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 This four-part article offers a step-by-step, comprehensive plan for growing your agency’s business.
Performance Ratios
Business development planning goes beyond production to include every measure of performance important to a successful agency. Develop this information should be developed and plan to improve performance in every area.
Profitability Ratios
Your capital ratios, profitability ratios, and margins for creditors should be tracked by accounting and reported to management quarterly. These ratios reflect the performance of the agency in terms of efficient, cost-effective operations.
Refer to the agency financial analysis in Part 4 of this series to determine how to measure each performance ratio. Determine where you are currently and use these measures to track overall performance. If any area falls below your expectations, define acceptable performance. From this point on, everything you do should relate, directly or indirectly, to improving performance in these areas. If it does not, get rid of it, because it isn’t necessary. This type of thinking will keep you from buying a computer system because it’s the “thing to do.” If the system does not improve profitability, don’t buy it. Period.
Liquidity Ratios
Receivables ratios and collection ratios are the responsibility of producers, CSRs, and accounting. When the policy is sold, the producer or CSR must make it clear to the insured that coverage does not exist if consideration (payment) is not rendered. When and how payment is to be made should then be agreed upon. Because insureds don’t like to pay for incorrect policies or policies not yet issued, even though coverage is bound, everyone in the agency should understand that quality and good service are essential to timely payments. Deposit premiums on auditable accounts should be as accurate as possible. The insured should fully understand the nature of auditable policies to avoid large audit premiums. Trying to collect on old exposures is difficult for everyone, and large surprise audits often destroy agency-client relations.
Accounting should track the cash ratio and quick ratio accounting and report to management if they exceed a predetermined level. If cash and accounts receivable get out of balance with current liabilities, management should step in to get one or the other in line.
Efficiency Ratios
Efficiency ratios are the responsibility of everyone and should be tracked and reviewed quarterly. Expense ratio, office cost per policy, sales cost per policy, commission per employee, commission per support staff, commission per producer, accounts per producer and support staff — all these should be determined. Once each is known, the agency needs to set goals for improvement and specific action steps to attain it.
Again, the entire team should understand the importance of these goals and how their work affects them. As you go through the performance-improvement process, stay focused on these goals. Do only what’s necessary to attain these goals; get rid of everything else.
Keep your agency lean, effective, and focused on producing revenue. If you hire staff based on what you perceive to be the workload, then you’re setting your staffing requirements on doing work the way you currently do it, rather than on a performance ratio, such as commission per employee. To improve commission per employee, you can cut staff, let inflation do it, increase the number of accounts, or increase coverage per account. What do you want to do, focus on activities or results?
If you’re at $190,000 commission per support staff and want to increase this figure to $200,000, you have only two choices: cut staff or generate more income. Unless your financial position is so weak that you can’t afford to do anything else, cutting staff should be your last resort. Successful agencies recognize that their most important resource is the team that effectively sells your products and services your customers. Get rid of everything that doesn’t contribute to increased sales and improved service, but don’t get rid of your people. Focus your and your staff’s energy on producing revenue, not on tasks.
Challenge your staff to find ways to do only the things that increase commission per person: renewal retention, account development, and attracting new accounts. Listen to your employees, share ideas for productivity improvement, and get rid of everything that doesn’t contribute to this goal. If you ask for their ideas, you must be prepared to act on them. If you aren’t, don’t ask! The goals you set at this level become your staff’s objectives, and their ideas become their action plans.
Personnel Planning and Development
Personnel planning should address three areas:
Companies and agency associations produce many articles on these subjects, so there’s no need to replicate them here. What I want to get across is the concept of continual improvement.
Every employee should have a personal development plan that’s reviewed on a continuing basis. You know how rapidly ISO, states, and companies change insurance contracts and coverages — not to mention the rapid changes in technology. The only way employees can stay ahead of the competition is to outthink and outperform it, and for this they need to be well informed and highly trained.
Your agency needs the best minds it can acquire if you truly want an innovative, creative, risk-taking environment. Continuing Education and development should not be an option, but an essential part of your agency culture. The best way to recognize and honor that goal is to sit down with each of your people to determine what he or she would like to learn and what areas you need to strengthen in your agency. Then make a plan for getting the training accomplished within a specific time. These plans become a part of your agency’s overall business development plan.
Planning for the growth of your people is just as important as planning for growth in commissions and profits.
To be continued.
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