Directing Agency Sales Efforts

DIRECTING AGENCY SALES EFFORTS

by Carol Hammes

Follow this four-step process — and watch your sales and earnings grow.

Sales management doesn’t have to be complicated. In fact, unless it’s simple, you probably won’t stick with it — so keep it simple, especially if you’ve never tried it before. Divide the sales management process into pieces. Most agencies have found that there are basically four steps, all revolving around the creation, implementation, and modification of a Sales and Marketing Plan.

1. Conduct an Agency Evaluation
2. Create a Mission Statement
3. Develop a Sales and Marketing Plan
4. Monitor the Plan

STEP ONE: CONDUCT AN AGENCY EVALUATION

The first step in setting up a sales management program is to conduct a complete evaluation of your agency, its company relationships, and market demographics. This is the most important part of the process and the most time consuming. Because almost all of the internal and external forces impacting your agency relate directly or indirectly to sales, you must leave no stone unturned.

Enlist the participation and support of everyone in the agency, but assign the primary responsibility for the evaluation to the Sales Manager. If your agency isn’t large enough to have a full-time Sales Manager, appoint someone (probably one of the principals) to handle this function on a part-time basis. If the agency only has one producer/owner, this person must also be the Sales Manager, directing the overall sales function, as well as their individual efforts.

The agency evaluation should provide a list of facts, observations, and opinions relating to internal strengths and weaknesses, insurance company relations, market conditions, and customer needs. The list will contain items over which you have seemingly no control and those which you can change if needed. The agency and marketing analysis should include these questions:

1. What are the demographics of our marketing area? What types of businesses are located there? What’s the average income of the households in the area? How much of the available business does the agency currently write? How much of that which you don’t write do you want to write? Are there contiguous marketing areas that provide greater diversity and additional sales opportunities without significantly adding to expenses?
2. How productive are your employees? Divide total agency revenues (not premiums) by the total number of people, including owners and producers). If this revenue per employee figure is below $100,000 you might be overstaffed; if the figure is more than $150,000, you might be understaffed. Divide total revenues by the number of producers (including owners involved in sales). The average agency has around $300,000 in revenues per producer. Where do you stand in relation to that figure? Do you have producers who have not yet validated but who have been with you longer than 1.5 years? Can they be salvaged? How?
3. What are the professional growth needs of your current or prospective employees? Can you meet these training needs in-house? What types of programs do your associations have to offer? Can you take advantage of insurance company programs to train producers?
4. Are producers geared to handle a high volume of new business effectively? There’s no sense bringing in business if you can’t process it efficiently. Make a complete review of all procedures to determine where there might be a duplication of efforts or unnecessary steps.
5. What do your carriers want to write? Many companies are providing guidelines for agents to direct them into writing preferred types of business. Review these guidelines and contact your branch managers and underwriters to find out what they can and will write on a competitive basis. Do all your companies want the same thing? Should you be looking for other companies that have facilities for other types of business? What kind of commitments must you make to your current carriers? Will you be able to produce enough new business to keep them all satisfied, or must you consolidate to meet the commitments? Are there some good markets available that will be content with less premium volume?
6. What kinds and size of accounts you can write the most profitably? Most agents can’t afford to write all types of business for all types of clients. Don’t assume automatically that your most profitable accounts will be the largest ones. Count the number of transactions handled per commission dollar received by line of business and size of account. Include claims, certificates, audits, bonds, and non-premium bearing endorsement activity in the total count of transactions. Where do the producers and service personnel spend the least amount of time for the most commission dollars produced? This is the type of business you should target.
7. Is your advertising program reaching your targeted business? You might have set up the program years ago when you wanted to write Personal Lines or when you simply needed name recognition. Review advertising and public relations activities every couple of years to make sure that they’re in sync with your marketing plan.

STEP TWO: CREATE A MISSION STATEMENT

Once you’ve completed the agency review and know what you have to work with, it’s time to proceed to the second step: Deciding what you want to have. Each owner must review their goals before you can jointly determine overall long-term agency objectives. Develop an agency mission statement that defines these objectives. Create written statements of overall financial, operational, and personnel policies. These statements basically set the parameters within which other decisions will be made. For example:

“In the interest of maintaining private ownership and to maintain a financially stable organization, we will maintain average annual earnings of 10% over the next five years.”

STEP THREE: DEVELOP A SALES AND MARKETING PLAN

Once you know what you have and what you want to have, you can determine how to get from where you are to where you want to be. This third step in the sales management process will result in a Sales and Marketing Plan. The opportunities and weaknesses identified in the first step and the long-and short-term objectives defined in the second step need to be translated into specific strategies and goals. These goals will then follow certain broad strategies. The strategies state what has to be done, while the goals and objectives outline how this will be accomplished.

An agency will usually have one or two major sales and marketing strategies, with other growth needs addressed in strategies that relate to the financial operation and support mechanism. These categories that should form the framework for your agency’s specific list of goals and objectives:

• Sales and Marketing
• Sales Support Services
• External Communications
• Company Relations
• Financial Stability
• Personnel Development
• Automation
• Internal Communications
• Space Planning
• Perpetuation

Set the specific goals in a format that facilitates monitoring their completion. Each goal must be measurable, time bound, and have someone with the ultimate responsibility for carrying it out. List all of the goals that apply to a particular strategy; then put them in chronological order, assign responsibilities, and determine due dates. For example, a goal of the Sales and Marketing Strategy might be: “Prepare a list of all lumberyards in our marketing area. Assigned to Sally. Due by February 1.”

For every goal that has more than one step, the responsible individual should develop a specific action plan with interim tasks and completion dates. The format for the action plan would be similar to that for the overall goals. Let’s say that management has determined that it wants the agency to grow 10% next year, net of new business, attrition, account expansion, rate increases/decreases, etc. The responsibility for this goal is placed with the Sales Manager and they have until December 31 to complete it.

The first step is to translate the percentage growth rate into commission dollars and figure out how much each producer is going to have to produce. Every salesperson should complete a Growth Analysis Sheet such the one shown below for each type of business that they’re responsible for producing (Personal, Commercial, Life) and then combine them into one.

GROWTH ANALYSIS AND NEW BUSINESS ACTIVITY

PRODUCER: __________________________
Step 1: Total Commissions Last Year $_____________
Step 2: Subtract Expected Attrition -$_____________
Step 3: Renewal Commissions $_____________
Step 4: Calculate Decrease/Increase Due to Rate Change $_____________
Step 5: Net Renewal Commissions Expected $_____________
Step 6: Total Level of Commissions Desired at Year End $_____________
Step 7: Total New Business Production Needed (Step 6 minus 5) $_____________
Step 8: New Accounts Needed (Divide Step 7 by average account size) _____________
Step 9: Number of Quotes Needed (Divide 8 by expected hit ratio) _____________
Step 10: Monthly Goals
# Quotes _____________
# Accounts _____________
$ Commissions $____________

Once each producer has completed the form, it’s easy to add them together for each department and then for the entire agency. If it turns out that the total is well below what the owners had planned to add in new business the next year, negotiations must begin. Can the producers do more? Will it be necessary to add another producer or two? Or should the original growth plan be modified? It’s easy to decide that the agency will grow 15% next year — but when you translate that growth into dollars the reality often proves this goal to be too ambitious.

An agency with $1 million in commissions would have to add $150,000 in commissions to grow by that percentage. Since most agencies will have at least 10% attrition ($100,000) from lost accounts, the actual amount of new commissions that must be produced is $250,000. For those of you who haven’t gotten used to thinking in terms of commissions yet, this is roughly $1,750,000 in premium. If rates are on the way up, this might not be too much of a problem, but in the current market it’s a pretty hefty goal.

After the numerical goals have been set, the Sales Manager should develop an Action Plan for each producer with specific interim goals that, if accomplished, will help meet the required production objectives. These interim goals might be to attend certain training courses, develop a stipulated number of X-dates, make an average of two calls a day, pass a CIC or AAI course, etc. The various Action Plans developed from the original set of goals provide the framework within which to measure the individual performance of each person in the agency, as well as of the agency itself.

STEP FOUR: MONITOR GOALS

The fourth step in the sales management process is to set up a system to monitor the accomplishment of the goals. Schedule regular meetings to review the goals and Action Plans and discuss progress. Find out why a due date hasn’t been met. Is it a personnel problem? Was the goal inappropriate? Or was the due date too ambitious? The monitoring process will impose discipline on the participants and facilitate the updating of the Sales and Marketing Plan.

It’s critical to the success of the Plan to get all employees (not just the salespeople) involved in the rewards. Producers will receive compensation that will reflect the accomplishment of their individual goals. But it’s important to have them, as well as the service staff, have a vested interest in how well the entire agency does. Set monthly or quarterly bonuses, parties, or other incentives that will be provided if the agency goals are met for the period. When administered fairly, these programs generate ongoing enthusiasm and team spirit that make supporting the Sales Plan a positive experience for everyone.

While monitoring the results of the Plan, agency principals and managers will often find that they have to re-evaluate internal operations, company relationships, personnel, or other factors that are making it difficult to meet the predetermined objectives. Those factors that are within the control of the agency can be altered. Those due to outside forces that can’t be changed must be taken into account in the plan — ignoring them won’t make them go away.

CONCLUSION

Thus, the fourth step will throw you back to the first step and the exercise becomes cyclical. You’re never done with the plan because it’s the focal point of the ongoing sales management process. The discipline imposed by the Plan itself makes it far easier for a novice Sales Manager to do their job effectively. A clear set of written objectives and guidelines can make the difference between being an average agency with a 7.4% pretax profit margin — and being one of those that have a profit margin of more than 20%.

Carol Hammes, CPCU, of the Middleton Group was one of the most knowledegable and effective agency management consultants in the business. She will be sorely missed.