Winning Strategies

By Roger Sitkins

GROWTH IS GREAT, BUT WHAT ABOUT OWNER’S REWARD?

Having and following a model can help drive the results you want as an owner

Being the owner of an independent insurance agency allows you the opportunity to positively affect your Clients, Colleagues, Carriers and Community. In this issue, I’ll examine how you impact each of them today and how you may affect them in the future.

We’ll start by discussing how the best agencies make a positive impact on the four C’s mentioned above.

Clients. The best agencies impact their clients by providing far more than the simple risk-transfer mechanism known as insurance. On the personal lines side, you help them protect their assets. On the commercial lines side, you help them control their total cost of risk. On the benefits side, you help them control their total cost of benefits. In each case, you are—or should be—providing risk advice and insurance solutions.

[Y]ou can’t manage any of the numbers we’ve been talking about. … What you manage are the behaviors and strategies that create the numbers.

Colleagues. The best agencies impact their colleagues (team members) by providing a superior workplace environment, constant professional and personal development opportunities, and attractive incentive-based compensation programs. These agencies recognize something we’ve often said before: It’s all about attracting and holding on to the best people. In doing so, the agency’s actions help retain the best team members and aid in recruiting additional outstanding employees.

Carriers. The best agencies impact their carriers by developing true partnerships. They realize the validity of the 80/20 rule as it relates to carriers, and that less equals more. The best agencies want fewer carriers and much deeper relationships. They clearly understand what their carriers want and whether or not that matches the needs of their clients and future ideal clients.

Community. The best agencies impact their communities by giving back to the people and places that support them. They selectively support the causes, initiatives and organizations that reflect their values and beliefs. The best agencies are generous donors, giving freely of their time, money and other valuable resources as part of their community commitment.

What’s your reward?

Now that we’ve discussed your agency’s positive impacts, let’s turn our attention to you as an owner. What’s important to you personally? What’s your Owner’s Reward?

I think that we can all agree that owning an independent insurance agency provides great freedoms and rewards. Further, for current and future owners, it’s a great investment. So, if you’re not an owner currently and you have an opportunity to become one, absolutely take it!

Because I believe that success leaves clues (as does failure), I like asking highly accomplished people how they became so successful and what they did to achieve so much. I’m fortunate that one of my very closest friends has always been forthcoming about how he built one of our country’s premier CPA firms. He told me that, from day one, his business model required the firm to have 40% of revenues available for partner distribution (i.e., Owner’s Reward). You’ll notice I said his model. Do you have a financial model in your agency today? (We’ll have more on that below.)

“Stop Losing Millions!” was a previous Winning Strategies article that generated more comments than any other I’ve written. It explained that in today’s M&A environment, every $100,000 of unrealized profit is a loss of about $1 million in agency value! This unrealized profit comes from low organic growth and low operating profits.

A good way to understand this is to look at your Owner’s Reward as one of the Key Performance Indicators (KPIs). We track this for our members by looking at their GrowFit®, a number derived from an agency’s percent of organic growth and percent of operating profits combined. For example, if your agency has an organic growth rate of 10% and an operating profit of 15%, your GrowFit is 25. The benchmark for our highest performing agency clients is 40. This could be 15% organic growth and 25% operating profit, or 10% organic growth and 30% operating profit.

The key is to have a financial model that is actually followed. I believe that you must have one that drives decisions within the agency. Ours is 30-40-30. In this model, the bottom line (operating profit) becomes the top line. Accordingly, we plan for a 30% operating profit, 40% service and administrative expense, and 30% sales expense.

There are also a couple of other KPIs to consider, which could become part of your overall model:

• Revenue Per Employee. Let’s say your model is to have Revenue per Employee of at least $200,000, and one of your managers or partners tells you they need to add another person in commercial lines. How will you respond? Will you simply throw people at the problem like most agencies do? Or will you respond by asking, “How will this person, directly or indirectly, enable us to generate an additional $200,000 of revenue?” If they can’t generate at least that much, hiring them will not solve your problem.
• Revenue Per Validated Producer. If this figure is less than $500,000, your agency is underperforming and you’re losing millions!

These are just two among the various KPIs that we’ve discussed in previous articles. The key is to recognize that you must have a model. Remember, every $100,000 of unrealized profit equates to a loss of $1 million in agency value! It’s equally important to understand that you can’t manage any of the numbers we’ve been talking about. It’s important to be aware of them, of course, but you can’t manage them. What you manage are the behaviors and strategies that create the numbers.

That reminds me of a line I read years ago and have never forgotten: You don’t determine your future; you determine your behaviors and they determine your future.

Last month, I discussed the difference between direction and destination, and why they must match up. Determining your desired destination is just a starting point. To reach it, you must continually check your direction to ensure that you’re staying on the right track. This allows you to adjust your strategies and behaviors when needed. Otherwise, it’s very easy to veer off course without knowing it and miss your desired destination completely.

So, take a look at your GrowFit today. That’s really going to tell you the current direction of your agency. Ultimately, that direction will determine your destination. If your current direction isn’t leading to the Best Version Possible of your agency, it’s probably time to chart a new course!

The author

Roger Sitkins is the CEO of Sitkins Group, Inc., and developer of The Sitkins Network and The Better Way Agency program. Roger began his career by working in his parents’ insurance agency in Wyandotte, Michigan, and after nearly 40 years has truly become an icon in the industry. He has trained and mentored thousands of insurance professionals. Producers, CEOs, and sales managers with diverse levels of experience have benefited tremendously from his training and leadership.

Roger was inducted into the Michigan Insurance Hall of Fame in 2017 and in that same year also received the Dr. Henry C. Martin Award from Rough Notes magazine. Roger is among only five others to have the honor of receiving this prestigious award.

Recognized as the nation’s top insurance agency results coach and renowned leader for improvement, he believes that if you improve the life of one person, you improve the world. To learn more, visit www.sitkins.com.