Is Your Agency Broken: Part One

There’s an old saying, “If it ain’t broke, don’t fix it.” While I won’t argue with that, I think an even better saying might be, “If it is broke, fix it!” In this article, I want to challenge your thinking about what it means for an agency to be “broken” and what it costs you if that agency happens to be yours.

Is your agency broken? If you are not achieving the results you know you should and could achieve, something is broken. Here are just a few things that are usually broken in the average agency and that must be fixed if the agency expects to create better results.

Low organic growth.

If your net new revenues (excluding acquisitions) are less than 15%, that needs to be fixed. With the latest soft market hitting us, plus ever-increasing competition and commoditization of the products you sell, it’s time to become a selling machine.

As I’ve mentioned several times in past columns, the usual response is, “We give great service and we have the best people.” News flash: That’s not a system and it’s certainly not unique. What is your unique approach to the marketplace? What is your story of differentiation and how good are you at executing it?

If you don’t have a selling system that drives a high organic growth model, what is that costing you? Every dollar of net new revenue is worth at least two dollars of increased agency value. Let’s use an agency with $3 million in revenue for example. If you should be growing at 15% and you’re only growing at 5%, you are “underrevenued” by $300,000. At a 25% profit, that would be $75,000 less profit. At today’s EBITDA multiples of eight times plus, that’s a value loss of $600,000. Conversely, if you achieved the high organic growth of 15%, your agency is worth $600,000 more.

Underutilized automation.

If yours is like the average agency that utilizes only about 50% of the capabilities of its automated systems, you had better fix it.

Agencies have hundreds of thousands of dollars invested in their hardware and software. But for the purposes of illustration, let’s be conservative and assume you have only $100,000 invested (or is that spent?). Now if you had an employee whom you pay $100,000 a year, but who shows up only about half the time and does half the work you expect (and are paying for), what would you do?

It amazes me that so many agencies are not even active in their automation vendor’s user group. That would be a definite non-optional behavior if I owned an agency today.

Part-time clients.

If the vast majority of your clients are “part-timers,” you better fix that.

I’ve mentioned in the past that 66% of the average agency’s personal lines clients have just one policy with the agency. The same is true of 49% of their small commercial lines clients—one policy only.

Again, let’s be conservative and say that 50% of your customers are buying another insurance policy from some other agency. Does that mean that by rounding out your customers you could grow your revenue by 25% to 50%? Yes! Using the exemplary $3 million revenue agency again, that means there is $750,000 to $1.5 million of revenue “left on the table.” To be conservative, let’s go with $750,000. That translates into at least $1.5 million of lost value. That needs to be fixed.