Business Planning Made Easy

By | April 18, 2022

If agency owners haven’t created the annual business plan, it is not too late. It is best to take a good look at the past and reflect on how the agency has been operating over the past year. Operations may need to be restructured to the way it should be run in the coming year, especially with a harder market in most lines of business.

What better way to get the year headed in the right direction than with a short and concise business plan? To make sure that this plan gets done, here’s a formula for a one-page business plan that can be done in no time at all. This formula follows below.

Where to Start

Planning ahead requires an understanding of where the agency is now, how it got there, what works and what does not work. Once the current status is defined, then a roadmap to the future can be drawn. The rule of this game is to keep it simple.

The objective is to review the agency’s performance and set future goals in five areas of primary focus: Book of Business, Sales, Financial Performance, Employee Productivity, and Market Relationships.

The owners and key managers should get together and do this plan as a team.

Start with a large poster board in the conference room or offsite facility. Then draw a vertical line down the middle and two horizontal lines to split the page into thirds. The paper will now have six equal size boxes. Prioritize the list of five areas of primary focus (Book of Business, Sales, etc.). Write the top two topics on the top of the top two boxes, the next two topics on the top of the middle boxes and the fifth topic on the top of the lower left box. Leave the lower right box blank at this point. Now start planning!

Book of Business Composition

It is valuable to examine the composition of an agency’s book of business once a year. This is a great starting point because it defines the agency’s “personality.” The “personality” of an agency in turn will define what to expect in the other primary areas in the review process. For example, a large urban agency that sells mainly large commercial accounts will have different expectations than a small town agency that sells all lines of insurance.

Start by finding out what the split of business is along each line: personal, commercial, life, group benefits, individual health and program business. Then calculate the average size of account for each line. Also, how much of the agency business comes from the top 10 accounts. Finally, analyze the distribution of business and identify the firm’s top five industries.

In the Book of Business box vertically list the breakdown of the current book of business by line of business, top 10 accounts and key industries. Write the current percentage of the overall book for that line of business but leave room for goal setting.

Is the mix of business healthy for the agency? This is a judgement call for the owners. Niche selling is usually more profitable, however, it is also riskier. If the agency has a lot of small accounts, the procedures in place for selling and servicing them are critical in order to make a profit.

It is important to distance oneself from the book of business and objectively ask the question “is this book valuable enough the way it is or should its composition be changed?” If it needs to be changed, what should the agency target? This depends on the expertise of the producers and service staff, as well as the appetite of the firm’s current markets. Write down those future targets next to the current composition.

Have all lines of coverage been sold? Cross-selling helps with retention and profitability. This thought process is what separates the entrepreneur from the average person. Also, below that list write one or two actions that need to be accomplished to reach those goals.

Sales Review

It is important to review the new sales for the agency overall and for each producer. An experienced producer in a typical agency should generate at least $25,000 to $75,000 in new commission dollars each year, depending on their size of book. For large firms with large accounts, the amount could be much higher, likely in the $75,000 to $150,000 commission range.

The hit ratio of each producer needs to be determined. Hit ratios of less than 25% to 33% cost the agency a lot of time and money. The technique of producers with low hit ratios needs to be checked and adjusted. Often, the producer fails to pre-qualify the prospect. Sometimes producers just are not approaching businesses that match up with the products the agency has expertise in writing, nor markets that are competitive for those classes of business. Use the successful producers as a model.

The agency may have tremendous sales; however, if there is loss of business through attrition, much of the effort for new sales is wasted. Calculate the attrition rate for the agency and each producer. The goal should be around 10% or less attrition for the typical property/casualty insurance agency. Higher attrition is usually an indication that the business the agency writes is transient and either the clients are price shopping or are not good risks. On medium to large risks, renewals need to be worked on at least 90 days in advance and contact with the insureds must be done in a timely manner to get the renewal right.

In the Sales box, vertically list the current overall hit ratio, average new business produced and the average book of business in the agency. Write next to those numbers the target for next year. Below that list write two or three actions that need to be accomplished to reach those sales goals.

Financial Analysis

The beginning of the year is also a great time to check the agency’s financial performance. It is relatively easy to do, and it will need to be done for budgeting and tax purposes anyway. For the financial review, income statements and balance sheets are needed. Don’t forget to also obtain the summary accounts receivable and account payable reports.

First look at the changes in revenue and expenses compared to prior years. Have they gone up or down? What is the percentage of the change in each category? If there are major changes, what was the reason? Sometimes the change is because of a non-recurring event or a discretionary item. The real problem is if the situation has gotten progressively worse over the years. Subtle changes each year can add up to a big change.

Is the agency spending more or less for each expense than its peers? Make sure that the peer group used is a fair comparison. Use a benchmark that is for agencies of similar size, book composition (personal lines, commercial lines, life and health), size of account and, if possible, in the same geographic region. If the agency is significantly different from its peers, why is it so and should there be any adjustments made to the operation? The IIAA Best Practices report and the Society of CIC performance standards are two great sources for these comparisons.

What is the bottom line? Is the agency profitable? A good rule of thumb is the total return for the owners and producers (compensation, perks and profit) in an agency should be at least 50% of the revenue. Since most of the time the agency does not want to show too much profit, for tax purposes, a pro forma analysis should be done to remove those write-offs that are a use of profit versus ongoing, necessary expenses needed by the agency.

Next take a look at the following balance sheet ratios:

  • Trust Ratio (cash plus receivables divided by company payables), should be greater than 1;
  • Collection Ratio (receivables divided by premium payables); and
  • Current Ratio (current assets divided by current liabilities).

Review the aged receivables report. How good are the agency’s collection practices? Many firms are moving more to direct bill, to avoid collection hassles, but then should not be following up on late pays. This can cause an agency E&O problem if not followed consistently. The beauty of direct bill is that collections are the carrier’s role for direct bill.

In the Financial Review box, write down the total revenues and expenses for the agency. Also write down the total compensation to the owners (salary, commission bonuses, perks, etc.). Next to those numbers write down projections for the next two years. Below that list, write down two or three problem areas for the agency that are noticeable with the analysis, such as poor collections or higher than average rent expense. These will be the issues that need to be resolved.

Productivity Analysis

The next area to look at is employee productivity. The following information is needed: 1) an employee list, including the percentage of time each employee (and owners) spends on production, service, administration and management; 2) compensation for each employee; and 3) commissions and number of accounts that each CSR handles.

It is important to begin the review with the big picture. Calculate revenue per employee, per CSR, and per owner/producer. Keep in mind to not use the job titles, but the percentage of time employees spend in each category. If a producer spends a third of their time doing traditional CSR service work, then they count as 33% of a CSR and 66% of that person as a producer.

Next, narrow the scope down to commissions per CSR and accounts per CSR. This should be broken down by line of business if the CSR handles more than one line.

Compare the CSRs to each other and the agency’s performance to its peers. There may need to be some subjective adjustments. For example, a CSR may have had to move a book of business from one carrier to another. Also, some types of business may be more complicated and service intensive than other types and this could affect performance if a CSR’s book is heavily niched in areas such as contractors, which can be very service intensive.

In the box marked Employee Productivity, vertically list the current revenue per employee, average commission and number of accounts handled by the CSRs by line of business (commercial lines, personal lines, etc.). In addition, write down the projected goals for next year.

Below that, list two or three action items that need to be accomplished to reach those goals. This could include new computer software or more training for the CSRs, for example.

Market Relations

If the current hard market does or does not continue, the carriers may make some changes, such as changing the profit sharing agreements, tightening up or loosening some underwriting or pulling out of certain markets.

Today’s agent or broker needs to have a clear understanding of what the carriers can do for them and how this fits into the overall agency plan.

Run a list of all carriers with volumes, commission rates (or commissions), loss ratios and contingents received. Analyze how the agency’s book of business stacks up with the existing markets.

Compare all the carriers and their products against what the agency has with the top five or 10 industry groups the agency writes.

Some of the questions that should be asked include: Will volume commitments be met and how will it be done? Are there new markets the firm should seek out? Is the volume spread too thick or too thin? Is the agency maximizing profit sharing agreements?

In the box marked Carrier Relations, list the five most important markets (not necessarily the largest) and the agency’s volume with them. Write realistic agency productions goals for the next year beside those numbers. It is best if one starts the planning before the carriers dictate to the agency what they expect. Next, list one or two markets that the agency does not have but thinks the agency could use. Write down on one side of those names the dates those markets will be approached. Finally, list two or three markets that the agency has outgrown and should get rid of. This is an important step.

The Final Ingredient

The last box can be used to write out the goals for any other key area for the agency. This could include automation, personnel changes, workflow issues, compensation or management issues.

Why This Needs to be Done

Competition is keen. The continued market cycle continues to cause havoc and agency value is at stake. This annual planning process and self-assessment is the key to success. If management does not know where they are, how can they possibly plan for tomorrow and know how to get there? Agencies without a plan are totally reactive to their environment and have little control over their future.

This simple planning technique can be done in less than a day. Through delegation, if time permits, each box in this plan can be expanded into several pages of a complete business plan. The beauty of the one-page plan is that it can be kept in management’s day planner and scanned for easy reference. Business plans need to be reviewed at least once a quarter.

These goals should be shared with the middle managers, producers and of course, the rest of the service and administrative staff. How can employees help the firm reach its goals, if they don’t know what they are? This is a common complaint from agency staff, they want the communication of goals, plans by management, and they also want to be rewarded, if they assist the firm in getting there.

An off-site planning meeting should be held at least once a year. Having an independent third-party facilitator can also assist in achieving this plan more quickly, letting others be involved in the brainstorming of the plan and having others involved to help the firm reach its goals.

The man without a plan is simply lost, like a rudderless ship. Make a choice. Take the time to plan ahead and be successful.

Oak & Associates also has a template available on their website at for the Annual Business Plan and a Sales & Marketing plan template.

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