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The Sixth Profit Zone

profit zone Apr 28, 2016

Last month’s article was about the Five Profit Zones. Well, after it went to print I had one of my semi-famous BFOs (Blinding Flashes of the Obvious): There is a sixth and very important profit zone—your insurance carriers.

I would love to have just 1% of the dollars left on the table each and every year by independent agencies that aren’t managing what should be considered a stand-alone profit center. The figure would astound you!

So how does one earn greater profits in this area? It boils down to analyzing the insurance carriers you represent and your relationships with them.

Understand Your Carrier 80/20

We’ve often talked about the 80/20 Rule and the concept of knowing vs. guessing. It certainly applies here. Do you truly know what your carrier 80/20 analysis looks like? Probably not. I’ve been consulting and coaching agencies for more than 35 years now, and it’s clear to me that in the average independent agency, the top 20% of your insurance...

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The Five Profit Zones: Part Two

profit zones Apr 28, 2016

Profit zone #3: Non-producer employees

View every employee as either a profit center (contributing to your profitability) or a loss center (taking away from your profitability). Here are the major factors affecting non-producer employee profitability:

  1. Low productivity. If they’re in a service position, they’re just not handling enough revenue per employee and/or they’re not completing their work efficiently and quickly.
  2. Lack of ongoing training. If you’re not training your employees on a regular basis, how do you expect them to do what you want them to do? They can’t, especially if you’re not holding them accountable.
  3. Mismatched employees and jobs. Too many agencies don’t have explicit job descriptions or aren’t using outside testing resources to profile prospective employees—which we believe is one of the best ways to ensure that a new hire has the factory-installed equipment to do the job well.

Profit zone #4: Operations


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The Five Profit Zones: Part One

five profit zones Apr 28, 2016

Money, in and of itself, is rarely the true motivation for entrepreneurs. It’s what you can do with money that truly motivates people. For some, money equals financial freedom—the ability to do what you want to do, when you want to do it. Whether it’s supporting your family, your community, your church—whatever, money enables you to do so. To others, money equals time and the resulting freedom to indulge in the things you really love doing.

What you do with your money is your choice. However, you must first earn the money, which means you must create profits.

There are five profit zones that agency owners and managers should actively manage. All too often, I see people looking only at their bottom line. Very few break it down to see what is actually impacting their profits.

Profit zone #1: Accounts

Never allow profitable accounts to subsidize unprofitable accounts.

Here the goal is very simple: Every account must create a profit.

As a consulting firm, we...

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Avoid Simplexity!

simplexity Apr 28, 2016

If you’ve never heard the word “simplexity,” you’re not alone; it’s a word I coined by combining “simplicity” and “complexity.” Your objective is to avoid “simplexity” by keeping things as simple as possible. In the process, you’ll obtain great results.

There’s a correlation between effectiveness and simplicity. The simpler something is, the easier it is for people to implement.

Lately, I’ve been focused on promoting the benefits of simplicity. As such, I am continually coming across relevant quotes on this topic from some of the world’s greatest minds. One of my favorites is from Leonardo da Vinci who said, “Simplicity is the ultimate sophistication.” But through the years, I’ve seen way too many people complicate things that should be simple and easy.

Don’t gild the lily

The concept of “idea creep” is something I read about in Made to Stick, a great book...

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Beware the Top 7 Agency Myths: Part Three

agency myths Apr 28, 2016

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...

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Beware the Top 7 Agency Myths: Part Two

agency myths Apr 28, 2016

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...

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Beware the Top 7 Agency Myths: Part One

agency myths Apr 28, 2016

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...

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Self Managed Producer: Part Two

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....

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Self Managed Producer: Part One

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,...

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What are Your Options: Sell to a National or Regional Broker

Uncategorized Feb 08, 2016

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...

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