As coaches to independent insurance agencies, we see that the intellectual capital-the knowledge, wisdom, strategies and tools that we use to create the foundation for vertical growthcontinues to expand. As this continues, I've noticed a very interesting phenomenon. What used to be regarded as "outrageous" or impossible is now so commonplace that it's considered routine, or normal. Similarly, things that seemed impossible just a few years ago have become the norm. Why is that?
From what we've observed, this trend is the result of agency principals who are no longer accepting the status quo. They won't settle for average results and they're no longer allowing excuses ("We've never done it that way" or "That's always the way we've done it") to dictate how their agency operates. They realize that average agencies are simply waiting for the roast duck to fly into their mouth.
The average agency's "perpetuation plan" consists of operating the business in order to support a lifestyle and then selling it to the highest bidder when the principals are ready to retire. In fact, based on our observation, fewer than 10% of agencies have a formal perpetuation plan in place.
That prompted me to think about some of the ways that we've seen agencies change over the years and that members of The Sitkins 100(TM) have experienced. I think you'll notice a marked contrast between yesterday's "outrageous" and the current norms that have come to be expected at many of today's high-performance agencies.
Revenue per Employee
Outrageous Then: $150,000
Expected Now: Well over $250,000
Getting There. Your agency should focus on several keys, starting with increasing Revenue per Customer. This will require you to start operating under the theory that Less is More. You may have fewer customers, but each will be paying you more.
* Avoid the 2-2 Syndrome (too many customers paying too little money).
* Maximize Your Automation so that you can have fewer people, but they're much more efficient and therefore productive.
* Attract, Train and Retain the Best. If you pay peanuts, you get monkeys. But if you're doing all the right things to attract the best people, you'll become a magnetic agency.
Revenue per Producer
Outrageous Then: $500,000
Expected Now: $1 million
Getting There. Even though most agencies are at the $250,000-$300,000 level of revenue per producer, we think that's still way too low. Too many agencies have profitable producers subsidizing the unprofitable ones. To avoid that trap, agencies should be aware of these key points:
* A Full Pipeline of prospects, as we've discussed countless times. It's all about getting quality at-bats.
* A Selling System that differentiates you from the competition.
* Sales Management. Without it, there's no way you'll be able to cultivate million-dollar producers.
* Producer-in-Training. At some agencies, producers are not considered out of training until they reach the million-dollar mark. An organization whose culture sets the sales bar that high usually achieves great success.
Revenue from Benefits
Outrageous Then: 25%
Expected Now: 40%
Getting There. Right now, the average agency receives approximately 8% to 10% of its revenue from benefits. That percentage is much higher at agencies with specific directives that make benefits a priority.
* Full-Time Clients Only. They aren't full-time clients unless they're buying ALL of their insurance from you, including benefits. It's crucial that producers make benefits a focal point of their sales presentations-not an afterthought.
* A Dedicated Producer. It's critical that your agency have a designated producer or department-someone who "owns" that part of your business-to head up the benefits practice. Who's driving your benefits bus?
* A Selling System. Unlike other kinds of insurance, there are limited markets for benefits, and typically they are accessible to everyone (including your competitors). As a result, products and pricing are basically the same for everyone. So what separates you from the competition? The value-added services that you might provide your clients that will improve their overall benefits program and, therefore, their ability to attract and retain the best people.
Outrageous Then: 15% - 25%
Expected Now: 40%
Getting There. Operating profit is defined as an agency's base core income (which excludes contingency income and interest income), minus its selling and servicing expenses. Unfortunately, most agencies do not make an operating profit and, in fact, would be unprofitable if not for interest income and contingency income. Fortunately, changing the way you operate can boost your agency's bottom line.
* Reward Ratio. Profit is what you want it to be. The key is knowing your reward ratio. What are you really taking out of the agency?
* Financial Model. We firmly believe it's critical for your agency to have a financial model that dictates how it will operate. For example, if you're shooting for a 40% profit, you can spend only 60%. Of that, no more than 40% should be spent on service and administration, and no more than 20% on sales. Does that mean you should pay your producers only 20% (new and renewal)? Maybe. But you also have to consider the large amount of business that you probably have in house accounts that have no sales expense whatsoever.
* Revenue per Employee must be raised to such a high level that you can't outspend it.
* Revenue per Relationship. All too often, agencies allow profitable accounts to subsidize unprofitable accounts. This remains a widespread problem. Further, as we continue to examine the power of the 80/20 Rule, we're still very concerned that the Bottom 50% of clients typically account for less than 10% of an agency's revenue. We're also aware that the Bottom 25% of clients make up less than 5% of revenue. If you're not sure about your revenue-related ratios, take a look.
Outrageous Then: Asking Clients for Referrals
Expected Now: Getting Introductions from Key Clients
Getting There. Create a formal plan for making "deposits" with your clients so that you can make "withdrawals." Other keys to filling your pipeline:
* Believe in Referrals. Be in a situation where you truly believe that referrals and cross-referrals are okay (because they are). Just think of them as a matter of professional give and take.
* Be a Top Advisor. Get on the short list of your clients' Trusted Advisors. I promise it will enhance your opportunities to earn some excellent introductions from their CPAs, bankers and attorneys, among others.
Recently I attended a meeting for asset managers and financial advisors in Las Vegas, mainly to learn if there was anything new that might apply to our industry. While there, I met a financial advisor who has cultivated 18 CPAs as Centers of Influence. Through those relationships, he has been able to develop $100 million a year of new assets under management, every year for the last seven years!
It was fascinating to hear how he works with the CPAs and their clients, and how he enhances their business. What's more, the experience reinforced what I've been preaching for years about the importance of getting in front of the best Trusted Advisors, especially the CPAs who have the ear of their clients.
Outrageous Then: 50% Closing Ratio
Expected Now: 85% Closing Ratio
Getting There. High closing ratios are definitely attainable if your agency has a plan that includes:
* A Selling System that differentiates your agency.
* The Role of Trusted Advisor. If you're not part of a client's inner circle, then you're really just a commodity broker and not a person of influence.
* Business Acumen vs. a focus on product and price only. Your producers must truly understand what it will take for their clients to improve their business and manage strategic risk in their company.
* The Ideal Client Profile (which we've covered previously).
* No Practice Quoting! Remember, the best day to lose the sale is the first day!
Trading Down Customers
Outrageous Then: 20%
Expected Now: 80%
Getting There. From time to time in the old days, we'd tell producers to look at a minimum trade-down of 20% of their customers. Typically, they eliminated the bottom 20% of customers that accounted for only about 1% or 2% of their revenue. And usually, that was the end of it. They did it one time and never looked at it again.
These days, to get to the next level, we suggest they get rid of 80% of their customers. It's not as drastic as it sounds, especially when you consider the following key points:
* The Power of 80/20. For average producers, 80% of their customers account for only about 20% of their revenue. Conversely, that means 80% of their revenue is generated by just 20% of their accounts.
* Less = More. By focusing on the 80/20 Rule, it's easier to recognize which clients are enhancing the bottom line and which ones are draining it. Having fewer customers enables producers to devote more time to their very best relationships.
I was talking with one of our Sitkins 100 members when he mentioned that the top 2% of his agency's customers generated 45% of its revenue. The question became, "Are we spending enough time with that top 2% or are we underservicing them by allowing the other 98% to get in the way?"
The key is to review these numbers frequently, focus your efforts on your top 20% of customers and replicate them. The reality is that if you replicated your top 20%, you would grow by 80%. Now that's a pretty good model!
The bottom line
What kind of agency are you operating? If you're experiencing slow or negative growth, or if you're practice quoting because you think it's all about price, you're destined to remain a vendor. You'll stay busy, but without a plan, it's just hysterical activity.
On the other hand, if your agency has chosen to transcend conventional wisdom and pursue what the competition thinks is "outrageous," you epitomize a "next-level" agency. By rethinking and rejecting old ways that don't work, you'll maximize the value of your agency and have a great time in the process.
So what will it be? Will you adhere to the "old norm" or will you take your agency to the next level?
As always, it's your choice!
© 2008 Rough Notes Co., Inc. Provided by ProQuest LLC. All Rights Reserved.
Source: Rough Notes