By Brent M. Kelly
One of my favorite resources that we use with our Sitkins Network members is the 80/20 analysis.
I am guessing that you are at least vaguely familiar with the 80/20 principle, commonly known as the Pareto principle, named after Italian Vilfredo Pareto, who discovered this principle when studying land ownership.
The 80/20 principle is true in many areas in life and business such as:
· 20 percent of the roads produce 80 percent of the traffic jams
· 20 percent of drinkers consume 80 percent of beer
· 20 percent of students generate 80 percent of classroom discussions
· 20 percent of your clothes are worn 80 percent of the time
· 20 percent of employees create 80 percent of the problems
· 20 percent of sales producers generate 80 percent of sales
· 20 percent of your results come from 80 percent of your time and effort
When we conduct an 80/20 analysis on an insurance agency’s book of business, we commonly see this principle play out as well.
· 20 percent of your clients create 80 percent of the profits
Stop to take a minute and think about that concept. Your top 20 percent of clients are 16 TIMES as profitable as your bottom 80 percent.
When agencies ask how to improve their organic growth, the solution is often found in determining where they are currently spending time and energy.
Not only do your bottom 80 percent of clients only produce 20 percent of your agency’s revenue, but they’re more likely to move their business elsewhere.
The bottom 80 percent of your clients require more time, attention, energy, and drain resources, all while only producing 20 percent of your revenue.
The problem is that most agencies don’t focus on investing enough time and energy to create a wow experience for their ideal clients (top 20%) because they are “too busy” working on the bottom 80 percent.
To maximize your organic growth, your agency must be committed to understanding the 80/20 principle and then act.
In the “21 Irrefutable Laws of Leadership”, leadership expert John Maxwell discusses three key aspects of prioritization.
The first step in understanding how the 80/20 principle affects your agency is to run a report on your entire agency’s book of business. List all your accounts from largest to smallest. Then categorize your accounts into three areas. The top 5% of your accounts are your “A” accounts. The next 15% of your accounts are your “B” accounts. The remaining 80% are your “C” accounts.
Your “A” and “B” accounts are now your top 20% and the “C” accounts are your bottom 80%.
Then calculate the gross revenues, percentage of revenues, and revenue per relationship for your “A’s,” “B’s,” and “C’s.”
If you are like the clear majority of agencies, you will soon discover key patterns that paint a clear picture of your agency’s financial health. This is where most agency leaders have an “Aha” moment and realize that their agency is not only wasting a good portion of time and energy in unprofitable accounts, but they are also vulnerable.
While I don’t suggest that any agency simply begin eliminating their bottom 80% (nor would that be financially feasible), I do suggest that every agency begin to discuss a game plan of how these accounts should be handled moving forward.
Here are a few examples of what successful agencies have implemented:
· Trading down “C” accounts to newer producers with smaller books of business
· Moving “C” accounts from producer controlled accounts to house controlled accounts
· Utilizing insurance carrier service centers to handle “C” accounts
I know what some of you are thinking, “We pride ourselves in great service, we can’t do this, we will lose relationships!”
Let me ask a question. “How many of your “C” accounts are currently getting PROACTIVE service today? Outside of making basic policy changes, handling renewal processing, and other reactive services, how are you currently serving these accounts through risk advice and other value added services?
The answer for most agencies is usually, “Very little to none.”
At the same time, consider how much more time and energy your producers and service teams could focus on the top 20% of your clients (“A” and “B” accounts) to build relationships and provide true risk advice if they were not tied up being “busy”?
When you begin to spend much of your agency’s time and energy on your top clients, who by the way are also paying the most premium dollars and expect excellence, you can begin to focus on three key areas.
It’s been said that insanity is doing the same thing over and over and expecting a different result.
Too many insurance agencies are struggling to grow organically yet continue to do the same things they have done for years and expect their results to improve.
In today’s world of digital disruption, commoditization, and high client expectations, your agency must become laser focused.
Otherwise you will be just like a hamster on a wheel going faster and faster, but ending up at the same place.
Know what you want and then go get it.
Brent Kelly is an executive coach and speaker with the Sitkins Group. He helps agencies define a clear path to sell more, retain more, and earn more through the “ProFit Experience.” Contact Brent at [email protected] or learn more about the programs Sitkins Group offers at www.sitkins.com.
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