Part II of this article.
Planning agency success is a learning experience. Sharing ideas, taking advantage of opportunities, and tapping untapped resources, with the help of a marketing manager, gives agencies the chance to see that their day-to-day challenges may not be as unique as they think.
Challenges that are rectified with the help of a marketing manager open the eyes' of agencies because they learn how a marketing manager fits into their problem-solving scheme. Agencies are able to see the kind of support a marketing manager can bring to them.
By means of this heightened agency awareness, a framework for agency success is realized. Agencies then understand that they can make a profit, even in the toughest of markets. But this doesn't happen by accident, it takes precise planning.
The framework of agency success can occur in any profit center: Personal Lines, Commercial Lines, or Life. It begins with the planning process for the people who will make it happen. If the entire planning process begins with the wants of the integral people in an agency, then success is eminent.
In the Independent Agency System, there is a sense of teamwork; everyone performs a number of functions. If agency employees carry out a number of functions, then marketing managers need to recognize each function as if it were performed by a different individual. Individual contributions are important to the success of an agency; give them a way to map out their own personal success. When individuals succeed, the agency succeeds. This is called bottom-up business planning.
In my previous article, Step One deals with the front line of productivity and growth in an agency. This front line includes employees who are making a contribution to production: CSRs, producers, or principals. Marketing managers need to find out exactly what these people can do and what they want to do, so their overall contribution is clear.
Step Two addresses the various profit centers. This group concentrates on the goal measures of the different centers: Personal, Commercial, and Life. There are different measures used in each of the centers, i.e., Personal Lines may use policies as a measure, as opposed to Commercial Lines, which may use revenue.
When the personnel involved in steps one and two have developed their personnel goals and merged them with the goal measures of the profit centers, successful profit-center plans will result. Once an agency has these plans, it can develop a business plan based on the profit-center plans.
At this point (Step Four), the actual framework for success if formed. It's more than hopes or aspirations. The marketing manager helps develop the business plan by consulting with the front line about the products the company has, and the kind of support the company provides. The marketing manager can provide lead generating letter samples and other types of samples and support.
In Step Five, the marketing manager is required to report to a territorial marketing manager about the 20 or so agencies that are being assisted.
Another important consideration is the perpetuation of planning. Because planning is ongoing, a marketing manager might do well to work with a few agencies that haven't fared so well in the past, while adding new agencies to the schedule. This naturally staggers a schedule because the agencies that have lagged can be brought up to speed, while the new agencies will be establishing their own rate of progress.
Territorial managers have to know how to get through the levels of bottom-up business planning. They have to know exactly how they're going to develop the projections, strategies, and activities to reach the goals set by the marketing manager during the bottom-up planning process. They need to know how they will report to their regional sales managers (Step Six). The regional sales managers must know how to report the goals to the company to communicate an idea of what can be achieved in a difficult market (Step Seven).
Marketing managers play an extremely important role because their bottom-up business planning affects those at the lower levels as well as those at the upper levels. It is imperative for marketing managers to understand their overall role in the scheme of things.
For instance, though the problems agencies deal with may not be unique, the effects of these problems impact differently on each agency, which creates a unique experience for marketing managers. Marketing managers are able to examine how variables impact each agency differently by breaking down components of the agency into simplistic terms, for example, retention ratios.
A marketing manager can help an independent agency determine exactly how many policies, of the polices written the year before, will be renewed, based on a retention ratio. This is a key tool for a marketing manager. Improving a retention ratio in Personal Lines vicariously improves the retention ratio in Commercial Lines as well as Life. Retention ratios are key in terms of strategies in the framework for agency success.
It is suggested that marketing managers do a five-year bottom-up business plan that is flexible enough to quickly capitalize on opportunities or liabilities. For example, a five-year plan can show how to offset liabilities by increasing the average policy size, targeting higher average premium policies, or improving retention ratios. These are the things an astute marketing manager needs to point out.
Agencies are traditionally frightened of dedicating a specific amount of money to a five-year plan. But if a marketing manager can become a 'business consultant,' then an agency is more likely to feel comfortable with a five-year plan. A marketing manager shouldn't say, 'I need x in premium volume from your agency next year.' There needs to be a show of support on the part of the marketing manager. The marketing manager needs to become part of the agency management team.
By establishing a five-year plan, a marketing manager clearly illustrates daily activities based on annual projections. Many agencies business plans are based on unlocking the office door Monday at 8 a.m. and locking it Friday at 5 p.m. What happened between Monday and Friday? The agency wrote some good business, but some of it went out the back door. In essence, there was no real plan of who was going to call who and who was going to follow up on what.
Everything just happened. But independent agencies cannot continue in this vein if they want to prosper.
It's those agencies that know where they are, where they want to go, and where they are going that will exceed their goals. It doesn't matter if it's a 43% growth rate or a 55% growth rate. If agencies know what it takes to get there, they will. Marketing managers know that planned growth is three-pronged: retention, new business, and higher rate policies (as indicated by the previous chart). Agents need to decide what their sales goals are and understand the revenues they want. They end up with profit because of revenue/sales goals development.
The next big questions are: Who is going to write all the new business, who is going to service that business, who is going to support the service and sales effort, and who is going to manage the entire process? Subsequently, the marketing manager needs to address human resources-the positions the agency will need to fill in the next five years. The agency may not need to hire new people; it may be able to help existing employees with career opportunities. But some new hires may be necessary within the next five years, and if there are, they need to be included in the plan.
Compensation is paramount when a marketing manager is developing an agency's framework of success: How will existing and additional personnel be compensated? A good compensation program is the key to the success of the agency. All the different compensation programs must be studied so that the best plan for sales and support people can be evolve. The marketing manager needs to determine what the agency can really afford to pay and still make the projected sales goals/net profits.
This chart explains a compensation plan for a person who comes into an agency that has its own unique situation in terms of premium revenue, policies, retention ratio, and so on. The person needs to come in and produce x number of policies per month. The graph illustrates the income potential during the next eight years. This recruiting graph is something that can be shown to an agency that wants to know exactly what their daily, weekly, monthly, and yearly activities are going to be. This graph shows employees exactly what they will earn.
Some of the numbers in the above chart are little scary, but the following chart cites that they are really not as bad as they appear.
Most agencies think they cannot afford to pay their people 72% of the first-year commission. They believe they'll lose money. If an agency agrees to pay a Personal Lines account executive 72% of the first-year commission and a renewal commission of 11%, the agency barely makes $2,000 after it has paid the new and renewal commission and the employee benefit cost.
That's a lot of red ink. But focus on the renewal commission of 11%. If the producer continues to generate two Personal Lines policies a day and never increases production during an eight-year period, the producer's income potential is a little more than $100,000. This is an average policy size of $597 in year one, with a 79% retention ratio.
In year five, the retention ratio improves to 89% and never gets better. The average policy size has increased by 10% a year and never gets batter. The agency's income, after it has paid the new and renewal commission and the employee benefit cost, is almost $400,000 in year eight.
It's a long-term investment that is there for agencies that know exactly what they want and what they've got to do to get it. When an agency or an employee can clearly see production levels and the accompanying compensation, they go for it. Everyone comes out a winner, including the marketing manager, because the marketing manager has been helping the agency see this process through and has provided the products and the resources, and perhaps even the lead generation list to keep employees and agencies producing.
An agency should not spend more than 60% of its total revenue on compensation. If it does, it's in trouble and the marketing manager needs to know about it. The establishment of mission statements for each employee goes back to the bottom-up business planning concept. From the bottom up, the marketing manager has already determined who will do what and at what cost, so the largest single agency expense (employee compensation) is taken care of.
The other major expenditures an agency needs to think about include sales, operations, and administration. It's easy for an agency to refer to last year's expenses to project next year's expenses based on the same growth pattern, but this is not an entirely accurate method because growth is not identical from year to year. Use peer studies for more accurate expenditure projections. These resources provide nine examples of what other growing agencies in various revenue ranges have done about the four major expenditures: compensation, sales, operations, and administration.
Marketing managers need to clarify that net profit should not be a starting point for business planning. Many agencies have an abundance of wonderfully informative reports about production and growth, they just don't know what to do with them. They also have a lot of valuable information stored in their computers, but they do not access that information because they don't know how truly useful it is. They look at all this material independently- there's no integration of information. A marketing manager can forge a path, a framework, for independent agents that will lead to the goals formed from the bottom up.