B2B senior leader. So... go back to those two questions at the start of this newsletter.

Who are your key accounts, and how did you make that decision, anyway?

The customer segmentation process:

Principles into practice.

You don't need special glasses to see that identifying your key customers is critical. But how do you move from theory to practice?

When advising organizations on customer management, sales strategy, or key account management initiatives, I always start with a customer segmentation process. In short, I want my clients to divide their customer portfolio into "buckets" or types of customers.

The seven practical steps of customer segmentation

The segmentation process involves several critical steps that must be conducted methodically:

Establish clear segmentation criteria: This is where many organizations falter—they use simplistic measures like revenue alone. Effective segmentation typically involves multiple dimensions:

Financial metrics (current revenue, profit contribution, growth rate)
Strategic value (market influence, innovation partnership potential)
Relationship strength (executive engagement, multi-level connections)
Future potential (growth trajectory, expansion opportunities)
Cost to serve (resource requirements, complexity of needs)

Define and align segment labels: Create clear, meaningful names for your customer segments. Beyond just "key accounts," consider labels like "strategic growth partners," "foundation customers," "emerging opportunities," or "transactional accounts." The language matters—it shapes how people think about and interact with each segment.
Calibrate and "weight" the factors: Not all criteria are equally important. Collaborate across functions to determine the relative importance of each factor in your segmentation model. This weighted approach ensures that customers who excel in the most important areas rise to the top.
Apply the model consistently: Run your entire customer portfolio through the selection model, ensuring consistent application of criteria. This often reveals surprising insights—customers you thought were "key" may not qualify, while others you've overlooked show tremendous potential.
Validate results with cross-functional input: Leaders from various functions should review the initial segmentation. This serves two purposes: it improves the accuracy of the classification and builds organizational buy-in.
Communicate the results clearly: Once finalized, communicate the segmentation results throughout the organization. Everyone should understand not just which customers are in which segments but why they're classified that way.
Review regularly: Customer segmentation isn't a one-time exercise. Establish a regular cadence (typically annual) to review and update your segmentation as customer circumstances and your strategic priorities evolve.

Segmenting and classifying customers can be emotional. Key account managers can get very attached to their key customers! Then, the business decides that the customer is no longer the "key" but the "foundation" - and thus no longer requires the service of a key account manager.

This is why objective criteria and systematic review are essential—they help overcome emotional attachments and cognitive biases.

Segmenting the customer's customer

(Enter the consumer.)

Effective segmentation sometimes also requires looking beyond your immediate key customer in certain industries. Consider Consumer Packaged Goods (CPG) organizations such as P&G or Unilever. These companies maintain sophisticated segmentation models not just of their direct retail customers (like Walmart), but also of the end consumers who purchase their products.

This "customer's customer" approach creates powerful alignment. When Walmart (the key account) can design its retail approach to better serve the needs of P&G's target consumers (the customer's customer), sales increase for both parties. This creates a compelling value proposition—by helping your key customers better serve their customers, you become an indispensable strategic partner rather than just another supplier.

The four core principles of any customer classification model

However, as a first step, I want to introduce four principles that should start the process and shift from confusion to clarity. This model has worked with many organizations and is an anchor point for their KAM programs.

It works by thinking in terms of the figure below:

The four principles are really (2+2) guiding thoughts.

They are:

Define the customer by "opportunity."

Identifying future potential opportunities (this is usually financial, but could also be other factors such as aligning with the customer to learn about a new sector or technology)
Identifying the existing business that you have with the customer. Ask many organisations how they segment; on this factor alone, they select customers from a spreadsheet based on last year's sales. This is clumsy and dangerous. What if those 10 customers are in a diminishing market? Without looking at principle one for future opportunities, you simply drown in a failing market.

Look both ways. Is there an opportunity for you and for the customer? Do they see you as a potential value-adding supplier?

Defining the customer by required effort / cost to serve:

Principles 3 & 4 essentially define what you need to do for your key accounts if they are selected:

Unique value proposition: If a customer gets through points 1 and 2, you have identified their opportunity and potential. The next thing to consider is that you need to do something unique and focused for that customer that you will not do for all those other "Non-Key" customers. In short, you must create an offer that adds value to the customer's business. This is a fundamental shift in how we should think about KAM and why it should always be "value-based."
Resource allocation: The final principle is the recognition that Key Account Management does not simply happen because you have highlighted a customer name on a spreadsheet. You need to up your game. Spend money on selecting the right talent to manage your key customers, align resources, spend more time with customers, potentially develop specific products and services, and expand in countless other areas (e.g., maybe you need to expand into different geographies).

To summarise this, one expression used for years that always resonates with the teams I consult and work with proposes:

A key customer is a market segment of ONE.

Davies / Infinite Value

Essentially, you apply the same effort for those strategically selected customers (one by one) that you would conduct for an entire market segment or industry.

Implementing your KAM program:

Organisational readiness.

The real work begins once you've identified your key customers using the four principles. Successful KAM programs require organisational readiness across multiple dimensions:

To give you inspiration that this is worth the effort, here is an example of theory in practice.

A speciality chemical organisation I worked with demonstrated the transformative power of proper customer segmentation. By developing a robust model to identify truly key customers, they methodically reassessed their entire portfolio of 3,000 clients. This analysis dramatically shifted their perspective, reducing their "key customer" designation from an inflated 850 to a focused group of just 65 high-value accounts. The strategic reallocation of resources that followed produced remarkable results: within eight months, overall revenue surged by 32% while profit increased by 25%. This success stemmed directly from their willingness to realign support and investment, where data proved it mattered most rather than continuing to underserve customers who genuinely warranted premium attention. The evidence was undeniable—targeted customer segmentation delivered substantial commercial impact.

In all of the customer management techniques I provide, customer segmentation (and clarity about who your key customer is) always pays dividends.

Executive sponsorship and cross-functional alignment (bridging silos)

Key account management isn't just a sales function—it's an organizational commitment. Each key account should have an executive sponsor who helps remove internal barriers and ensures resources are appropriately allocated. Cross-functional teams need clear accountability for supporting key account initiatives.

Without this top-level commitment, KAM programs often devolve into "sales as usual" with fancier titles. True key account management requires the organisation to think and act differently for these strategic customers.

KAM talent development

Key account managers need specialised skills that go beyond traditional selling capabilities:

Strategic thinking and business acumen
Cross-functional leadership without direct authority
Consultative problem-solving approaches
Financial analysis of value creation
Project and change management capabilities

Organisations must invest in hiring, developing, and retaining this specialised talent. The best key account managers combine deep customer knowledge with broad organisational influence—rare capabilities that deserve appropriate compensation and career pathways.

Customised Value Propositions

Generic offerings rarely impress key customers. For each strategic account, develop customised value propositions that address their specific challenges and opportunities. This might include:

Tailored product configurations
Special service level agreements
Joint innovation initiatives
Collaborative process improvements
Industry-specific knowledge sharing

The differentiated value must be tangible, measurable, and meaningful to the customer's business outcomes, not just convenient for your sales process.

Systematic account planning

Strategic accounts require systematic planning processes. Effective key account plans typically include:

Deep customer insights and organizational mapping
Growth opportunity analysis
Competitive positioning assessment
Value creation initiatives
Relationship development strategies
Risk management approaches

These plans should be living documents, regularly reviewed and updated based on changing market conditions and customer priorities.

Final thoughts

These four principles are the foundation of customer segmentation and any successful KAM program. Balancing principles (1 & 2) with (3 & 4), you should start by asking each key prospect customer, "Is the juice worth the squeeze?"

If they are not, maybe they aren't a Key customer... which is fine. You should step away and focus on customers who do have the opportunity and warrant the additional investment to create a unique offer. This approach will benefit both you and the customer.

The most successful organisations in B2B markets have learned that focus is their friend. They build sustainable competitive advantage by clearly identifying their key customers, aligning their entire organisation around serving them exceptionally well, and investing in customised value creation.

Remember that key account management is not simply a sales methodology—it's a strategic business model that places certain customer relationships at the centre of your organisational priorities. When implemented effectively, it drives predictable growth, increases customer loyalty, reduces competitive vulnerability, and enhances organisational capabilities.

But it all starts with clarity on that deceptively simple question: What is a key customer, anyway?

When you are ready, there are a few ways I can help.

1. DOWNLOAD MY LATEST ARTICLE:

If you want to find out more about Value-Based KAM and how it can become a significant competitive advantage to your business, click below and receive a copy of my latest article-

Rethinking Key Account Management - The 4 blocks to ignite KAM as your strategic competitive advantage.

If you would like a copy, please follow the link below

Click here for the Rethinking Key Account Management Article.

2. GET IN TOUCH TO DISCUSS COACHING OR TRAINING

Click on the link below, and we can start a discussion about your business needs and how a value-based approach might help you grow your sales.

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I'd be pleased to have an initial conversation with you!

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Footnote

The insights, strategies, and opinions shared in this newsletter reflect the author's personal perspectives and experiences. While we strive to provide valuable and actionable information, please use your own judgment when implementing any recommendations. Results may vary based on your specific circumstances, market conditions, and implementation approach. The author and publisher accept no liability for decisions made based on this content. You're the expert in your business—we're just here to spark ideas!