The Economics of ABM Account Selection

From all indications, account-based marketing is quickly becoming a core marketing strategy for many B2B companies. The growing popularity of ABM is largely the result of a widespread perception that it can produce a higher ROI than any other approach to marketing.

There's also a tremendous amount of hype surrounding ABM, and this hype can obscure or minimize some of the challenges associated with ABM. To put it bluntly, some of the tasks required for ABM are more complicated and/or require more work than many marketers anticipate.

One of these tasks is selecting and prioritizing ABM target accounts. Most ABM experts agree that account selection is the most critical component of any ABM program. Companies typically choose their target accounts by identifying businesses that closely resemble their existing customers, a technique that's known as look-alike modeling. The basic idea behind look-alike modeling is that companies that closely resemble your existing customers will be more likely to purchase your products or services.

It's important to recognize, however, that buying potential alone doesn't make a company an attractive account for ABM. The other necessary attribute is that the prospective target account must have the potential to be a highly profitable customer for your company. For ABM purposes, the best measure of potential profitability is customer lifetime value (CLV), which can be defined as the present value of the total profits that you expect to earn from the prospective account over the full duration of the customer relationship.

Estimating the CLV of prospective ABM target accounts is a critical part of the account selection process because of basic economics. New customers will contribute to profitable growth only if the profits they create exceed the costs you incur to acquire them. Therefore, the estimated CLV of a prospective customer establishes the ceiling for how much you should invest to acquire that customer.

The implementation of ABM may or may not require an increase in your overall demand generation budget, but your customer acquisition spending - on a per account basis - will be higher for ABM accounts. You need reasonable CLV estimates in order to effectively manage your ABM customer acquisition costs.

The CLV of prospective target accounts becomes even more important if you are implementing more than one variety of ABM. Most ABM thought leaders recognize three varieties of ABM. Strategic ABM involves a very small number of target accounts and is very resource intensive. ABM Lite focuses on groups of identified accounts that share similar business attributes and needs. It involves more accounts, but is less resource intensive than Strategic ABM. Programmatic ABM emphasizes the use of new technologies to apply ABM-inspired techniques to a large number of accounts, and it is the least resource-intensive variety of ABM.

As you might expect, the costs associated with the three varieties of ABM will differ significantly. For example, over the course of a year, you may well spend more on your Strategic ABM program - which might involve, say, 10 or so accounts - than you spend on your ABM Lite program - which might involve 50 to 100 accounts. Having a reasonably accurate estimate of the CLV of your prospective target accounts helps you place each account in the right ABM tier.

Many ABM technology solutions leverage predictive analytics to both streamline and enhance the look-alike modeling aspect of ABM account selection. Mastering the economics of ABM account selection still requires some manual work and a good deal of human judgment.

Illustration courtesy of Emillo Kuffer via Flickr CC.