What’s this? Adopt 'Worst Practices' to increase earnings? Say it ain’t so! Yet this document by Chris Burand is full of examples that seem to prove just that.
I find it hard to admit, but sometimes the most profitable agencies are the worst managed. As a consultant, I spend my days preaching how agencies can improve their operations, increase revenues, cut expenses, increase productivity, and improve management. I’m confident my suggestions and ideas will work miracles — and then I come across an agency doing many things wrong while making money hand over fist.
After I pick my ego up off the ground, I have to wonder what lessons are to be learned. Let’s consider a few examples:
Some dysfunctional agencies achieve great results. One agency was growing fast and enjoyed high profit margins despite a total lack of teamwork among the staff. Normally, the lack of teamwork would kill productivity and profits. Agency management was good, but the staff just didn’t get along and nothing anyone tried worked. However, the staff knew their jobs, and did them adequately. For them, no teamwork was a solution that worked.
Another agency had poor management, was heavily overstaffed, and yet continually achieved profit margins exceeding 20%! The secret? Their huge Personal Lines book required little work compared with Commercial Lines. It was like a money machine. The Personal Lines book made so much money that the agency could foul up and still make a profit — imagine what would’ve happened if the agency were managed well!
Consider this situation: $3 million in Personal Lines commission and 15 productive CSRs at about $30,000 per CSR (including benefits) equals a total direct cost of $450,000. This leaves $2,550,000 for overhead. A similar Commercial book would cost at least another $1,000,000 in direct compensation expense. An agency such as this can afford to waste big bucks in Commercial Lines and still make a hefty profit.
A third agency eschewed automation (which we all know is a sin!) and yet garnered revenues per person of $150,000! Their situation reminds me of Amish farmers who are often the most financially successful even though they use no modern equipment. All the automation in the world can’t generate profits if not accompanied by hard work. Good procedures followed by all, including owners and producers, also contribute significantly to productivity.
In fact, it’s easy to see how automation can cut productivity. If producers don’t use the system or follow procedures, double and triple entry occurs, thus lowering productivity. However, if the agency isn’t automated, the producers will complete all the paperwork themselves, creating significant savings. So if an agency isn’t going to set and follow good procedures and its producers aren’t going to learn to use the automation system, why spend $25,000 to $100,000 on automation?
Yet another agency hired poorly qualified people at low wages (something I always advise against). Although the staff did a poor job compared with what I usually find, resulting in low retention and high employee turnover, the wages were low enough to cover the losses.
The lessons here are twofold: First, because every agency is unique, 'best practices' might not be the best for every agency. It often pays to look beyond traditional solutions to find the most effective answer for each individual situation. Second, 'If it ain’t broke, don’t fix it!'