WE ALL have routines, or processes, that we use repeatedly to get from point A to point B. For instance, most of us have a process we follow to get to work each morning, involving personal grooming, dressing, eating and driving to work. Sometimes, you experience breakdowns in your process and look for ways to correct them. For instance, have you ever had trouble finding your car keys in the morning? An easy way to fix this breakdown is to put up a hook near the door and remember to hang your keys on it when you get home, so they will be there waiting for you in the morning.
The most productive sales professionals and organizations know that selling also is a process. The more we can view selling objectively as a process, the more successful we are likely to be at carrying it out effectively and at spotting and correcting any breakdowns. In this article, we'll examine the steps of the sales and sales management process. I hope what you read here will enable you to improve your own sales routine.
Setting goals
The sales process starts with picking an objective; i.e., setting goals. But just stating a figure is hardly adequate. Suppose I'm one of your producers, and you give me a goal: to produce $120,000 in new-business commissions each year. I say, "Great, I'll see you later--I'm going out to get it." You should reply, "Not so fast, Tom," because we need to discuss how I'm going to actually reach that goal.
The first thing I will need to know is the agency's hit ratio. The term has a number of definitions, but the most common is the number of sales made divided by the number of proposals presented (or marketed). That works fine when the sizes of the agency's accounts fall into a relatively narrow range. We run into problems, however, when account size varies greatly. Let's assume an agency has a 50% hit ratio in terms of sales closed to proposals made. For instance, a producer makes 10 proposals and closes five sales. Let's also assume the accounts vary greatly in size. If the producer nails the big accounts, the five sales could represent 75% of the available commission. If the producer succeeds only with the small fry, the five sales might represent only 25% of the potential revenue. Thus a 50% hit ratio, as defined by percentage of proposals closed, could actually be a 75%--or 25%--hit ratio, when defined as sales commissions achieved divided by sales commissions proposed. When writing accounts of widely varying size, we suggest that you use this hit ratio.
Next, it's important to know average account size. We'll need that statistic and the hit ratio to determine the number of sales activities I'll need to carry out to reach my goal. Again, my goal is $120,000 of annual new-business commissions, or $10,000 a month. How many accounts will I need? Let's assume the agency specializes in small business, and the average account generates $1,000 in commissions. So at $1,000 per account, I'll have to work on 20 accounts each month. Given a 50% hit ratio, that pace should lead to 10 sales and $10,000 in commission.
How many appointments am I going to need to offer 20 proposals each month? This appointments-to-proposals ratio is another important statistic to track in an agency. The ratio will be affected by how well the agency qualifies prospects, among other factors. Let's assume the agency has found that, on average, its producers make one proposal for every four appointments they're granted. Thus I will need to make 80 appointments per month, to prepare 20 proposals to close 10 sales and make $10,000 in commission. At this point, I tender my resignation.
Something's obviously broken in my process, and it's pretty easy to see it's the average account size. Let's say our average account size is $5,000 in commission. If the annual commission goal remains $120,000, I now need to close two sales a month. That means I'll need to offer four proposals a month and carry out 16 new-business appointments. That's much more doable.
Another statistic to track is the number of calls or contacts a producer will need to make for each appointment. Like all ratios, this one will vary with the nature of the agency's operations. If it works predominantly with referrals, the ratio of calls to appointments ought to be close to 100%. At the other end of the spectrum, cold calling may produce no better a ratio than one apppointment for every 10 calls. Account size also influences the hit ratio, with small accounts usually producing a higher hit ratio than large ones. For the average well-run agency, using referrals as its main source of leads and writing some large accounts as well as smaller ones, a typical hit ratio ranges from 30% to 50%.
Monitoring results
Once goals are set, the producer and agency must constantly monitor them to ensure they are met. Only by monitoring results can an agency see process breakdowns in time to take corrective action and get producers back on track.
We've created a spreadsheet for tracking the number of proposals a producer makes each month and the commissions those proposals represent. Once this information is entered in the spreadsheet, it automatically prepares charts that give us a quick visual indication of just how far ahead--or behind--goal a producer is for the month and year.
If a gap develops, how does the producer close it? One way might be by raising the hit ratio, which perhaps can be achieved by doing a better job of qualifying prospects. Other possibilities might be to pursue larger accounts. If a producer is not making enough presentations to qualified prospects of a sufficient size, one reason may be that he or she is not getting enough appointments. So we have another spreadsheet that tracks monthly appointments and compares them to goal.
Simplicity, as well as effectiveness, is one of the virtues of this monitoring system. Really, there are only three figures that an agency needs to watch: the number of appointments, the number of proposals, and the commission value of those proposals. As I mentioned earlier, if an agency's accounts don't vary much in size, it doesn't even need to track the dollars in the pipeline--just the numbers of appointments and proposals.
A producer also should use prospect-management software of some kind. Such systems automatically dial numbers when you click on a prospect's name, relentlessly prompt you to make scheduled calls, remind you of calls you failed to make, etc. So they help keep producers on track.
While we have been discussing an approach for monitoring new-business production, it's quite easy to expand it to cover renewals. If a producer has a sizable renewal book, the monitoring system can allow the producer and the agency to anticipate periods in which the producer will be tied up with renewals, at which time new-business production may suffer. Our focus is on new business, however, because we feel the question is not whether one is going to lose an account, but when. So our philosophy is that appointments equal receivables. If your receivables are down in October, more than likely it's because your appointments were down in March and April.
Targeting prospects
So you have your goals and a system for monitoring results. But to whom are you going to sell? You should have a group of targeted prospects, who should be defined in as much detail as possible. What is their size, their location, their numbers, the lines of coverage they need? The producer also must develop expertise--which he or she does by writing accounts. Expertise leads to confidence. "I'm an expert in the transportation business (or condos, contractors, etc.)," the producer thinks. When the producer meets a new prospect, he knows the prospect's business and language--he's been in this situation before and has met with success. He realizes he has credibility with the prospect. For all these reasons, a well-defined group of target prospects usually leads to a higher hit ratio.
Agents often take their markets into consideration when targeting accounts. But you can give that factor too much weight. After all, carriers can change their appetites--or even go out of business. So it's better to attach more importance to factors like prospects' numbers and average commissions when picking a target.
How many prospects should a producer pursing a given target have? The previously described goal-setting process, along with pros-pects' average account size, will tell you how many potential clients you'll need to hit your annual sales goal.
Industry-specific accounts are not the only targets available to an agency. Here are three others that can be worth investigating:
The most productive sales professionals and organizations know that selling also is a process. The more we can view selling objectively as a process, the more successful we are likely to be at carrying it out effectively and at spotting and correcting any breakdowns. In this article, we'll examine the steps of the sales and sales management process. I hope what you read here will enable you to improve your own sales routine.
Setting goals
The sales process starts with picking an objective; i.e., setting goals. But just stating a figure is hardly adequate. Suppose I'm one of your producers, and you give me a goal: to produce $120,000 in new-business commissions each year. I say, "Great, I'll see you later--I'm going out to get it." You should reply, "Not so fast, Tom," because we need to discuss how I'm going to actually reach that goal.
The first thing I will need to know is the agency's hit ratio. The term has a number of definitions, but the most common is the number of sales made divided by the number of proposals presented (or marketed). That works fine when the sizes of the agency's accounts fall into a relatively narrow range. We run into problems, however, when account size varies greatly. Let's assume an agency has a 50% hit ratio in terms of sales closed to proposals made. For instance, a producer makes 10 proposals and closes five sales. Let's also assume the accounts vary greatly in size. If the producer nails the big accounts, the five sales could represent 75% of the available commission. If the producer succeeds only with the small fry, the five sales might represent only 25% of the potential revenue. Thus a 50% hit ratio, as defined by percentage of proposals closed, could actually be a 75%--or 25%--hit ratio, when defined as sales commissions achieved divided by sales commissions proposed. When writing accounts of widely varying size, we suggest that you use this hit ratio.
Next, it's important to know average account size. We'll need that statistic and the hit ratio to determine the number of sales activities I'll need to carry out to reach my goal. Again, my goal is $120,000 of annual new-business commissions, or $10,000 a month. How many accounts will I need? Let's assume the agency specializes in small business, and the average account generates $1,000 in commissions. So at $1,000 per account, I'll have to work on 20 accounts each month. Given a 50% hit ratio, that pace should lead to 10 sales and $10,000 in commission.
How many appointments am I going to need to offer 20 proposals each month? This appointments-to-proposals ratio is another important statistic to track in an agency. The ratio will be affected by how well the agency qualifies prospects, among other factors. Let's assume the agency has found that, on average, its producers make one proposal for every four appointments they're granted. Thus I will need to make 80 appointments per month, to prepare 20 proposals to close 10 sales and make $10,000 in commission. At this point, I tender my resignation.
Something's obviously broken in my process, and it's pretty easy to see it's the average account size. Let's say our average account size is $5,000 in commission. If the annual commission goal remains $120,000, I now need to close two sales a month. That means I'll need to offer four proposals a month and carry out 16 new-business appointments. That's much more doable.
Another statistic to track is the number of calls or contacts a producer will need to make for each appointment. Like all ratios, this one will vary with the nature of the agency's operations. If it works predominantly with referrals, the ratio of calls to appointments ought to be close to 100%. At the other end of the spectrum, cold calling may produce no better a ratio than one apppointment for every 10 calls. Account size also influences the hit ratio, with small accounts usually producing a higher hit ratio than large ones. For the average well-run agency, using referrals as its main source of leads and writing some large accounts as well as smaller ones, a typical hit ratio ranges from 30% to 50%.
Monitoring results
Once goals are set, the producer and agency must constantly monitor them to ensure they are met. Only by monitoring results can an agency see process breakdowns in time to take corrective action and get producers back on track.
We've created a spreadsheet for tracking the number of proposals a producer makes each month and the commissions those proposals represent. Once this information is entered in the spreadsheet, it automatically prepares charts that give us a quick visual indication of just how far ahead--or behind--goal a producer is for the month and year.
If a gap develops, how does the producer close it? One way might be by raising the hit ratio, which perhaps can be achieved by doing a better job of qualifying prospects. Other possibilities might be to pursue larger accounts. If a producer is not making enough presentations to qualified prospects of a sufficient size, one reason may be that he or she is not getting enough appointments. So we have another spreadsheet that tracks monthly appointments and compares them to goal.
Simplicity, as well as effectiveness, is one of the virtues of this monitoring system. Really, there are only three figures that an agency needs to watch: the number of appointments, the number of proposals, and the commission value of those proposals. As I mentioned earlier, if an agency's accounts don't vary much in size, it doesn't even need to track the dollars in the pipeline--just the numbers of appointments and proposals.
A producer also should use prospect-management software of some kind. Such systems automatically dial numbers when you click on a prospect's name, relentlessly prompt you to make scheduled calls, remind you of calls you failed to make, etc. So they help keep producers on track.
While we have been discussing an approach for monitoring new-business production, it's quite easy to expand it to cover renewals. If a producer has a sizable renewal book, the monitoring system can allow the producer and the agency to anticipate periods in which the producer will be tied up with renewals, at which time new-business production may suffer. Our focus is on new business, however, because we feel the question is not whether one is going to lose an account, but when. So our philosophy is that appointments equal receivables. If your receivables are down in October, more than likely it's because your appointments were down in March and April.
Targeting prospects
So you have your goals and a system for monitoring results. But to whom are you going to sell? You should have a group of targeted prospects, who should be defined in as much detail as possible. What is their size, their location, their numbers, the lines of coverage they need? The producer also must develop expertise--which he or she does by writing accounts. Expertise leads to confidence. "I'm an expert in the transportation business (or condos, contractors, etc.)," the producer thinks. When the producer meets a new prospect, he knows the prospect's business and language--he's been in this situation before and has met with success. He realizes he has credibility with the prospect. For all these reasons, a well-defined group of target prospects usually leads to a higher hit ratio.
Agents often take their markets into consideration when targeting accounts. But you can give that factor too much weight. After all, carriers can change their appetites--or even go out of business. So it's better to attach more importance to factors like prospects' numbers and average commissions when picking a target.
How many prospects should a producer pursing a given target have? The previously described goal-setting process, along with pros-pects' average account size, will tell you how many potential clients you'll need to hit your annual sales goal.
Industry-specific accounts are not the only targets available to an agency. Here are three others that can be worth investigating:
- Lost accounts: How long has your agency been in business? Since you've opened the doors, have you lost any accounts you would like to have back? These prospects could be low-hanging fruit. An Oklahoma agency we worked with wrote $70,000 in two months by going after accounts it previously lost.
- Unsuccessful proposals: In this article, we've discussed hit ratios ranging from 30% to 50%. That implies a "miss" ratio of 50% to 70%. You already have a relationship with these prospects. It could be worth trying some or all of them again.
- Inactive accounts: You didn't lose these accounts; you never even got the chance to quote them. One day, you may realize it's been 18 months since you last were in touch with such an account. During that time, I guarantee you that something will have changed at that account--and it may give you an opportunity to make a presentation.
The most successful agencies approach such target accounts systematically. They set a date by which they go through the files and identify accounts that fit into these categories. Then they set production goals and devise a process for bringing in the business.
Research on individual prospects is part of this process, but it is possible to get carried away. One can gather and examine a prospect's annual reports, 10k reports and product brochures; analyze a prospect's Web site in depth; etc.--all the while putting off the most import thing: contacing the prospect. So be aware that conducting preliminary research can be a form of call reluctance. What you really need to know are the prospect's exposures, whether you have the markets to cover them, and whether you have a history with the prospect.
Finally, develop your contact strategy. Your plan can include using cold-calling, preapproach mailings, outsourced call centers or other promotional techniques. Obtaining a referral to the prospect is the Holy Grail. Putting on seminars also can be highly effective. In California, you could draw standing-room-only crowds for workers compensation seminars. EPLI seminars can work well in many areas. To increase their effectiveness, think about co-sponsoring such seminars with law firms, CPAs, financial planners, real estate agents, relocation firms, etc. Some agencies have used Web casts, or "Webinars," to network with prospects and eventually write business.
So now, we've developed a sales plan, set up a monitoring system, identified target accounts and have developed a contact strategy. Now all we have to do is actually start making some calls. In the second part of this article, which will appear in next month's issue, we'll discuss strategies for using that most indispensable of sales tools: the telephone.
Thomas Redmond is co-founder of Redmond Group Inc., a consulting firm that works with clients with commercial-lines, personal-lines, accident and insurance, and risk management practices. He has 27 years of experience in the insurance business and previously worked with Global Insurance Brokers in several roles. He holds the CPCU designation. Mr. Redmond can be reached at (732) 224-9444 or at tom@redmondgroupinc.com.
