keys to successful agency management webinar mensch, cbi, m&ami . merger & acquisition...

Michael Mensch, CBI, M&AMI

Merger & Acquisition Master Intermediary 1

Keys to Successful Agency Management

Agenda

1. Introduction

2. Your Money

3. Your Marketing

4. Your People

5. Your Processes

6. Final Thoughts

Copyright Agency Brokerage Consultants 2014

2

Your moderator Michael Mensch

Introduction

• Successful agency management requires:

1. Managing your finances to maximize your profitability and growth.

2. Successfully marketing to grow your business.

3. Building a productive team that is aligned with your goals.

4. Developing effective and efficient processes for managing your business and your brand.

3 Copyright Agency Brokerage Consultants 2014

Your Finances

• Considerations

1. Financial model

2. Accounting

3. Budgeting

4. Investing


Your Finances

• Financial Model

– What is a financial model? • The allocation of money to cover specific

expenditures.

• E.g. Marketing = 3-5% of revenue

– What is a financial benchmark? • A comparison of your operating performance

against industry averages.

• E.g. $X of revenue per CSR

– Why should you know these things? • Maximize profitability and value.

• Maximize productivity.

• Budgeting for the future.


Your Finances

This summary is based upon my own analysis of agency financials and reported

statistics from The National Alliance Research Academy.

Sales Driven Marketing Driven Blended

SALES EXPENSES

Commissions 20-25% 0% 10-15%

Meals, travel and entertainment 1-2% 0% 1%

Marketing, advertising and promotion 1-2% 3-6% 2-3%

OPERATING EXPENSES

Salaries & wages 20-25% 20-30% 25%

Benefits (PR taxes, insurance, 401k) 5-7% 6-8% 5-8%

Occupancy (rent, utilities, R&M) 5-8% 5-8% 5-8%

Phones & technology 2-3% 2-3% 2-3%

Printing, postage & supplies 1-2% 2-3% 2%

Business insurance 1.0-2.5% 1.0-2.5% 1.0-2.5%

Other 3-5% 3-5% 3-5%

TOTAL EXPENSES (rounded) 60-80% 45-65% 55-70%

NET PROFITABILITY 20-40% 35-55% 30-45%

*Exclusive of owner's salary and benefits, depreciation/amortization and interest on debt. Most

applicable for agencies with revenues > $300k.

Agency Expenses as a Percentage of Revenue


Your Finances

• Financial Model

– An agency operating: • On the low end of profitability – might have

structural problems (often in compensation) or growing rapidly.

• On the high end of profitability – the business might be run very efficiently or could be a sign that not reinvesting in growth enough.

– CSR Benchmarks

• More on compensation later


PL CSR CL CSR

Commissions per $120k - $160k $200k - $350k

Accounts per 750 - 1000 250 - 400

Compensation per $35k - $45k $45 - 60k

Your Finances

• Accounting

– Most bookkeepers and accountants: • Have a difficult time with agency financials.

• Create financials from bank statements.

• Don’t reconcile with the management system or carrier statements.

– Recommendations • Track monthly revenues per carrier statements.

• Track agency bill deposits and commissions.

• Compare against company financials.

– When to hire a CFO? • $2.0M of gross – Probably too early

• $7.0M of gross – Definitely needed 8 Copyright Agency Brokerage

Consultants 2014

Your Finances

• Budgeting

– Create a base line budget for each year based on prior year income and expenses

January February March April May June

Revenue

Commissions 36,000$ 39,000$ 45,000$ 42,000$ 38,000$ 44,000$

Other 720$ 780$ 8,000$ 840$ 760$ 880$

Total Revenue 36,720$ 39,780$ 53,000$ 42,840$ 38,760$ 44,880$

Fixed Expenses

Wages 17,308$ 47.1% 17,308$ 43.5% 25,962$ 49.0% 17,308$ 40.4% 17,308$ 44.7% 17,308$ 38.6%

Rent 1,800$ 4.9% 1,800$ 4.5% 1,800$ 3.4% 1,800$ 4.2% 1,800$ 4.6% 1,800$ 4.0%

Utilities 420$ 1.1% 420$ 1.1% 420$ 0.8% 420$ 1.0% 420$ 1.1% 420$ 0.9%

Phones 650$ 1.8% 650$ 1.6% 650$ 1.2% 650$ 1.5% 650$ 1.7% 650$ 1.4%

Supplies 450$ 1.2% 450$ 1.1% 450$ 0.8% 450$ 1.1% 450$ 1.2% 450$ 1.0%

Software 900$ 2.5% 900$ 2.3% 900$ 1.7% 900$ 2.1% 900$ 2.3% 900$ 2.0%

Insurance 2,500$ 6.8% 4,500$ 11.3% 2,500$ 4.7% 2,500$ 5.8% 2,500$ 6.4% 2,500$ 5.6%

Advertising -$ 0.0% 1,250$ 3.1% -$ 0.0% -$ 0.0% 2,300$ 5.9% -$ 0.0%

Marketing 500$ 1.4% 500$ 1.3% 8,000$ 15.1% 500$ 1.2% 500$ 1.3% 500$ 1.1%

R&M 450$ 1.2% 450$ 1.1% 450$ 0.8% 450$ 1.1% 450$ 1.2% 450$ 1.0%

Other 725$ 2.0% 725$ 1.8% 725$ 1.4% 725$ 1.7% 725$ 1.9% 725$ 1.6%

Total Expenses 25,703$ 70.0% 28,953$ 72.8% 41,857$ 79.0% 25,703$ 60.0% 28,003$ 72.2% 25,703$ 57.3%

Net Income 11,017$ 30.0% 10,827$ 27.2% 11,143$ 21.0% 17,137$ 40.0% 10,757$ 27.8% 19,177$ 42.7%

*Include owner's salary and benefits9 Copyright Agency Brokerage

Consultants 2014

Your Finances

• Budgeting

1. Keep > 3 months of working capital • Helps you survive unforeseen events,

seasonality or market cycles.

• Allows you to invest in growth or acquisitions.

2. Don’t spend what is not yours • Always remain in-trust with carriers

• This includes accounts where you are paid in-full on semi-annual or annual commissions

Failure to follow these two rules could lead your business into a fast decline.

10 Copyright Agency Brokerage

Consultants 2014

Your Finances

• Investing

– The biggest reason most agencies stop growing is that the owner(s) stop reinvesting in the business. • Reach a comfortable lifestyle.

• Take on too much personal debt.

• Business goes through a down-turn and is undercapitalized.

– Investing in your marketing and people will (nearly) always yield the highest ROI to you as a business owner. • Better than stocks

• Better than real estate 11 Copyright Agency Brokerage

Consultants 2014

Your Marketing

• Marketing for new business

– Game plan

• Assess the market

• Identify target

• Develop your value proposition

• Promote your business

– Some numbers:

• Average agency spends 3-5% of revenue on marketing.1

• Roughly 65% of agencies report having no formal marketing plan.2

• Over 55% of agencies do not track where their leads are coming from or their ROI.2 12 Copyright Agency Brokerage

Consultants 2014

Your Marketing

• Push Marketing

– Interruption-based marketing

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Push Push Push MarketingMarketingMarketingMarketingMarketingMarketingMarketing

Direct Direct Direct Mail

Direct Direct MailMail

Direct MailMail

TV/ TV/ TV/ Radio

TV/ TV/ RadioRadio

TV/ RadioRadio

Print Print Print Ads

Print Print AdsAds

Print AdsAds

Cold Cold Cold Calling

Cold Cold CallingCallingCalling

Cold CallingCallingCalling

TelemarkTelemarkTelemark-TelemarkTelemarketing

-TelemarkTelemarkTelemark-Telemarketingetingeting

--TelemarkTelemarkTelemark-etingetingetingetingetingeting

Trade Trade Trade ShowsTrade Trade ShowsShowsTrade ShowsShows

Buying Buying Buying Leads

Buying Buying LeadsLeads

Buying LeadsLeads

Pay Per Pay Per Pay Per Click

Pay Per Pay Per ClickClick

Pay Per ClickClick

Email Email Email Email Email BlastsEmail Email Email Email Email BlastsBlastsBlastsBlastsEmail Email BlastsBlastsBlasts


Your Marketing

• Pull Marketing

– Reputation-based marketing

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Pull Pull Pull MarketingMarketingMarketingMarketingMarketingMarketingMarketing

ReferralReferralReferral

Website Website Website SEO

Website Website SEOSEO

Website Website SEOSEO

VideosVideosVideos

NetworkingNetworkingNetworking

PublicationPublicationPublication SpeakingSpeakingSpeaking

BlogBlogBlog

Social Social Social MediaSocial Social MediaMediaSocial MediaMedia

AffiliateAffiliateAffiliate


Your Marketing

• Push vs. Pull: Which is better?

– Push-based marketing can be accomplished in significantly higher volume.

– Pull-based marketing yields significantly higher closing rates.

• Which marketing methods work best?

– Pick a method and I’ll tell you about an agency that found success with it.

– Most agencies utilize 3 or more methods.

– Find out what works for your target market.


Consultants 2014

Your Marketing

• Target = who you are marketing to

– Examples include people of a certain:

• Stage of life or income level

• Profession or employment status

• Neighborhoods or organizations

• Niche = what you are selling to a target

– Examples include:

• Medicare supplements, financial services, personal lines of P&C

• Specialized BOP or other packages, professional liability, employee benefits


Your Marketing - Targeting

• There are 319 million people, 115 million households (HH) and 27 million businesses (B) in the US:

– 67% are 15 to 64 years old and 13% are over the age of 65.

– 28% of HH have children under 18.

– 60% of HH earn under $55k/yr, 35% earn $55k to $165k/yr and 5% over $165k/yr.

– 455 NAIC industry codes (e.g. coal mining).

Lots of opportunities in the US!


Your Marketing - Niching

• “There are riches in the niches” - anon

• Only 14% of agencies have a website targeting an industry or product segment.1

• The number of specialized agencies rose by 10% from 2010 to 2013.3

• Benefits: 1. Faster organic growth 2. Higher retention and profitability 3. Better competitive edge 4. Higher key word ranking online



• Strategy for specializing: 1. Assess market opportunities

2. Test the waters

3. Assign a practice leader

4. Build your marketing plan

• Set up DBA and website

• Create marketing materials

• Align with referral partners

5. Promote your specialization

6. Become an “expert”

You’ll only find success if the specialization is an area of passion!



• Insurance is possibly the most diverse industry in the country!

• Examples of niche segments: – Homeowners and car insurance – Boats and yachts – Ethnic groups – Medicare supplements – “Obamacare” – Condo associations – Truckers and haulers – Restaurants and bars – Doctors and lawyers professional liability – Local governments – Auto dealers You name it 20 Copyright Agency Brokerage

Consultants 2014

Your Marketing - Online

• Stats on agency website functionality1:

– 12% of agencies still have no website

– 54% of agency websites are not mobile-ready

– Over 65% of agencies do not have customer testimonials on their website

– 38% of PL agencies and 49% of CL agencies are not using Social Media

– 67% of agencies do not have a blog

– Over 50% of agencies do not have in-depth content on their website

– 39% of agencies are not using local search tools


Consultants 2014


• A word about Google…

– In 2011, “insurance” was the top key word money-generator for Google (24% of high value searches, $32B of total ad revenue).4

– A 2014 report by Accenture found that 23% of insurance customers were open to buying insurance through online aggregators like Google and Amazon. 5

– In 2015, Google entered the online auto insurance marketplace through Google Compare.

– In 2015, it was leaked that the FTC found Google guilty of fixing its search engine in favor of its own company rankings. No lawsuit pending despite key FTC members voting in favor of it. 6



• How to combat Google, etc:

– Niche marketing – learn SEO

– Bundle coverage – one-stop shop

– “Trusted advisor”

– Use local search tools

– Increase marketing and quality of service!

Don’t be afraid of aggregators. Insurance is still a relationship business!


Your Marketing

• Gurus that I follow (in alpha order):

– Scott Addis, Beyond Insurance; Sales training

– Steve Anderson, The Anderson Report; Technology

– Dave Chaffey, Smart Insights; Internet marketing

– Ryan Hanley, Content Warfare; Content marketing for agents

– Brent Kelly, BrentMKelly.com; Sales tips for agents

– Dave Kerpen, Likeable Local; Branding

– Chris Paradiso, Paradiso Presents; Digital and social media marketing for agencies

Study what others are doing and have done successfully! 24 Copyright Agency Brokerage

Consultants 2014

Your People

• Building your team

– Your agency is only as good as your people.

– Hire people that:

• Have the right attitude.

• Are of good moral character.

• Like to learn and will listen.

• Need to work.

– Invest time developing people • Discuss goals, expectations and responsibilities

• Set up training and mentoring processes

• Multiply your influence – seek the top 20%

Respect Admiration Loyalty


Consultants 2014

Your People

• Building your team

– Cultivate a friendly, competitive environment - you’re a sales organization! • Use production-based compensation.

• Have meetings and share successes.

• Have social gatherings and give awards.

– Incentivize growth • Set goals on individuals & teams.

• Add incentives for higher production and service/retention.

– Divide labor: sales vs service

– Create accountability


Consultants 2014

Your People

• Assessing your team

– Not all people are built the same.

– Identifying personality types can help:

• Identify best candidates for specific positions.

• Match the right people within teams.

• Increase productivity and growth.

• Reduce turn-over.

– Lots of different assessment tools:

• Myer’s Briggs

• IdealTraits.com

• OptimizeHire.com


Your People



Your People


– Key questions:

• What motivates them?

• What do they like doing?

• What don’t they like doing?

– The best producers are typically drivers and promoters.

– The best CSRs are typically analytics and supporters.

– Need both to be successful, but in the right position to be productive!


Your People

• Keeping your team

– What motivates people?

• Money and benefits

• Flexible hours and vacation time

• An enjoyable work environment

• Opportunities for personal/professional growth

• Gifts or company outings

• Purpose or a sense of accomplishment

• Appreciation and recognition

Everyone is different and its not just about the $$.


Your People

• Keeping your team

– CSRs • Compensation

– Salary or hourly base wages

– Incentive bonuses

– Other: Time off and insurance

• Total compensation < 30% of revenue

– Producers • Compensation

– Can vary by the market and their responsibilities

– May include a draw for newer producers

– Other: benefits, deferred comp, vesting, equity

• Industry aver. = 40%/30% for new/renewal

Have non-solicitation agreements! 32 Copyright Agency Brokerage Consultants 2014

Your Processes

• The great consumer brands are successful because they deliver consistently in all areas of their business.

• What processes do you have in place for:

– Managing finances and records?

– Hiring?

– Marketing?

– Selling?

– Servicing?

– Communicating with your clients?

– Coaching your team?


Consultants 2014

Your Processes

• Are your processes effective?

1. Does your accounting, management and quoting software do what your want efficiently?

2. Do you have a high turn-over of staff or difficulty finding good people?

3. Is your marketing generating enough lead volume and producing a good ROI?

4. Are your staff closing leads and cross-selling, and how long does it take them to process a lead?

5. Is your customer retention where you want and why are people leaving?

6. What are your policies for protecting customer data?

Can you answer these questions easily? 34 Copyright Agency Brokerage

Consultants 2014

Your Processes

• Successful agency management requires:

1. Documenting processes and training staff.

2. Delegating responsibilities and holding people accountable.

3. Multiplying your influence through key staff.

4. Time-blocking your schedule to handle important tasks throughout the week.

5. Keeping a pulse on the business.

• “Working on your business, not just in it.”


Your Processes

• Things to track and measure:

– Individual expense categories as a percentage of revenue.

– Revenue per producer, CSR and account.

– Leads, quotes and sales per marketing method and per individual sales staff.

– The cost of each sale, and premium and revenue produced.

– Retention by line and multi-lining of book.

If it doesn’t get tracked, it doesn’t get measured and if you’re not measuring then you’re not managing.


Some final thoughts

• Traits of successful agency owners:

1. High risk tolerance

2. Financial discipline

3. People-oriented

4. Delegate well

5. Students of their business

6. Have a pulse of their business

7. Action-based and adapt to change

• Many high-growth agencies have multiple principals with compatible skill sets.


Questions or Comments

• Thank you for your time and I hope that you found this information useful.

• Please direct any questions or comments to:

Michael Mensch, CBI, M&AMI

Agency Brokerage Consultants

Email: [email protected]

Office: (321) 255-1309

Website: www.agencybrokerage.com

Blog: www.agencybrokerage.net

LinkedIn: www.LinkedIn.com/In/MichaelMensch


Consultants 2014

References

1. “Insurance Agency Website Trends”, Agency Marketing Partners, December 2013.

2. “Social Media and Online Marketing – What’s the Real Deal?”, Jason Hoeppner, BH Burke & Company, Inc, 2013.

3. “2013 Best Practices Study: Agency Specialization on the Rise”, Shirley Lukens, Reagan Consulting, October 31, 2013.

4. http://www.insurancejournal.com/news/national/2011/07/19/207077.htm;

5. http://www.reuters.com/article/2015/03/19/us-google-ftc-idUSKBN0MF2M220150319;

6. http://www.insurancejournal.com/news/national/2014/02/07/319835.htm


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