Myth #6: You Can’t Earn a 25% Operating Profit

People are constantly refuting the idea that it’s possible to earn a 25% operating profit, but the truth is, yes you can. How? (And here comes the big trick.) You simply can’t spend more than 75%! Seriously, I could earn a 25% operating profit if I truly managed to a financial model designed with that in mind. In that case, the bottom line would become the top line and you would live by the 25-50-25 Financial Model (a 25% operating profit; 50% service and administrative expenses, and 25% on sales expenses).

What’s your financial model? At some point, you have to draw a line in the sand and commit to earning a 25% profit. Make it a defining moment.

Myth #7: A Website and Social Media Will Solve All of Our Problems

I can’t believe how many agencies will spend $50,000 on a website and expect the public to knock their doors down. Apparently, their theory is “Build it and they will come.” But after...

Myth #3: You Can’t Have Too Many Insurance Carriers

Are you proud that your agency represents so many companies? If so, you’re not alone. I’m amazed at the number of carriers the average agency has. But what’s even more amazing is when they figure out how many they have. In reviewing their “insurance company accounts payable,” most agencies are shocked to see how many carriers are listed. Sometimes, when looking at all companies and E&S brokers, it’s in excess of 75.

Often, agencies will take a contract with one company or one E&S lines broker for one piece of business.

We always talk about the 80/20 Rule, but were you aware that it applies to your carriers also? Basically, 80% of your premium volume is written with 20% of the carriers that you represent. Take a look at your own book if you don’t believe me.

Today, more than ever, you need relationships and clout with your carriers. That way, you’re more likely to get...

If you hear the same things often enough, repetition becomes reality. And through the years in our industry, certain ideas have been repeated so often that they’ve become widely accepted as the truth when, in fact, they’re nothing more than myths. As a result, many people in the agency business have made some very serious mistakes caused by believing in these myths. Here’s my list of the top seven myths to avoid.

Myth #1: Every Account is a Great Account

Most think that every account is a great account, which simply is not true. This is especially true with newer producers, who tend to confuse activity with results. In their minds, anyone who can fog a mirror and pay in U.S. dollars is a great account. These are normally order-taking accounts. Typically, the prospect will call for an insurance quote after seeing an ad or will click to receive a “Free Quote” through the agency’s website.

So the producer follows up and provides a quotation and winds...

Strategies & behaviors

If producers are not ahead of goal and aren’t getting the desired results, then we need to closely examine the strategies and behaviors that are creating the numbers.

Reverse Performance Management.

Even though fewer than 15% of agencies practice true effective sales management, someone still has to hold producers accountable. Traditionally, they report to whoever is wearing the sales manager’s hat that day. But there is a better way.

The method that we find works best is Reverse Performance Management (RPM), which involves reporting up, not down. It’s not management coming to producers to have a discussion with them about their numbers. It’s about the producer reporting to the manager. This requires relentless preparation from the producers.

As I was writing this, I flashed back to the days when I had my Own agency in Michigan. I’ll never forget a comment one of the producers made right after we had instituted sales reports....

According to recent studies, fewer than 15% of independent insurance agencies practice effective true sales management. (Perhaps the key word is “effective,” as in “getting results.”) So if sales management is essentially nonexistent in independent agencies, how is it that we have producers with $1 million of commission income on their books of business? (We used to kiddingly say that until you get to $1 million of commission, you’re still a Producer-In-Training!)

For that matter, how can we have producers generating upwards of $150,000, $200,000, $250,000 or more of new revenue per year without sales management? (At this point, please don’t panic and stop reading, thinking that this doesn’t apply to you. The $1 million book and the annual new business amounts may, in your town, be considerably more or less in another market. It’s all relative to where you are and where you want to go.)

In the absence of dedicated sales management,...

One of the really great things about owning an independent insurance agency is that you are Independent! You can and do make choices every day that affect your agency’s performance and success, both in the short-term and long-term. In other words, you have options and you’re exercising them, some more purposefully than others.

As we look forward to 2015, now’s a great time to examine some of the options you have concerning the future of your agency.

Option Seven: Sell to a National or Regional Broker

With the influx of capital from venture capital firms, the multiples have never been higher than they are today. So if you’re thinking about selling, now may be the perfect time to do so.

Several of my long-time clients and friends have opted to take this route over the last few years and it’s worked out very well. Some have sold, completed their earn-out period, taken the additional payout and then retired very happy! Others, including one I had lunch with...

One of the really great things about owning an independent insurance agency is that you are Independent! You can and do make choices every day that affect your agency’s performance and success, both in the short-term and long-term. In other words, you have options and you’re exercising them, some more purposefully than others.

As we look forward to 2015, now’s a great time to examine some of the options you have concerning the future of your agency.

Option Six: Internal Perpetuation

If you’ve been building the next generation of leaders and they’ve been purposefully putting money away for the transaction, that’s great! You’ve helped perpetuate the entire system!

Again in this scenario, you are likely to be the bank, but do you have the faith that they can make it work and will pay you? If so, then this is a feasible option. As long as you have been developing the next generation of leaders in your agency, they should be established enough to...

One of the really great things about owning an independent insurance agency is that you are Independent! You can and do make choices every day that affect your agency’s performance and success, both in the short-term and long-term. In other words, you have options and you’re exercising them, some more purposefully than others. As we look forward to 2015, now’s a great time to examine some of the options you have concerning the future of your agency.

Option Five: Sell To or Merge With a Local Competitor

In most cases, this is not the optimal choice. Not always, but usually. You might create some economies of scale, but you won’t necessarily create a great agency.

The local competitor who wants to acquire your agency may not have the financial strength to finance or cash out the transaction, making it likely that you’ll become “The Bank.” At the local level, cash buyers are rare, so if you agree to finance the sale, it’s always possible...

One of the really great things about owning an independent insurance agency is that you are Independent! You can and do make choices every day that affect your agency’s performance and success, both in the short-term and long-term. In other words, you have options and you’re exercising them, some more purposefully than others.

As we look forward to 2015, now’s a great time to examine some of the options you have concerning the future of your agency.

Option Four: Prepare to Perpetuate

Something we absolutely know is that everybody eventually leaves their business. Hey, I just did and it took me a long time to do so! But I chose to perpetuate part of my business, which requires meticulous planning.

Step 1: Get the boat ready to sell! You may recall the story about the time my son, Patrick, and I wanted to sell our 16-foot flats boat and get a slightly larger one. Together, we worked really hard to clean it up so that we could sell it quickly. Once we were finished,...

One of the really great things about owning an independent insurance agency is that you are Independent! You can and do make choices every day that affect your agency’s performance and success, both in the short-term and long-term. In other words, you have options and you’re exercising them, some more purposefully than others.

As we look forward to 2015, now’s a great time to examine some of the options you have concerning the future of your agency.

Option Two: Commit to Growth

As we’ve talked about before, you must have the Three Cs if you want to grow your business: Commitment, Capacity and Capabilities. You just have to find the right systems and guidance that will create predictable and guaranteed sales and profit improvements. Also, you’ll need to invest at least two percent of your revenues for these growth initiatives. The goal is to create the “Agency’s Way” of growing that all team members buy into.

 Option Three: Shrink...