This final installment in a three-part article (Part Two HERE) provides guidelines for using expense controls to improve your profit margins.
Begin the process by making someone in the agency responsible for approving all expenses before they’re incurred. The largest stockholder might be the best person for this job because they’ll be the one paying the most for unnecessary expenses.
Once this is done:
- Meet with the principal(s) to determine the profit percentage desired from the agency’s book of business. You can easily use a range up to 25% of P/C commission income.
- Prepare an expense budget that will achieve the desired profit percentage. This will require questioning, and possibly eliminating, sacred cows.
- Take the action necessary to achieve the expense budget — as painful as this might be. In nine out of ten cases, this will require reducing your current staff.
HOW CAN YOU TELL IF YOU’RE OVERSTAFFED?
Use the Workload Accountability standard to determine how much work every administrative employee receives on a daily, weekly, monthly, and annual basis and (most importantly) how much they have left at the end of each week.
To implement this standard:
Establish a program to record incoming mail, telephone calls, visitors, and unprocessed work for each employee. This isn’t rocket science. Have each person receiving various types of mail count and record the mail. Telephone calls are counted by the person who initially answers the telephones. Visitors are counted by the person who has first contact with the visitor. Once a week (usually on Thursday afternoon at 3:00 p.m.) have each employee count unprocessed work.
Once this information is available, assign one employee to compile it into a weekly management report. This will have a positive psychological effect: Once employees realize that management knows not only how much work they received that week, but also how much was left, it becomes difficult for them to justify a backlog.
Use your computer to generate such management report information as number of policies per employee, number of customers per employee, and number of transactions per employee. The computer will only reflect results after the transaction is processed. It doesn’t tell you how many were received or left unprocessed at the end of the week — just how many were done. Then compare these results to the amount of incoming mail, number of phone calls, and visitors processed.
To achieve maximum results, how long must you continue this process of counting work? Forever!
CONCLUSION
Consider these two statements:
“A dollar of income will generate pennies in profit.”
“A dollar of expense savings will generate a dollar of profit.”
Decide which is the more important and where your primary emphasis should be in the future.
If you’d like professional advice in reorganizing your agency, a Fries & Fries Professional Agency Tune-up might be in order. For a FREE Agency Productivity Review that will identify areas of improvement, call (859) 441-4528. The review will take you approximately 45 minutes.