The Perils of Cross-Selling

We all know the value that cross-selling brings to agencies. According to industry statistics, profit margins on the second sale are two to three times higher than the first and retention is 60% higher. Yet the average independent agency’s number of policies per customer hasn’t changed in 20 years. How can such a vital, well-publicized goal remain so elusive for so long? It’s as if we all know how to become millionaires but ignore the facts. The truth is that cross-selling is a complex process that can fail for a number of reasons.

PRICE-SELLING

Too many producers sell price, which makes them afraid that someone else will offer a better price. Producers who sell price constantly worry that they’ll lose clients (dollars) to other agencies — and because they value these potentially lost dollars twice as much as any potential gains, they tend to focus on how not to lose sales rather than how to make more sales.

This fear of loss counteracts cross-selling because once a producer makes a sale, they don’t want any contact with a client that might cost them that sale. They fear that offering additional products might make the client perceive them as greedy for trying to sell them more insurance than they need. I think this is a key reason that so few producers sell EPL insurance, even though virtually every Commercial client needs this coverage and from an E&O perspective, producers should offer it to every Commercial client. However, because EPL is a relatively new product that most clients have probably never been offered, selling it might cast suspicion on the producer. Consequently, the producer doesn’t offer it. The idea that it’s better to be happy with half a loaf than no bread at all kills an excellent cross-sell opportunity.

THE KISS THEORY

The more policies a client purchases, the more likely that something might go wrong with one of them. When I worked for an insurance company, many Commercial Lines marketing reps wouldn’t even mention the company’s Personal Lines products to their agents for this reason. Although our Personal Lines division didn’t have high error rates, a policy that went bad for an important Commercial Lines client could jeopardize the larger account (for example, if a business owner’s son got a D.U.I. and the insurer cancelled his son’s Auto policy).

This Keep It Short and Simple (KISS) attitude reflects the reality that one division can cost another a sale more easily than the first division can cross-sell the second. For successful cross-sales, the first division must have confidence that the second will provide outstanding service and products at a reasonable price. Because most independent agencies focus either on Commercial or Personal Lines, the secondary product can easily end up on the back burner.

For example, if a client already has a Commercial Lines policy and the agency’s trying to sell them Health coverage the Commercial Lines producer must have complete confidence in the Health department, which might be staffed by lesser quality people. Similarly, even if only one department is involved, the producer might sell only the product(s) in which they have confidence and expertise. If a producer doesn’t know a product, they shouldn’t sell it.

To be better than the competition in one area is tough enough. Being good in multiple areas is very difficult. As Adam Smith showed in The Wealth of Nations, a nation (or company) that does a better job than the competition in producing two products will find it more profitable to focus on what it produces best and let a competitor make the second product.

PRIMA DONNAS

Big egos can often be a useful characteristic for selling, but a death sentence for cross-selling. A problem arises when a salesperson believes, "I’m better than anyone else, so anyone else is going to do a lesser job selling the next product." Such an attitude tends to become a self-fulfilling prophecy that loses cross-sales.

ONE SIZE DOESN’T FIT ALL

Salespeople have a tendency to cross-sell all customers in the same way (for example, offering Auto insurance to all of their Homeowners customers). Because not all customers fit a cross-selling profile, the failure rate is higher than it should be. Let’s say that you approach a customer for the second sale, regardless of known problems. The customer buys, complications arise, and the second sale destroys the first. After burning your fingers in this fire once or twice, you quit trying — and another cross-selling campaign bites the dust. The solution: qualify every account before seeking the second sale.

MANY EGGS, MANY BASKETS

Cross-selling is rarely as successful as salespeople expect because customers often benefit by buying from multiple suppliers. Not all clients will buy from one agency even if its products, service, and prices are better than those of its competitors. Buyers want to spread their business for emotional, logical, and political reasons. Emotionally, they feel more secure doing business with more than one agent. Logically, buying from multiple agents should keep each of them working harder and diversifies the risk of a single agency running into trouble (with so many agencies out of trust, this isn’t a bad strategy). Politically, diversification allows clients to develop relationships with more people.

NO PAIN, NO GAIN

Cross-selling can be very profitable — but very difficult. Before investing the time and money on a cross-selling campaign, make sure that you can bridge all the pitfalls that accompany this process. If you offer the best products and professional expertise at competitive prices in a variety of areas, and can execute your plan, mountains of profits await your agency.