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.
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.
Do you have a financial model that you...
This reminds me of the story about the Cobbler’s children who have no shoes. This phrase is used to describe the phenomenon where professionals in any given area are so busy with work for their clients and their teams that they neglect using their professional skills to help themselves or those closest to them. Think of the web designer that hasn’t finished their website, or the accountant who is late in submitting his own tax return!
A great friend of mine, who’s also a great client, asked me an interesting question recently. “After all these years of consulting with independent insurance agencies, what are your greatest concerns for them in the future?” My immediate reply: Vulnerability tied to Profitability and Perpetuation.
Although they are not the only ones, I believe that vulnerability, operating profitability, and perpetuation are central to the greatest risks facing approximately 95% of IIAs. Unfortunately, these are issues...
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