If you’ve been reading my blog you already know I think this is a bad idea for most small agencies.  Insurance producers take a lot more management time, cost a lot more money than most realize, and actually cause the agency to grow slower in most cases than if the agency owner focused on production.

But, you’re going to ignore my advice aren’t you?

Well, then, let’s at least do a few things right!  First, the producer MUST be an employee!  That’s right he cannot be an independent contractor.  Why?  Because it’s against the law. In the insurance agency business you simply cannot meet the Employment Security Commission’s, Worker’s Compensation law’s and Federal Wage and Hour law’s rules for independent contractors.

I was an expert on this in the Oklahoma Legislature.  I tried for years to develop a work around.  It’s not possible.  So, you can either break the law and wait until you get caught, with very expensive consequences, or do it right from the beginning.   

So, as an employee make sure you understand what the producer is costing you in non direct compensation expenses.  That’s 7.65% for FICA and 3% for Unemployment Insurance.  Maybe you can avoid health insurance, vacation pay and other things but these you can’t.  Plus you need to factor in additional overhead costs like rent, E&O, telephone, etc. that will be increased by this addition.  You will have expenses for additional CSR and clerical support.  

You may think you will avoid all these costs.  And you may in the beginning avoid some of them.  But, eventually, they will all be necessary and you need to anticipate them from the beginning.  Otherwise, you will be tempted to overpay this bloodsucker, I mean producer, you want to hire!  

So, if you want a nice round number to work with use 50% for total overhead costs, not including Commission Expense and Profits.

Speaking of profits it is wise to always plan to make one!  So, what do you get out of this Mr. Agency Owner?  

Let’s assume the average agency makes a 10% profit.  Do you really want to be average?  Most successful agencies, that are professionally run, want to do better than that.  They will plan for about 20%.  The plan (budget) does not include profit sharing or bonuses. You can’t count on that. So treat it as just what it is. A bonus. 

So, now, where are we?  We are hiring a new employee and to pay the agency (profit) and cover overhead we need 70% of the revenue.

How much can we afford to pay the producer?

In case it has slipped your notice, we are in one of the worst economic situations in the last 75 years.  In addition to that, the weather in the central part of the U.S. has been terrible for three straight years.  To make matters worse, the weather in the eastern 2/3’s of the U.S. has been historically bad for at least 5 years!

The reaction of insurance companies, with whom we work, has been understandable.  They’ve pulled their horns in, cut agents off, raised prices, etc.  Fortunately, for us at OAA, we are much less affected due to our size and relative strength as most carriers’ largest producer.

What’s amusing to me, though, is the reaction of many insurance agents.  I hear a lot of concern because premiums are rising, carriers are restricting some agencies’ writings, carriers are tightening underwriting, carriers are cutting commissions, etc.  Well, sure, these things do make life interesting and challenging.

But they also create enormous opportunity! 

In the first place, even with some commission cuts, commissions are way up because of rate increases.  Secondly, agents with quality books of business and adequate volume (never a concern for OAA members as we always have tremendous volume with every carrier we work with) are making even more profit sharing than ever.  But most of all, rate increases and economic uncertainty have put huge amounts of business on the streets as customers try to control costs.

Did you know that more people became millionaires, per capita, than at any other time in history during the Great Depression?  Tough times are when the successful shine.  Real entrepreneurs find a way! 

The glass is definitely half full! OAA is full of people who see the glass as half full, and who are growing insurance agencies every day.  We’re looking for a bigger glass!  That’s why we have been, and continue to be, the fastest growing insurance production organization in our part of the world.   If your glass is half full I’d love to hear from you.

I’m not a very good golfer.  Never have been.  I started playing in high school during the summers and really loved playing golf, but I wasn’t any good.

When I went off to college I got the chance to take golf as an elective and hoped that it would improve my game.   It didn’t, but I learned something a lot more valuable.

We had a good golfer on our school’s golf team.  Luckily, his Daddy was rich and bought us a team so he’d have other good golfers to play with.  Because of that, some people poked fun at him saying his Daddy had bought him the chance to play in college.  His name is Hal Sutton.

When I was at the golf course on the driving range, I noticed Hal was frequently there by himself.  He’d be surrounded by buckets of balls.  Lots of buckets!  He was there working on his swing.  Eventually, as you probably know, he made it to the PGA Tour, Ryder Cup, and success as a golf champion. 

But he didn’t get there because his Daddy bought it for him.  He got there on work.  On practice.  On determination.  On perseverance.

When we look at a beautiful golf swing it looks so easy and graceful!  But those of us who have tried and tried for years know looks are deceiving.  It’s the same way with the master producer.  He makes it look easy and effortless.  Those of us in the game know it isn’t.

It’s the result of lots of practice!  Lots of work!  Lots of perseverance! 

What kind of producer are you?  You can be champion if you want.  You just have to put in the work.  Just remember, the swing is the thing!

I had lunch with an OAA member recently who is a former Allstate agent.  We helped him start his agency a few years ago, and he’s been phenomenally successful as an independent agent.  But despite his success, he is still hungry for more!

We were talking about his goals for his agency and they included doubling his current size.  What a great goal!  I asked him, “When your agency is that size what will it look like?”

That question was like throwing a tire iron through a bicycle wheel.  It really had him stumped.  Kind of like ‘ol George Bush – that darned vision thing! 

I have found that if I think about what it will look like when I achieve a goal, that it is not only motivational, but it also helps me recognize important steps along the way, and I know when I’ve arrived because I’ve seen it before in my mind’s eye.

Do you remember, or have you heard of, Bruce Jenner?  Right.  He’s the guy married to the mother of those Kardashian girls!  But long before that he was an Olympic athlete and won the Decathlon in the 1976 Summer Olympics.

Well, that was the year I graduated from high school, and Bruce was inspiring to me.  The Decathlon is arguably the most difficult and athletic event in the Olympics.  He was a great champion!  And an insurance agent!  But he was also a failure before winning the gold, having come in 10th in 1972. 

After that experience he dedicated himself to training.  To winning.  He even put a mirror on the ceiling above his bed.  He used it to “see” himself winning the gold medal.  He spent a lot of time envisioning what it would look like, and feel like, to win.

So, my OAA partner and I spent some time exploring what it was going to look like when he doubled in size.  He can see himself now in that future and is dedicated to achieving it.  Now he not only has a goal, but a vision of his future success!

What about you? Do you have a vision of your success?

I’m a pilot and I love to fly!  Give a chance to slip the surly bonds of earth and I’m outa here.  But as fun as flying is, there is a lot of work and drudgery involved.  There is also a lot of preparation required.

Before you can go fly safely, it’s important to do a careful, thorough and thoughtful preflight.  As pilots, we start with the environment we’re going to be flying in (i.e. the weather), then we spend time carefully planning the flight itself.  Where are we going?  How high?  What route? What about contingency planning if something goes wrong or something changes?  After all that planning we then preflight the airplane, carefully checking to make sure it is in condition to fly safely.

Whew!  That’s a lot of stuff to do just to go fly an airplane.  I don’t really want to add it up but I’ll bet I spend 2 or 3 hours of preparation for every hour I fly! 

If you think about it, the professional insurance agent needs to go through a similar process when seeing a customer for renewal, or a prospect on a sales call. 

If you’re like me you love being in front of a prospect, or meeting with a customer!  It’s why I’m in the business.  But I have found that to really enjoy that time, and to do what I need to do successfully, and at a high level, takes a lot of preparation.

Just like when I fly, I find that most appointments are smooth because I’m prepared.  And if something unexpected comes up it’s easily handled with no stress because I’ve already been through the flight, …er interview, in my mind and am ready for unexpected contingencies.  

How about you?  Do you preflight?  Or do you just “wing it”?

It’s funny how obvious truth sticks with you, isn’t it? 

Over 30 years ago I read the book “How to Master the Art of Selling” by the great sales coach Tom Hopkins.   Perhaps you’ve read it, too. 

I don’t remember very much about what Tom said in that book (maybe I should go back and read it again!) but I remember a great story he told. 

A young man, just starting out in his selling career goes to see a master salesman.  This man was widely celebrated for his sales success.  The young man asked, “What must I do to be a successful salesman?”

Pausing thoughtfully for a moment, the grizzled veteran then drew a picture for the young man.

S T P

Ÿ) (•Ÿ

 Every Day!

The rookie stared at the picture for a long time, not wanting to admit he didn’t know what it meant.  Finally, he asked, “What does it mean?”

The old man said simply, “The secret to sales success is to see twenty people, belly to belly, every day”!

Regardless of whether you need to see two or twenty, being in front of people is the most important thing in creating sales.  Activity is the key!

You can be the best closer in the world, know all the answers to all the objections every devised, have the cheapest price, the best product, the slickest advertising, the best staff… but you’ve got to be in front of people for it to matter. 

Activity drives sales.

I had lunch the other day with one of our agency partners, and we were talking about some of the keys to growing a successful agency.  We covered a lot of ground and had a good exchange. 

We were talking about how to write larger accounts, so I asked him what his average account size was.  He started to give me a premium number, but I stopped him (see my earlier post “It’s Commisson. NOT Premium” for why) and asked for the average commission.  Well, we decided to work with $400.

So, then I asked, “If someone came to your office and asked you to write their account and the commission was $100 would you do it?”  He told me yes, and was quite surprised when I said that I would not. 

“You wouldn’t?”

“No.  I don’t like going backwards!”

If I wrote that $100 account, my average commission would now be something like $390! 

One of the most effective ways to increase the profitability of an insurance agency is to increase your average commission per account.  This requires no more rent, personnel, or other overhead!  But to increase your average you have to a) know what it is, and b) write business at or above the average. 

This sounds hard, but it’s not.  Decide to focus on accounts that pay more.  Round.  Cross sell.  Up sell.  There are other strategies. These are just a few.   Hopefully, you get the idea. 

Let’s go forward!

A few years ago I went to see one of our OAA members who has a small agency in a small town in Oklahoma.  It’s a nice little town but there’s not a lot of economic activity there.  It’s surrounded by beautiful country with scenic vistas of cattle ranches and wheat farms.  But Main street is boarded up and falling down.  Like a lot of towns in this part of the country, it had seen better days.  Sound familiar?

Anyway, after eating lunch at the local gas station, my partner drove me around town.   Back at the office she said, “I just want you to see what I have to write around here, and why it’s hard to grow.”

Hmm.  That is a challenge.

I said, “Let me see your insurance license.”  She gave it to me and I looked at it for a few minutes.  Scratching my head I said, “I don’t see the name of your town anywhere on here.” 

She looked puzzled and said, “What are you talking about?”  Her puzzlement increased when I replied, “It just says ‘Oklahoma’ on here.”

I then made a bold statement, “Give me a cell phone, a laptop, and a list. Put me anywhere in any wheat field in Oklahoma, and I’ll build successful, profitable, growing insurance agencies.” 

I went on to explain that our license means we can sell anywhere in our state.  In fact I had customers in her town myself, as well as dozens of others across the state.  I could see that she was beginning to think…

See, almost every limitation we have is one we put on ourselves.  Virtually, every disadvantage can work for us.  It’s just in how we choose to see things.

Today, that agency is significantly larger than it used to be.  Another successful OAA member!

I love wheat fields!  They remind me of limitless opportunity…

Have you ever heard of Pareto?

Yeah, me too.  He’s that South American soccer star right?  Used to date that singer who could go in every direction at once didn’t he?

Uh, no.  He’s actually much more interesting.

Vilfredo Pareto was an Italian economist (no this is not an oxymoron!) who observed in 1906 that 80% of the land in Italy was owned by 20% of the population.  He went on to discover that this rough relationship applied in all sorts of situations.  Eventually, the principle Pareto discovered became known as the 80/20 rule by many in business.   Enter Roger Sitkins…

Roger is a Sales Coach working in the insurance agency industry.  I first heard him speak on a cruise paid for by Safeco Insurance a number of years ago.  In his talk he introduced me to Pareto and his principle.  And he challenged me (well all of us actually, I was crowded into the back of the room with all the other insurance agents) to apply it to my book of business.

The idea, as Roger explained, was that 80% of my income came from 20% of my clients and 20% of my income came from 80%.  Focus on the 20%, Roger said, and get rid of the 80%.  “You will make a lot more money”!

So, I tried it.  On January 3rd I printed my customer list.  Big to small.  With calculator in hand I ran down the page until I got to 80% of the total commissions.  I drew a line.  Counted the customers.

I’ll be darned!  20% of my customers paid me 80% of my income.  So, I gave the 80% list to a so-called “producer” (you know who I’m talking about – you’ve got ‘em too – unless you follow this blog and have gotten rid of those blood suckers) and said, “I never want to deal with these again!” 

Guess how long it took to go replace that income?

February 16th

I’m a big believer in Vilfredo!  Tried to name my eldest son after him, but my wife said there are some things she just won’t go along with!

Anyway, give it a try in your agency.  Keep the customers if you want, just have someone else deal with them.  You focus on the 20% and watch your agency take off!

Do you own a business, or just a job…

I have recently been reading “The E Myth Revisited” by Michael E. Gerber.  It is an updated version of his classic “The E Myth”.   Perhaps you’ve heard of it.  In the book Gerber posits that the American entrepreneurial dream is just a myth.

He says that most people who are in business for themselves don’t really own a “business”, they just own a job.   Here are few excerpts that help explain the problem.  I encourage you to read the book for some answers.  It’s a short but powerful read.  If you’re in Oklahoma, Arkansas, or Kansas, call me and I’ll send you a copy. 

“Then, one day, for no apparent reason, something happened. It might have been the weather, a birthday, or your child's graduation from high school. It might have been the paycheck you received on a Friday afternoon, or a sideways glance from the boss that just didn't sit right. It might have been a feeling that your boss didn't really appreciate your contribution to the success of his business.

It could have been anything; it doesn't matter what. But one day, for apparently no reason, you were suddenly stricken with an Entrepreneurial Seizure. And from that day on your life was never to be the same.

Inside your mind it sounded something like this: "What am I doing this for? Why am I working for this guy? Hell, I know as much about this business as he does. If it weren't for me, he wouldn't have a business. Any dummy can run a business. I'm working for one."

And the moment you paid attention to what you were saying and really took it to heart, your fate was sealed.

In the throes of your Entrepreneurial Seizure, you fell victim to the most disastrous assumption anyone can make about going into business.

That Fatal Assumption is: if you understand the technical work of a business, you understand a business that does that technical work.

All of them believing that by understanding the technical work of the business they are immediately and eminently qualified to run a business that does that kind of work. And it's simply not true!

In fact, rather than being their greatest single asset, knowing the technical work of their business becomes their greatest single liability.

The real tragedy is that when the technician falls prey to the Fatal Assumption, the business that was supposed to free him from the limitations of working for somebody else actually enslaves him.”