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.”

Well, love of course!

But, I’m not a young man any longer.  Alas, I am an older but wiser man now, (which can and does have its advantages as you will shortly see)!

So, what does an “older but wiser” man’s thoughts turn to in springtime?

Well, if such a person is an owner of an independent insurance agency of a certain size, his thoughts turn to profit sharing!  For springtime is harvest time for the agent who has carefully written quality insurance business all the prior year.  It is reward time for balancing the book and putting business where it belongs.  It is bonus time for growing profitably with his carriers.  It is financial recognition time for being a big enough agent to have blown away minimum production requirements with all his companies. 

Springtime may be about love, but it’s also about money, baby!

And if this older but wiser man owns an agency that is an OAA member, then springtime is practically a time of wild irrational exuberance!  Because as an OAA member there are millions and millions of dollars being handed out!  With no minimum volumes!  We’re always big enough!  Minimum production?  We’re maxed out, man! 

Springtime!  Young or old, we get the money and the love!

"How do you know?"

As I visit with agency owners I get asked this question all the time! Here are some of my favorites:

– How do you know when to hire a CSR?

– How do you know how much profit you should make?

– How do you know if you’re paying too much (for anything)?

My way of knowing the answers to these questions, and many others, is to benchmark. Merriam Webster’s Dictionary says “Benchmark” is both a noun and a verb:

“Noun: A standard or point of reference against which things may be compared or assessed.”

“Verb: Evaluate or check (something) by comparison with a standard: ‘we are benchmarking our performance against external criteria’.”

In the independent insurance agency industry, we are very lucky to have a couple of excellent benchmarking studies to compare our agencies against. By “benchmarking” ourselves against our colleagues we can test ourselves to see whether what we are spending is reasonable, and whether our financial results are better, or worse, than our peers.

We can also use the standards of performance that these studies have to figure out where we can improve our own agencies, and to help us forecast what we need to do, and when, in order to grow.

In our retail insurance agency we have used the Independent Agents and Brokers of America’s “Best Practices” study and The National Alliance Research Academy’s “Growth and Performance Standards” publication since we started. It has been invaluable in answering, “How do you…” and guiding us in managing a profitable agency. We have been named an IIABA “Best Practices” agency for the last three years. There are 224 such agencies out of 37,500. Not bad!

These studies are available through OAA. As important to answering the “How do you…” questions, is the expertise to apply them.

Let’s “benchmark” our way to growth, profit and success. Together!

Blood sucking growth killers: If you read my last blog post, you know I’m talking about producers!  But, you knew that anyway, didn’t you?

Why is it that we take the best producers in our business and turn them into “Sales Managers”?  Do producers make the best managers?  If you’re a good producer, are you a good coach, teacher and manager?  If you’re a good producer, do you love managing people?

Usually, the drive and people skills that make a good producer don’t translate very well into producer management.  When we make a good producer a manager, we just frustrate that person because the “producers” he’s supposed to manage generally don’t work as hard, and aren’t as gifted as he is.  Plus, he quickly discovers that the time he spends selling makes him more money than the time he spends managing. 

So, when we who are agency owners and producers start hiring producers we have less time to produce ourselves, and, generally, we’re pretty good at it or we wouldn’t have started an agency!  We take time from what we’re good at and convert it into time spent on something we’re not good at.  That really hammers agency growth.  Worse, we don’t enjoy our work as much as we used to. 

I think the only time an agency should even consider hiring a producer is when the agency owner is already spending most of his time selling, has a staff to do all the service work, and has arrived at the place where the only way growth can occur is with more help selling.  Until then, “producers” just produce more headaches than they’re worth!

Many years ago, the United Negro College Fund (I told you it was many years ago!) had a series of TV ads with the slogan “A mind is a terrible thing to waste”.  The idea was we should invest in what’s important.  People. 

I’d like to think about the same idea with respect to the people who create sales (also known as income) for our agencies.

But.  Generally speaking they aren’t producers.  They are agency owners!

It seems most agency owners want to hire producers because they think they are the answer to agency growth.  If you think about it much, though, you’ll realize that most producers are just blood sucking growth killers!

I say that because producers often demand a commission rate, which is too high for the agency to make a profit paying, they frequently demand to own their book of business, most don’t produce much, there is a tremendously high turnover rate, they demand a tremendous amount of time to train and manage, and often, if they’re any good, they leave and start their own agencies! 

All of this creates a huge drain on an agency’s capital, staff time, and agency owner’s time! 

What if, instead of hiring producers, an agency hired more service people?  Well, then the agency owner, who usually is a good producer, could spend more of his time selling and creating growth.

More on this topic in my next blog post…

I talk to lots of insurance agency owners.  In OAA we now have about 90 partner insurance agencies so there’s lots of them to talk to and, luckily, after nearly 20 years in this business, I have a lot of friends who own agencies.

When I go to a meeting of insurance agency owners there is always a conversation that goes like this:

“How big is your agency?”  “About $4 million dollars.  How big is yours?”

Now, when I get in one of these conversations I know we are just BS’ing each other.  Because we’re talking about premium and not commission.  We generally know that premium is not an accurate gauge of the real size of an agency (Workers’ Comp premium is worth less to an agency than Homeowners for example).  And we know we don’t get to spend premium!

Unfortunately, I also meet agents who don’t seem to understand this distinction.  They constantly talk premium and not commission and I’m not sure they understand why this is important.

It’s important because an agency owner needs to be constantly focused on the income his agency generates.  That’s commission, not premium.  Premium is just a by-product. 

We grow our agency and pay our bills with commission.   Premium really only matters to our insurance company partners. 

Well, it does matter to most independent agents, too, because without enough premium they lose their ability to have an insurance company to write for.

But that’s not a problem for OAA members!  We’ve got plenty of premium.  We just think about what we get to spend.  That’s commission! 

Recently, I posted that the Silver Bullet to agency growth is activity.  One of the natural questions is how much?   How much activity will it take to get x results?  Really, the question is what do I need to do?  What do I need to plan for? 

Great questions!

To answer your questions I need a little more information.  So, here are my questions:

  • What is your growth goal?
  • What is your average sale?
  • What is your closing ratio?
  • How do you get prospects?

Let’s assume I want to add $25,000 in commission revenue to my agency (growth goal).  And let’s assume my average sale is $450 (notice: this is commission not premium.  I’ll explain why in a future blog post).  Let’s also assume I’m an average salesperson and my closing ratio is 35%.  Lastly, let’s assume I get my prospects from my direct mail campaign and my response rate is 1.5% of pieces mailed. 

From these assumptions “how much” becomes very clear. 

I need 56 sales!  ($25,000 goal divided by $450 average sale).

I need 160 prospects!  (56 sales divided by 35%).

I need to mail 10,650 mail pieces (160 prospects divided by 1.5%)

Don’t get hung up on whether you think direct mail is the best way to advertise, or whether you think my closing ratio is good or bad.  That’s not the point.  The point is, if you know some very basic numbers, you can figure out very easily how much activity you need to reach your goal!

Everyone has a different idea about the best way to sell insurance.  We all have different goals, talents, resources and abilities.  But we can all achieve our goals with the appropriate amount of activity. 

Success is simple.  Figure out “how much”.  Then go do it!

I have had the opportunity recently to visit with a number of our members across the state.  As we visit I get asked lots of different questions.   How can I start selling commercial insurance? What’s the best way to advertise?  Who has the best rates for this, that or the other thing?  I’m stuck on a plateau, how do I get off?  I’ve gone backwards recently, what do I do?  We’re not as competitive as we were, what do I do? 

Despite the question, really everyone is looking for essentially the same thing.   “How do I get my agency to grow”? 

Everyone wants to know – what’s the best way?  Everyone wants “the Silver Bullet”!

Like the Lone Ranger I have the Silver Bullet.  And it is the key to growing any agency

Recently Marsh Berry, a mergers and acquisitions and consulting firm operating in the insurance agency space, published this in their newsletter For The Record:

“MarshBerry data shows the average producer generates approximately 1.5 new business appointments on a weekly basis, while a top 20% producer will get three new business appointments per week”

The Silver Bullet is ACTIVITY!

Simply put, if you do more of anything you’ll get more results.  If you want more sales you must do more of whatever it is that produces sales for you!  It’s really just that simple.

Someone else may be a better closer than you, better marketer, have more competitive carriers, have a better niche market, better location, etc.   I’m not saying those things aren’t important.  And we should all try constantly to improve.  BUT, if you do more of whatever you have done in the past that has worked for you, you will grow

Ready?  Then aim and FIRE!