The Agency’s Seven Deadly Traps are the obstacles that most often undermine an agency’s ability to realize it’s Best Version Possible (BVP). Now I doubt that many agencies would admit they are deliberately underachieving. However, when you see the potential of so many independent insurance agencies and then look at their lost opportunities, it becomes obvious that most are underachieving. Typically, it’s because they’re caught in any number of traps. Now let’s examine the seven deadly traps and their characteristics, as well as the consequences of failing to escape them.
No Strategic Plan or Financial Model
Without planning, agencies may have no clear indication of what they stand for or how they will strategically earn income. Here are some characteristics of an agency that’s fallen into this trap.
- A cloudy vision or mission statement. Because there’s no overall agency focus, team members tend to show up when it’s “time to make the donuts.” There’s no collective mission to embrace. You’d be surprised at the number of agencies that display their mission statement in a prominent place and yet no one can remember what it says. Unless it is put into practice daily, a mission statement has all the impact of wallpaper, which is exactly what it becomes.
- Confusing tactics with strategies. With no plan to follow, all meetings ultimately focus on tactics, while the strategies are quickly forgotten. Unless meetings are labeled “strategic,” tactics will dominate the discussion and the big-picture purpose of the meeting will be lost. Author Patrick Lencioni describes this in detail in his book, Death by Meeting, which I strongly recommend.
- Low operating profit. As I’ve often discussed, your bottom line should be considered your top line in your business plan. In other words, the amount of profit you want should be the starting point of your financial model. Let’s say your goal is to make a 30% profit. To achieve that, you can only spend 70% – it’s that simple!
- Guessing your numbers/KPIs. When Key Performance Indicators are fuzzy at best, management decisions are not tied back to the Revenue per Employee. As a result, many agencies attempt to boost revenue simply by hiring more people rather than increasing their Revenue Per Employee.
- Unrealized agency value. As you should know, every $100,000 of unrealized profit is a loss of $1,000,000 in agency value. My point? Stop losing millions!
No Unique Sales Approach
Differentiation is key for survival in the industry, and that includes how your agency sells. A stale sales approach may include:
- Commodity-based selling. As I’ve mentioned numerous times, price-only selling and apples-to-apples quotes are a tough way to grow an agency. Is price important? Yes! But have you ever: (a) been low on new business and not made the sale; or (b) been high on a renewal and kept the account?
- No Points of Differentiation (PODs). Can you and your team members quickly answer the question, “What’s different about you and your agency?” If not, it’s inevitable that you’ll hear the dreaded, “You insurance people are all the same.”
- Dripping pipelines. The lack of an agreed-upon and implemented sales approach in an agency makes it extremely difficult to build quality pipelines. In fact, many agencies equate pipeline building with answering the phone by the third ring or rapidly responding to an online request for a quote! If the Monetized Value of your Pipelines (MVP) is not two times your annual sales goal, you’re in trouble.
- Low referral rates. Because there’s nothing unique about your approach, there’s also nothing unique about the client experience you deliver. Yes, I realize you give great service, have all the carriers, and are blessed with employing the best people in the industry. But what percentage of your clients gave you a referral last year? If you’re like most agencies, I’m guessing it’s less than 10%. If you continue to deliver the same old same old, you’re never going to earn or generate many solid referrals.
- Low organic growth. According to recent reports, the average agency is growing at a rate of about 6%. I’m not sure how much of that is true organic growth or the result of a strong economy and hardening market. The best agencies are growing at twice to four times the rate of the average ones. Where is your agency today?
Sure, producers have day-to-day tasks to handle – like answering emails – but how much of their time is spent producing, and do they exceed their sales goals? When considering this trap, think about:
- T.S.S. (Time Spent Selling). A primary problem in our industry is that producers are not spending the majority of their time actually producing. Hopefully, you’re aware of the problem. Now, what are you doing to get them out of The Service Trap and into The Sales Game?
- Producer plateaus. It’s really a shame that the average producer has a book of business around $350,000. What may be worse is that lately, the number really hasn’t grown significantly. We refer to this as Horizontal Stagnation. It’s when producers renew approximately 90% of their book, write about 16% new and net 6%. For most, every year looks the same.
Are your producers forming meaningful relationships with all their clients and writing all their accounts? If not, they may have fallen into this trap, which may result in:
- Low revenue per relationship. You’re not developing a high Revenue Per Relationship because you’re not writing all of their policies. It’s really that simple. (Can I hear a Duh?). Your Revenue Per Relationship will always drive the size of your producers’ books of business and the size of your agency overall.
- Low retention. Someday, some agent will ask your clients to write their total account. They’ll explain why it’s better for the clients to do so and they’ll round out the account. We’ve all seen the studies on the retention rates for clients with one, two, three or more policies in both personal lines and commercial lines business. Facts don’t lie!
- Transactions vs. Relationships. Increasingly, transactions are becoming automated and mechanized; digital disruption is real. That’s why it’s vital to pivot from handling transactions to managing and enhancing relationships. That’s tough to do if the clients are part-timers!
- Profitable accounts subsidizing unprofitable accounts. Assuming you are in business to earn a profit, why be in a position where profitable accounts are subsidizing unprofitable accounts? The average agency loses money on 50% or more of its clients. You’re not a grocery store! Therefore, volume can’t compensate for your losses.
No Culture of Accountability
Without consistency in work processes and holding team members accountable, an agency might fall into this trap. Characteristics include:
- All talk, no action. Despite frequent discussions about “what we’re going to do,” there’ no execution. Instead, staff members tell one another, “Don’t worry; this too shall pass,” and they are right. How many great ideas and strategies have you shared with your team that never became a WIN (What Is Normal) in your agency?
- No “agency’s way” of doing business. When I used to do one-on-one consulting, I found that at most agencies, everyone had a different way of doing business. Repeatedly, I’d hear, “I don’t do it that way; I do it this way.” Nothing was consistent. Although it’s still a problem, I’ve seen a big improvement in this area, thanks largely to advances in the agency management systems.
- Poor culture. Without accountability, it’s tough to attract and retain the best talent because the best and brightest want to be in a culture that does what it says it’s going to do. Promises made but never kept result in frustrated employees who will look to better agencies for better opportunities. They want an agency that recognizes and values achievement, and that strives to create an exemplary employee experience.
- Low investment in talent development. The average agency spends just .24% of its revenues on the training and development of its team members. The majority of this is for CE credits, not personal development. I’m a huge fam of continuing education, but it’s imperative to also work on the skills, processes and attitudes surrounding personal development.
Ignoring The 80/20 Rule
If you’ve read my column before, you should be familiar with The 80/20 Rule. Ignoring this can lead to:
- Over-servicing and under-servicing. The average agency habitually over-services the bottom 80% of customers while under-servicing the top 20%. Assuming you’ve heard this, have you actually done something about it? Regrettably, agencies often deliver a secondary client experience to their primary accounts. Typically, they do this with the idea of treating all customer equally. We agree that everyone should get great service, but at the level they pay for.
- What if you lost the top 5% of your accounts? If you’re like most agencies, you would lose 50% of your revenue. And if you lost the top 2% of your accounts? You would lose 33% of your revenue. If that’s you, you’re vulnerable and at risk.
- Low revenue per carrier. The majority of agencies never even look at the number of carriers they have and how it affects their overall operations. We’ve found that The 80/20 Rule accurately reflects the revenues generated in partnerships with carriers. If you’re like most agencies, you have 80% of your premiums with the top 20% of your carriers. There are so many opportunities for carrier consolidation and increased revenues. Run The 80/20 Rule on your carriers; you’ll most likely be shocked.
- Replicating the wrong relationships. Without a solid awareness of the top 20%, most agencies continue to replicate their results every year without fail. They write a lot of the bottom 80%, which they mistakenly refer to as the “bread and butter that pays the bills” when in fact, the bottom 80% creates a disproportionate number of the bills; they write a few handfuls of the middle 15%; and they “get lucky” on a few of the top 5%. As their agency footprint expands, they experience horizontal stagnation vs. vertical acceleration.
- Low contingency income. Without contingency income, which is 100% profitable, most agencies would be somewhat in trouble. Spreading the volume around to too many carriers significantly limits your contingency income.
Underutilization of Talent and Technology
If your agency invests in technology but doesn’t utilize all the features available or fails to develop its team members to their top potential, you may fall into this final trap. Signs include:
- Using less than 50% of agency management systems. As I’ve mentioned many times, why invest so much in technology and then allow your team to use only 50% of it? Stop allowing it! That reminds me of one of my new favorite sayings: “you get what you tolerate.”
- Low learning levels. Because you’re not investing in team development, your team isn’t really getting better at what they do. Your favorite sports teams-whether high school, college or professional-all stress player development. Why doesn’t your agency?
- Low revenue per employee. Due to less-than-stellar sales growth, underutilization of technology, and poor player development, it’s no wonder so many agencies struggle to achieve Revenue Per Employee of more than $150,000.
The Bottom Line
These are the traps that commonly ensnare far too many agencies. I see that 80% of agencies are Quoters and Floaters; 18% are trying to escape these traps; and 2% have escaped and now have the results, the freedoms and the options to do what they really want to do.
Where do you stand? Are you ready to escape?
Article By: Roger Sitkins
Source: Rough Notes