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Winning Strategies Maximizing your best investment Insider tips you’ll want to keep from your competitors By Roger Sitkins What if you had a stock that would grow by 15% to 25% per year and easily return to you a dividend of 30% or more each and every year? Considering Wall Street’s ongoing lackluster performance, I’m guessing that you’d do everything in your power to ensure that it maintained that high rate of return. While I’m not here to offer any insider trading tips, I can tell you where you’re most apt to obtain the highest yields on any investment. Just look around you. As an owner, your agency is your best investment. And if you’re not getting a “dividend” of at least 25% to 30% a year or more, you need to examine why that is. Unfortunately, most agency owners are too busy in their day-to-day activities to maximize their ROA—Return On Agency. Most people are familiar with ROI (Return On Investment) and ROT (Return On Time), which we’ve discussed in the past. But few people ever examine their ROA. What’s the return on the ownership of your agency? In other words, what’s your reward ratio as an owner? I believe the financial model for an independent insurance agency should demand a 25% operating profit. Do you know of any other stock that offers shareholders 25% to 40% of the company’s revenues? (If you do, please call me immediately!) Furthermore, did you know that every $1 of increased revenue creates at least $1.50 of increased value? Therefore, $100,000 in increased revenues not only should yield at least a $25,000 return to you as an owner, but it should increase the value of your agency by a minimum of $150,000 as well. Studies have shown that only 2% of all people and businesses are able to implement and maintain long-term meaningful change, particularly the maintenance part. That means that 98% cannot. Eventually, they will revert to their old way of doing things. If you’ve ever been on a diet or tried to shed a bad habit, you know what I’m talking about. Nonetheless, where would you rather be—among the 98% that fail or in the top 2% reaping the maximum return on investment? The problem is that most agencies are absolutely service-oriented and also sell insurance (or should I say, “allow people to buy insurance from them,” because they really don’t market their product). That’s not the way to realize the maximum return on their investment. The real key to any company’s growth lies in how it uses its assets and resources. Therefore, let’s examine what it takes to maximize your ROA. Maximizing ROA resources Set Offense. As I’ve said many times before, it’s mandatory to have a consistent, standard way of selling insurance if you hope to maximize your ROA. Having a set offense ensures the success of an agency’s producers by keeping them from getting stuck in the old way of selling (the “Look, Copy, Quote and Pray” method). Without it, there’s no way to grow an agency’s top-line revenues fast enough to enhance its profitability. Sales Management. There is simply no getting around the need for full-time, effective sales management directed by an Offensive Coordinator. I have discussed this at length in the past. For more information, please see this column in the May 2005 edition of Rough Notes; the article is titled “The Case for Full-Time Sales Management.” Productive Producers. Clearly define the producer’s role. This means no more faking it and no more hiding behind pointless activities. If they’re not generating leads, earning referrals and getting results, your producers are not helping to maximize your ROA. Focus. It’s imperative to have High-Performance Teams working together rather than playing different games and doing different things. Every person in the agency—from the receptionist to the president—must be focused on obtaining and retaining clients. Great Carrier Relationships. One of the most important resources you have as an organization is your relationship with your insurance carriers. In fact, it’s more important than ever these days. Currently, the market is getting tighter due to hurricane problems, capacity problems, reinsurance rate increases, etc. Are you an “A” player for your carriers? What’s their attitude toward you? Do they view yours as the best agency in their territory? Outstanding Staff. Do you have a great staff that’s constantly improving? I often hear owners brag about how everyone on their staff is the “best in the world.” Frankly, I doubt that. For one thing, how is it that a single agency could possibly hire an entire sales, marketing and support staff that is better than any other in the entire world? Is it the agency’s goal to be the best in the world? Perhaps being the best agency in their marketing territory is a more realistic goal. After all, that territory is their world. Therefore, having the best people in their world is a more reasonable claim. Common Vision and Values. Every agency should have not only a vision of where it will be 10 years from today, but a central focus on how it will get there. There should also be a consensus within the agency about what it stands for. Does the organization have a clearly defined set of core values? For example, does the firm value honesty and integrity above all else? In order to maximize your ROA, it’s critical that everyone is playing from the same sheet of music. Advanced Automation. The best agency in town can’t stay competitive for long without excellent automated support. Do you provide advanced automation to your staff? More important, have they been trained to use it and are they doing so? While automation is a significant investment, it’s also among the most vital of all ROA resources. Pipelines. Pipelines remain the number-one problem of most agencies. They’re either not getting enough “at-bats,” or they’re getting them with the wrong people. Be sure that your producers’ at-bats relate to their ideal client profile. The consequences of not changing If you choose to be complacent about the way you do business, you probably won’t want to make any of the changes I’ve suggested or worry about maximizing your agency’s value. Let’s further assume that you’re satisfied with a reward ratio of about 10% to15% per year. (In your world, that’s a lot of money!) Fine. So what are the natural consequences of not doing anything that I suggest? As the old saying goes, “If you always do what you always did, you’ll always get what you always got.” And that’s crazy! I think Tony Robbins said it best in describing insanity as “doing the same thing repeatedly and expecting a different result.” It’s not going to happen. Agencies that drain their existing resources and have no plans to invest in more will go nowhere. At best, an agency that does nothing to enhance its returns will go into flat growth. Even if the returns are respectable, that agency cannot go to the next level. And the problem with low or no growth is that revenues tend to come in the front door and go out the back. Your operating costs will continue to rise, but without a substantial increase in income, you’ll merely break even. Barring improvement, you’ll fall into the “2-2 Syndrome” of too many accounts making too little money each. Your producers will plateau. Once that happens and they start to coast, guess what’s next? According to the law of gravity, you can coast in only one direction: downhill. And that’s exactly where plateaued producers start heading. Based on what I’ve seen, I believe that when an agency starts to plateau, the staff follows suit. Uninspired and unmotivated to do better, they’re just going through the motions of their daily routines. This reminds me of that old Dunkin’ Donuts ad on TV. It starred that funny little guy with the mustache and a glazed expression (so to speak). Looking chronically fatigued, he’d shuffle in to work in the wee hours, day after day, and say without even a trace of enthusiasm, “Time to make the donuts,” as he worked to produce them. In real life, that’s what can happen when an agency plateaus. The staff is devoid of all energy and becomes zombie-like. They show up and put in their time, nothing more. There’s not a lot of fun going on. The office automation is so outdated and lethargic by current high-speed standards that it’s essentially useless—sort of like the staff. They’ve given up because there’s nothing to look forward to. Consequently, they just crank out the donuts, day after day. The bottom line is that “making the donuts” doesn’t enhance value; it merely maintains the status quo. However, if the value of your agency doesn’t grow, the organization ages and eventually you end up selling to someone else. The sad part about that is twofold: There’s no legacy and you never maximized your value. The moral of the story? Don’t wait until it’s too late! If, on the other hand, you decide not to wait and make a conscious decision to improve your ROA, what five actions will you take as a result of reading this? How are you going to drive cash flow? What are you and your partner(s) going to do to maximize your company’s value? If you truly understand that this is the best stock you’ll ever own, then you’d better start managing your portfolio today. Doing so will cultivate the growth and income needed to yield an outstanding ROA. As always, it’s your choice. (If you’d like to rate your agency’s growth potential, we’d like to send you The Sitkins 100 Vertical Growth Scorecard. Using its 10-point scale, you’ll be able to evaluate which areas of your agency promote vertical growth. To get your complimentary scorecard or for more information on how to improve your agency, please e-mail us at chrissy@sitkins.com.) * The author |
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