This is the second article in a series that is dedicated to radio leaders and managers who have resolved to regain control over the growth of their companies.
As we mentioned in our first article, we have conducted extensive statistical research to understand the factors that lead to the growth of a media company. The data has revealed two metrics that operate as levers radio leaders and managers can use to steer their companies towards growth.
The first lever is effective management of the Key Account Portfolio, or KAP.
The attrition of the KAP is the single most accurate predictor of whether a company will grow its revenue year over year. For radio to get back to growth, it will need to get the attrition of the Key Accounts under control. If annual KAP attrition exceeds 12%, growth becomes impossible.
The second most important contributors to growth are the New Key Accounts that are created during the current year. New Key Account revenue must be high enough to mitigate the KAP attrition and attain the company’s top line goal.
As we will discuss in this article, it is the interplay between these two groups of large customers that will determine how much a company will grow.
The Three Building Blocks of Annual Revenue
At the Creative Resources Group, we developed an account segmentation tool we call The Crunch. The Crunch helps us dissect an individual business unit so we can understand how different account segments contribute to, or detract from, the unit’s year-over-year growth. Crunching the numbers for hundreds of business units in every sector of the media industry, we discovered it takes three building blocks to achieve a company’s total revenue.
In the chart below, the bar on the left depicts a radio cluster that billed $20 Million in 2023. As usual, the Key Account Portfolio generated 80% of the total revenue, or $16 Million. The remaining $4 Million came from small and medium-sized clients. At the top of the bar on the right, we see that the cluster is expected to grow to $21 Million in 2024.
Building Block #1 – Preserving Prior Year Key Account Revenue
The foundation for the current year is the preservation of the revenue from the Key Account Portfolio. The KAP is managed very much like a mutual fund. Sellers and their managers delve into every Key Account in the portfolio with an eye toward maximizing the accounts with growth potential, while minimizing the negative effect of those likely to shrink or disappear. This ongoing process helps management arrive at a well-informed Key Account Portfolio attrition expectation for the year.
The image above shows that the company leaders have set a KAP attrition goal of 10%. Assuming the sales organization is successful at meeting that goal, the company can count on a base of $14.4 Million from the prior year Key Accounts.
Building Block #2 – Revenue from Small and Medium Clients
The second building block contains the $4 Million spent by the bottom 75% of active clients in 2023. The data consistently shows that the company will lose as many small and medium-sized clients as it gains over the current year. The revenue from that segment of accounts is projected to stay flat in 2024, which leaves us $2.6 Million away from the company’s revenue goal. Where is that money going to come from? New Key Accounts.
Building Block #3 – New Key Accounts
Just like Key Accounts were the top 25% of active clients in the prior year, New Key Accounts are either brand new clients or existing small and medium-sized clients that grow large enough to end up in the top 25% of active clients for 2024.
While New Key Accounts might be a new concept for some, the radio business has historically depended on them. Many people reading this article will remember a time when all the sales managers would gather once a week to go over avails. Quite a few of those local and national avails grew large enough to end up as New Key Accounts. As the advertising business became de-siloed and large clients found more places to spend their money, those large avails dwindled.
Today, New Key Accounts still materialize from time to time, either on their own or as a result of a new business effort (the data shows that from every 100 new clients created, an average of seven New Key Accounts are produced).
The radio business is currently not growing enough New Key Accounts to fuel growth. In our experience, only one framework produces enough New Key Accounts every year to create sustained growth. That is a well-organized, aggressive Target Account effort. We will explore what we have learned about effective Target Account efforts in a future article.
Growing Digital Revenue is a Big Account Game
Once management locks on to the fact that creating growth is a big account game, they can apply that same thinking to the growth of their digital revenue (and, by extension, to every other important company initiative).
Companies can accelerate the growth of their digital revenue by investing time, effort and creativity to preserve and grow the Key Accounts and New Key Accounts that use the company’s digital offerings.
Next Time
So far, we have illuminated the two major account segments that will determine a radio company’s ability to grow. Next time, we will propose a proactive, marketing-based approach to growing big accounts.
