Very early in my career as an insurance producer with a commercial insurance agency, I had the opportunity to hear a speech by the famous sales coach Roger Sitkins. Though I don’t remember everything Roger talked about in his presentation, I do remember him describing something called “The Pareto Principle” and the power it held for rapid and sustained success in the insurance agency business.
In my opinion, four principles are key to continued stability, growth and success for independent insurance agency owners. They include the Pareto Principle, and three corollary principles of my own that call for saying “no” more than “yes,” understanding the value of your time, and holding a sense of optimism.
The Pareto Principle
In the early 20th century, Italian economist Vilfredo Pareto discovered that 80% of the land in Italy was owned by 20% of the population. He later learned that a similar distribution was true throughout much of the world. From this observation, came an understanding that is true in business, as well as in agriculture: 80% of one’s results come from 20% of one’s clients or customers.
Sitkins advised agents should determine their own 80/20 distribution and then find a way to assign that 80% of customers to service people or newer producers in their agencies in order to continue building their books of business and their agencies.
I decided to take up the challenge and discovered the 80/20 rule was present in my book of business. I began a process of divesting myself of the 80% of my clients with the lowest commissions every year and found that, not only did my book of business grow, as did the agency, but also the average commission for every account grew, as well. Those three areas of growth led to consistent double-digit growth in the agency over decades.
Consider putting the Pareto Principle in place in your agency.
First, run a commission list sorted from largest commission per account to smallest. Go down that list until you’ve hit 80% of the income. Find someone, a younger producer, a service person or another agency to take the bottom 80%. This will free up tremendous amounts of time allowing you to continue to grow your book of business or your agency at the rate that you’re accustomed to.
This prevents what many agencies experience as they grow larger, which is a falloff in their organic growth rate. Adopting this principle does require courage as you must accept some short-term pain in order to invest in a better future.
You may want to start small with one book of business in your agency to test the theory. That said, I have never seen the Pareto Principle fail when it comes to growing the business of an insurance agency.
Caldwell’s Corollary: Say ‘No’ More Than ‘Yes’
Related to the Pareto Principle is something I call Caldwell’s Corollary. The corollary posits that success has more to do with what you say “no” to than what you say “yes” to.
Creating limits would seem to logically reduce your potential for growth, but the opposite is actually true. Saying “no” requires you to focus, and focus is what creates expertise, as well as penetration in any market. This is one of the reasons that niche marketing works so well in the insurance agency business.
Over the years, I’ve hunted pheasant and quail with many other hunters. Hunters who seem to have trouble hitting their targets are those who rely on the shotgun’s essential feature of scattering shot over a large space to create success. What great hunters know is that you still must aim the shotgun carefully. The same is true in the insurance agency business. That said, this principle is difficult for many to act upon because they believe when they say “no” to a potential client, potential insurance carrier or even a potential employee, they are limiting their future.
This perspective comes out of a worldview of scarcity where that individual sees everything in limited supply, but the truth is opposite of that. There are more clients in your market than you can ever sell to or service, and more carriers than you can competently represent. There are more skilled insurance professionals than you can ever employ. In short, opportunity is endless. The key to maximizing it is to aim carefully, say “no” to most, double down and say “yes” to those things that you can do really well.
A Second Corollary: Use Your Time Wisely
Another Caldwell Corollary for continued success is to recognize that your time has no value until you run out of it.
I’ve seen many agency owners say “yes” repeatedly to tasks because they figure they can just work another hour or two to accomplish it. They will even write much smaller accounts than their agency’s average because they have some extra time.
That strategy fails when you ultimately run out of time. When that happens, you are forced to determine what your time is worth, and then, if you want to continue to progress, you must only do those things that pay you more than you are currently making, not less.
A practical example of this is a question I often ask: If you have an average revenue per account of $1,000 and you have the opportunity to write one for $500, would you write it? Virtually, every agent I speak to says “yes.”
I believe that is the wrong answer. If you take on those lower value accounts, your average revenue per account will fall, perhaps to $800. Practiced long enough, you may not run out of business, but you’ll certainly fail to grow your income at the rate that you would if you said “no” and instead, focused your time and effort on accounts that paid $1,500 per account, for example.
Agents often argue there aren’t enough $1,500 accounts. The truth is: those accounts are limitless. It’s merely a decision around how you choose to spend your time. If your time is worth $100 an hour, the only way it can become worth $200 an hour is to raise the size of your accounts.
The Optimism Principle
The final business principle I want to mention today that I believe is critical to long-term sustained success is what I call the Optimism Principle.
Many people allow external factors, like the economic situation, to determine how they think about their own businesses future. People who do so would tell you that they’re merely being realistic.
To the contrary, I’ve observed that even when the stock market is in a bear market, there are many who are still making money investing in stocks. These individuals believe there’s always money to be made whether the market is good, bad, indifferent or going up, down or sideways. These people are essentially optimistic because they believe they can make money, create growth, become bigger and better irrespective of what’s going on around them.
This is exactly the same with insurance agency principals. Optimistic agents find a way to grow every year consistently and profitably regardless of the challenges they face.
The Right Strategy for You
There is much to learn and much to do in building a successful insurance agency, but paying attention to these four things: the Pareto Principle; saying “no” more than “yes;” understanding the value of your time; and the optimism principle are critically important to sustained success.
As we begin a new year in an economy presenting great challenges, including obstacles to the independent agency industry, now is a good time to review your thinking and mindset and that of your agency.
Which of these four rules will create the greatest opportunity for you in the coming year if you adopt it rigorously?
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