Is Your Agency at Risk: Part Three
Operating Profitability Issues
How does an agency possibly make a 40% Operating Profit? Answer: By spending only 60%! Ta-Da! In the average agency, if the top 5% = 50% of the income, that means the bottom 95% of accounts are the other 50% of the income. Where are the expenses being generated? Can you say “Profit Center Analysis?” When we look at it, the bottom 50% of customers in the average agency = less than 10% of the revenue and the bottom 25% = less than 5% of the revenue. So again, this is a profitability issue.
Contingency/Profit-Sharing Income
How would you like to have a year without any contingency/profit-sharing income? All agency owners are great managers in March and April! That’s because when we look at our P&L, we’re looking at our total profit, not our operating profit. So while it may appear that we are doing phenomenally well, it may not accurately reflect our true profitability.
Financial Model
Do you have a financial model that you...
Is Your Agency at Risk: Part Two
Profitable Producers Subsidizing Unprofitable Producers.
The agency owners are typically the most profitable producers you have. But if the majority of non-owning producers aren’t hitting their goals, they’re most likely unprofitable. What percentage of your producers exceeded their sales goals last year and what percent are on track to exceed them this year?
Profitable Accounts Subsidizing Unprofitable Accounts.
We know from the thousands of profit center analyses we’ve done over the years that the average agency’s “A” clients (the top 5%) are very profitable, their “B” clients (the middle 15%) are marginally profitable and the “C” clients (the bottom 80%) tend to be unprofitable. I’m not saying that’s how it is in your agency, I’m just suggesting you take a look at it. Play the “what-if” game. What if you didn’t have the top 5% of your customers? Would you be profitable? Ultimately, you...
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