Making Money

AlDiamond1

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We're all concerned with it. Some of us are consumed with it. Most of us are doing it (not as difficult in this market as it was in the soft market). Many of us are still struggling to accomplish it. And most of us are worried about continuing to make money into the future in our insurance businesses. Al Diamond offers the methods, tools, and monitoring devices to help you make more money consistently.

Catchy title, right?

 

If I were to offer you the method , tools, and monitoring devices to assure that you were making money — consistently, growing annually — would you listen?

THE METHOD

Increase your agency's productivity by just 5% every year. The raw form of agency productivity is Revenue per Employee, so productivity responds to growth, cost control, enhanced efficiencies, and better use of human resources. The implementation of one or more objectives dedicated and focused on this 5% growth will start you on your way to making money.

 

A more refined productivity tool is Spread , the difference between revenue per employee and compensation per employee. Spread defines the non-compensation funds available for overhead and profits. Measuring Spread in addition to Revenue per Employee allows you to control employee costs to less than agency growth rates.

 

Saying “Increase productivity” is easy. Doing it, on the other hand, requires management skill well beyond insurance technical knowledge. You must create annual objectives — in writing — for this expressed purpose. You must support these objectives with active Action Planning. Saying that you “want” to do something is meaningless unless you pay attention to that goal every day.

 

Action Plans that support this goal include:

 

•  Commission Net Growth — Both new business and retention

 

•  Cost Control — This word is almost unheard in the agency industry. Cost control means real budgeting, not just monitoring spending habits and hoping for the best.

 

•  ICP (Incentive Compensation Program) — An ICP pays employees more money only as they become more effective. Effectiveness in its final form translates into increased productivity. This means no more raises for simple longevity, historical performance (for which they've already received compensation) and because of implied threats of departure.

 

•  Automation advances — Permit your staff to do more than transactions within the same workday (i.e. eliminating double handling and the “paper shuffle” that costs each of us so much in lost time).

THE TOOLS

 

The tools to accomplish the rather modest 5% annual productivity gain are the devices in a standard Tactical Plan, an active (rather than passive) budget, and a Management Information System (MIS) that can track the exact issues that will define increased productivity. For instance, tracking new business is fine. Simple tracking worries you if you aren't getting any new business and it strokes your ego in strong new business months. But what does it mean if you aren't also tracking Lost Business and Net Position (New Business minus Lost Business) each month? This is like pouring water into a barrel with a hole in the bottom. Yes, you're proudly and actively adding a lot of new business, but to what end?

MONITORING DEVICES

Finally, you need to monitor the results actively, rather than passively, with your entire staff, on at least a monthly basis. Your staff must help you attain productivity goals — I assure you that you can't do it yourself — so that productivity becomes everyone's focus, not just yours. Your MIS will provide you the tools to monitor your progress. A monthly management meeting to discuss the progress of each productivity objective and action plan will make this goal a part of every employee's daily routine.

 

Once you have done productivity reporting for a year, I suggest that you convert from YTD (Year-To-Date) reporting to Rolling-12 Month reporting. In this way, you are realizing your productivity gains on an annual basis at the end of each month of reporting. The twelfth prior month is dropped from your reporting totals and the most recent month is added.

 

Revenue per Employee growth represents top line growth of your business. Spread represents the bottom line potential growth — profit to you. If you learn to target and measure both you will enjoy consistent growth and profit regardless of market conditions since your organization will quickly respond to any changes in revenue and profit generating mechanisms during your operating year.

E. Al Diamond is president of Agency Consulting Group, Inc., 507 North Kings Hwy., C., Cherry Hill, NJ 08034. You can reach him at (856) 779-2430, 800) 779-2430, toll free, fax (856) 779-6224, e-mail al@agencyconsulting.com , or visit www.agencyconsulting.com .
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