Stop Ignoring the Power of the 80/20 Rule

Quick question for you. Have you ever known something was important yet you push it to the side or put it off for a long period of time because well, quite frankly, things were okay or good enough where it was and there were other things that were getting your attention before this important thing that you knew months or years later may come back to bite you in the old you know what. I'm going to talk about this concept on today's Agent Leader podcast.

Welcome in to the Agent Leader podcast. This is the podcast for insurance agency leaders to learn, to grow, to develop, to think bigger, and ultimately become your best version possible. My name is Brent Kelly. I am your host. It's my pleasure to be with you on this episode. And on today's episode, we are going to continue down the Good Results Trap series.

So this is a seven part series and today is part number six of the Good Results Trap. I'm going to talk about what that means in more detail if you've missed prior episodes in just a moment. But if you have missed prior episodes, good news, they're all sitting there on your favorite podcast platform. Go take a listen. You can hear about each and every one of these traps, and some of these traps may apply to your agency more than others, which is totally understandable. But the design of this series is to help you as an agency leader see clear and maybe there are some good results that your agency is getting or you think you're getting that. Quite frankly, there's a much bigger, better version of you and your agency waiting for it to arrive. And so I want to address these traps one by one.

And on today's podcast I'm going to talk about Trap #6 of the Good Results Trap, which is ignoring the power of 80/20, ignoring the power of 80/20. And I've talked about 80/20 in some prior episodes. But we're going to take this at a level of really focusing on this as a potential trap that if we don't apply 80/20 or if we ignore 80/20, what it can cost our agency and really understand what it means and where you can begin as an agency leader to address this potential good results trap. Now, before I get into today's episode, as far as the featured content, I do want to remind you if you haven't listened to past episodes or this is your first episode, first of all, thank you that we are offering an incredible opportunity for all of our listeners. If you would like to get a customized best version plan for your insurance agency, this is a customized plan delivered directly to your agency live with one of our coaches.

It starts by booking a phone call, a simple phone call that we can get to know you and your agency a bit more. And from there we'll conduct an assessment and then deliver to you a customized plan. It starts by going to sitkins.com/bookacall. I want to make it as simple as you possibly can. You'll set up a short call with one of our team members. Again, from there we'll conduct an assessment, then deliver you a plan, and the cost and obligation is zero. We know that if we can deliver to you a high level plan to help your agency, you'll take it wherever you need to, possibly as a partner with us and maybe not. Bottom line is we want to provide as much value as we possibly can to your agency. So again, go to sitkins.com/bookacall.

There is absolutely nothing to lose, but lots of stuff to gain by booking this call. So please go check that out. Alright, let's get into Trap #6 today, and I mentioned earlier, I've talked about 80/20 in past episodes, but I want to take it a step further today. Trap #6 is absolutely ignoring the power of 80/20. Now when I'm at live sessions or if I'm doing an interactive event online and I ask agency leaders and agencies in general, have you ever heard of the 80/20 rule? Almost every hand goes up. Yep, I've heard of it. I think I know what it means, or at least it makes some sense to me. The second question is, how many of you as agency leaders and agencies are truly applying the power of what 80/20 means to your agency? And typically when I ask that question, almost every hand goes down.

There may be a few hands kind of half up or a couple people that really are utilizing it, but for the most part, most agencies ignore the power. Maybe they know of it, but they ignore the power of the 80/20 principle 80/20 rule. Of course, this goes way back to Alfredo Pareto, you may have heard this as Pareto's Principle. He was an Italian economist and he was the first one to really unpack this principle that 20% of the right input of the correct input will lead to 80% of the desired output. It's a bit of a cheat code, right? You hear that term of cheat code 80/20, even though it's not a cheat code in essence, because it works in its principled, it is a bit of a cheat code. And the fact that if we can get really focused as an agency of the right, 20% of the things, we can get 80% of the outcome.

It's also known as the law of the vital few. So often agencies work around the law of the trivial many. There's so many things to do, so many things to work on. We'll just get to things as we get to things versus saying, what are the vital few things that give us the most impact and leverage? And there are thousands of applications of 80/20, both personal and professional inside the insurance industry, outside the insurance industry, and in fact, at the Sitkins Group, we run 80/20 reports for our members. We ask our members to look at their 80/20. It's one of the foundational things that members do. And why do we do that? Because we see time in and time out. In fact, I just had a couple more agencies run some this past week and we looked at them and talked about it that time in time out, that 20% of your clients in your book of business for your insurance agency produce approximately 80% of your revenue.

Maybe not the first time you've heard that, but when I have agencies take a look at it, what typically happens is they go, I know that I've got about 20% of my clients that produces a lot of revenue. But when they actually look at it, they take a look and they with their own eyes go, what are we doing? What are we doing? So there certainly is some eyeopening things that happens. And again, we see this time in and time out that 20% of clients produce about 80% of revenue. So here's what I want to get to today, knowing that is a fact, and we're going to have some other areas I'm going to discuss around carriers today as well, is that what happens when we ignore this basic but super important principle of 80/20? What happens if we go, eh, there's probably an 80/20 truth.

We know it's true, but you know what? We don't have time to worry about it. We've got enough going on. By the way, we're probably getting good results anyway. So why is this a big deal? This is why it's a good results trap. What happens and why is this an actual trap for agencies? Well, here's the first thing, and this may sound basic, but it's extremely important, is that oftentimes we see with agencies why this is a good results trap is that they over-service the bottom 80% of their client base while under -underserving the top 20%. Now, this doesn't have to be a black or white thing, right? It's 80%, 20%, but in general terms is understand what happens is that we over--service, by the way, every client that's part of your agency deserves a high level of service. A hundred percent true.

But what we often find is that we over-service, we overreact, right? In fact, if you just think about this as a pile of papers that this stuff that comes in from your bottom 80% keeps getting put on top of the top 20% of your clients, who by the way may not even be as needy as your bottom 80%. That we have this top 20%. The most important part of this principle, why it's a good results trap is that we under serve, we're not as intentional, we're not as proactive with the top 20% of our clients. And the fact that the urgent will often supersede the important right urgent will supersede the important. And the question I'd ask for agencies is, where is your focus? Is your focus on the top 20% or thereabouts, the top end of your book of business that we're going to make sure that these clients receive the highest level of our time and attention?

Or do we just take what comes next or take what comes first? What does it look like? So that to me is the critical important part of all of this is where is our focus? Where is our intention? Are we proactive with the top 20% or to everything else? And so we have to get really intentional of how we're going to position this and understanding that at a starting point. Who are those top 20% or top 10% or top 25%? I don't want to get caught up in the numbers, but we have top level clients that need and deserve our highest level of time and attention. Why else is this important if we ignore it and why is it a trap? Well, in a similar vein, we often have profitable accounts that are subsidizing our unprofitable accounts. We have profitable accounts that will subsidize our unprofitable accounts, and you go, well, what do you mean by that?

Well, if you really look at your book of business and you look at the revenue produced by client and you look at the amount of touches or transactions that often occur, there are many clients. In many cases, we see about half of your clients that are technically unprofitable when you do the math. Now, does this mean we just get rid of all of them? Not necessarily. But what it means is, are we allowing our profitable accounts to subsidize every other client? In many cases, we find this is true. And by the way, going back to just understanding the top end of this, we also make ourselves extremely vulnerable because if we have profitable accounts that are subsidizing unprofitable accounts and we somehow lose a few of our profitable accounts, we become much more unprofitable common sense, but we sometimes just lose what's basic and in front of us.

So when you look at the 80/20 principle, just from a numerical standpoint, the top 5%, so just take it a step further, not the top 20% that often produces 80% of revenue, but the top 5% of a book of business, and this is of an agency of a department, and oftentimes of an individual producer, the top 5% of clients produces half 50% of the revenue. That's a big deal. Oh yeah. We know we have, or I know I have some large clients, but again, how intentional are we being with this profitable account that may be subsidizing the rest of our book of business? Are you okay with losing half of your top 5% or 25% of revenue? Probably not. You want to get really nitpicky, the top 2%, which we call super a's. These are like the super a's produce 33% of most books of business, 33% a third of our book of business.

So my question is, if we lose focus, if we're unintentional, could we be vulnerable? Could we be vulnerable? The answer is, yeah, very likely we could be vulnerable in these situations. Why else is ignoring the power of 80/20 a good results trap? Again, if we don't do anything with 80/20, you're probably still going to get good results. It's why many agencies don't worry about it. But what if we did? What if we did? Well, here's something that can happen. We could be replicating the wrong relationships. We could be replicating the wrong relationships. I've said this on the podcast before I say it again very clearly here as an agency, as a department, as a producer, there are certain models that we begin to build and develop. Sometimes they're intentional, sometimes they're unintentional, but we all have some form of a business model. So here's something I want you to hear me say.

You are going to replicate something in your agency or replicate something in your book. What do you want to replicate? If we don't get focused and control of replicating the right relationships, we're going to replicate ending all relationships. And quite frankly, you can't afford to do that both from money and time, right? There's a problem of capacity in many, many agencies. I've had Roger Sitkins, our CEO on this podcast talking about sales and service capacity. It all stems from initially from the power or the ignoring the power of 80/20 in your agency. And so if we don't take control of this, we will begin to replicate ending all accounts, and very quickly a salesperson, a producer is going to say, gosh, I'm out of time, or I'm out of capacity, or I've plateaued. The service department says, we're overworked, we're overburdened. We don't know what to do.

And what's really interesting too, about 80/20, and I have mentioned this before, but I want to say it again, when we talk about 80/20 with producers and sales leaders and agency leaders that get it, they go, wow. What I'm really hearing here and I really understand is that if we apply this to our agency, even though we're getting good results now, we're going to replicate the right relationships and make more money with less clients moving forward. Yes, the answer is yes. And so that makes sense. The other part of it is that you think for service teams, what are they going to think about 80/20? If I was an account manager, an account executive or service team leader, what are my views on 80/20? Because maybe I'm not as worried about the revenue or the profit so much, but here's what account managers hear loud and clear.

There are certain clients and types of clients, demographics and psychographics of clients that we love to work with. We love it. We enjoy the relationship, we enjoy the conversations. We enjoy that we're a true risk advisor and a provider of resources and tools beyond prices and quotes and transactions. We enjoy those conversations. There are many others that we do not want to pick up the phone or return the call or the emails or the non pays or the cancellations or the frustrations or the pain in the butt clients. You know who I'm talking about. And when we replicate the wrong relationships, not only are we limiting ourself in terms of revenue and growth and profitability, but we're frustrating the heck out of our service teams. In fact, I've seen producers before, I've heard producers say this, well, you know what I mean? I wrote the account.

It's not a great account, but it doesn't require lot of work for me. So I like to keep the commission and not do much. I'm sure you do. I'm sure you do. I said this on a call with one of our potential agency members the other day that for a producer, this is not an annuity. You don't write an account in 2019, never touch it again and think you'd get paid a commission every year. It's not how it's supposed to work, although in some agencies, that is how it works. And then we wonder why our service team is overworked and our sales team is plateaued and not doing much because we're not a results culture - side note - separate podcast. But there's an important thing to think about on this from the 80/20 when we replicate the wrong relationships, we plateau or stagnante our sales team, and we frustrate and overwork our service team.

It's not a good model to replicate, right? It's not a good model to replicate. It's also interesting too, when we're not focused on it, when we do focus on riding the right things and replicating our top accounts, I tell producers, if you've written a large account or a nice account, there's more like them. Replicate that model, replicate that idea, replicate that system, replicate that type of business, that type of individual, whatever it is that you write, focus on that. And sometimes I'll hear a producer go, I did write a nice account, or I've written a couple of nice accounts. It was kind of easy. I wrote this nice. It could be any type of business. For example, I wrote this nice business account. I had a really good referral in from a center of influence. We had a nice conversation. I was able to uncover some of the pains they were dealing with. I put together a proposal for them. We ended up securing the account, whether it was through an AOR, BOR, or a new piece of business through the market, whatever it is. I wrote the business, it's great. It was pretty easy. I probably got lucky.

That's the wrong mindset. In fact, Roger Sitkins says this all the time, right? Easy times five, do that five more times, it can be done. Versus I did this thing, it was really profitable. In fact, it was kind of easy and it's a really nice account and it's a really good relationship. So let me go back to replicate all the quotes and transactions and stupid stuff I've done before. No leverage this model, leverage this model. So here's a what if on 80/20, just think about this bigger picture, and again, why this is such a good results trap. Because you may, again, I've said this for the fourth, fifth time now on this podcast episode alone, you may be getting good results without truly leveraging the power of 80/20. You may be getting pretty good results, but what if you got really focused, unpacked the power of 80/20 and said, okay, on our top level clients, whether it's the top 10%, 15%, 20%, 25%, whatever, it's the upper echelon of our clients.

We turned that into a business model and we did three things. We made sure with our best, they were full-time clients, meaning they were rounded out that we wrote every line of business that we could and should, that we didn't forget about it. We didn't take it for granted. By the way, I've done a previous podcast and the good results trap about part-time Clients go back and take a listen. I go deeper in that. But what if we did that using the power of 80/20? What if we had a true continuation strategy, not a simple renewal strategy? What's the difference? We believe that you should continue relationships, not renew accounts. Every agency renews accounts, the best agencies get focused on continuing relationships, starting on day one, defining the expectations, documenting expectations, delivering expectations to do what? Make that renewal thing. Make the renewal a non or at least a less of an event.

So what if we used 80/20 to round out? What if you use 80/20 to get focused, to have a true continuation process, to continue accounts, continue relationships? And then here's the big one. You've heard us talk about this before. What if we replicated the best relationships through a referral strategy that we identified future ideal clients based on what we've learned from 80/20 based on the type of clients we want to write, and we earned and ask for referrals from our best clients. But that makes sense. That's too easy. In fact, we'll close too many accounts. Yes, you will. I'll say it again. If you don't do any of those, you can still get good results. But if you want to escape or break free from the good results trap and get results that you've never thought possible while at the same time gaining more freedom and capacity in your agency, it's a pretty good process to follow.

I would even say it's an amazing process to follow. Alright, so that's the client aspect of 80/20. I do want to take a few minutes and touch on the carrier relationships, and we haven't talked too much about this, but it's super important. The carrier relationships, just like the 80/20 with clients, we often see that that agencies have too many carriers that have too low of premium of revenue per carrier. You're spread too thin. Now, this is where the argument comes into that, but we needed that one carrier for that one time. For the one thing, maybe now we have this carrier for this thing, and then we brought this carrier for this thing and this carrier for this thing. And I don't understand why our relationship with some of our best carriers aren't as good as they could and should be. Just like your clients, you're spread too thin.

You have too many carriers that produce too little volume per carrier. And the same philosophy is true if you do a carrier report on 80/20, look at all your carriers, all the carriers you work with right now, and if you look through the top 20% of your carriers probably produce about 80% of the results for your agency. What does that cause? Well, outside of lower relationships, it causes less money in terms of contingency income. Here's the great thing about contingency income, and if you're listening to me, you probably have received that. It's a good part. It's a good income, right? It's a hundred percent profitable. It is, right? But we don't leverage it or maximize it because again, we're spread too thin, too thin. So you want to maximize your contingency income by doing more with the best versus having too many carriers that you do too little with.

It's a pretty simple, straightforward process, but I would ask you and challenge you to look at ignoring the power of 80/20 also causes you to ignore the power of your carrier relationships and potential contingency income. By the way, one of the things that I'll hear with agencies in terms of the clients and in terms of the carriers is this, yeah, but what about that one client? Or what about that one carrier? Or what about that one thing? What about that one time the small client grew to a big client? What about that one time, that one carrier that we had, that one account, we grew up into more accounts. These things can be true, but I would challenge you in terms of a business model, and this is hard for any of us. Every opportunity seems like it's a great opportunity, doesn't it? Oh, another opportunity, another opportunity here, another opportunity here.

Oh, here's another opportunity. Here's a client opportunity. Here's a carrier opportunity. Here's another thing we can do. And by the way, I get this because this is hard for me as not entrepreneur and a leader as well, but sometimes the opportunities were presented to us are often the things that are holding us back from that best version possible because we have so many opportunities and so many chances that we forget to maximize on what's most important. Here's where I want to get back to what I was trying to say earlier, is that we allow the exception to become the rule. Yes, there will be exceptions. I don't discount that. I don't think this is black and white. It's this, it's this. I don't think anything, it's that granular. But I do think we have to say, what is our model? What are we trying to build to?

And will this exception prevent us from growing more or being consistent in this area? And many times it is, but yeah. But that one time that might be holding you back from all the momentum and the consistency and the growth you're building in a certain area, you lose focus, right? You lose focus. What I love about 80/20, beyond all of the math and the things that I've talked about in this episode and others, but what I love about 80/20 is it helps agencies provide clarity on what's most important, clarity on what's most important. I hope you hear that from this episode loud and clear today, because it is a true, good results trap. It is a true good results trap. Last thing I'll share again, I missed at the beginning. If you're an agency looking to take that next level, maybe you're an agency that you're looking for a kick in the butt.

Maybe you're an agency that's looking for more clarity. Maybe you're an agency that's doing really, really well, but there's a better level, a bigger level of you waiting for you to, we will present to you at the Sitkins Group a best version possible plan, and it starts with a phone call. It starts the phone call, no obligation, no cost. We're not going to twist your arm. We want to get to know you and to be able to deliver value to you. For that, you can make a decision of what's most important and what you want to do next. And it starts by going to sitkins.com/bookacall. We'll set up our initial call. If qualified, we'll conduct an assessment. And by the way, most agencies will qualify. We just want to get to know you more, and then we will create and deliver for you a customized proposal based on key areas for your agency.

It'll help you see clear and see bigger than you're thinking right now. So we're excited and honored to be able to do that for agencies, independent insurance agencies, insurance agencies across the country. So appreciate you listening to today's podcast, we have one more trap to go through, one more final trap. It may be my favorite, but I don't want to give away all the details quite yet. So stay tuned, subscribe, leave a review. We appreciate you being a listener of the Agent Leader Podcast. And with that, I wish you and your agency all the best in your success. Thanks so much for listening.