When valuing a business, one factor an appraiser considers is market potential. There are admittedly times when an agency's potential seems to be limited, but this is almost never actually the case. Market potential for 99% of insurance agencies is truly boundless. Agencies can double, triple and quadruple in size and still not hit any kind of market ceiling.
Why, then, do so many agencies feel they've already maxed out their possibilities? Most of the time it's because they've allowed self-imposed obstacles to fence them in. The three most common artificial barriers I find in agencies are imaginary boundaries, a "takin' it easy" attitude and a correctable lack of skill or knowledge.
Imaginary boundaries. Many agency owners believe they can't grow because their city or county isn't growing fast enough. Others believe "the economy" prevents them from growing. I also hear many agents say their potential is limited because not enough businesses exist in their locale.
Unless yours is a top 100 agency, these notions are simply mistaken. These are imaginary boundaries. Nothing prohibits agencies from writing business in the adjacent town or county. After all my years in this industry, I'm still surprised by how many agencies lack expansion plans--or worse yet, haven't even so much as thought about them. Many use the excuse of not having enough "presence" to market in other locales, but that only means the agency needs to market smarter and work harder. When agency owners say local conditions limit opportunities, they're actually admitting that they've written all the easy stuff and don't want, or don't know how, to expand their reach.
"Takin' it easy." I also often hear agents say they don't have enough sizable accounts or prospects to grow. The overlooked potential here is twofold.
First, virtually every correctly written commercial account will generate at least $500 in commission. I define "correctly" as including all the proper coverages--comp, auto, umbrella--and adequate limits. Many agencies have hundreds of accounts generating less than $500 in commission. Writing these accounts properly requires more work, but the opportunity to grow them definitely exists, and the payoff is enormous. Agencies that write accounts properly are much more profitable than those that do not--and their clients receive better coverage too.
Second, agency owners who believe they don't have enough sizable prospects to grow are kidding themselves. The truth, as noted above, is that all the easy larger accounts are written. Agents who only go after easy accounts hobble themselves, because the market for easy accounts is very small. For those willing to put the effort into writing more difficult larger accounts, however, opportunity is unlimited.
Inadequate skill/knowledge. Not having the skill or knowledge necessary to take full advantage of market opportunities is usually a self-imposed yet entirely correctable limitation. Here are some examples:
o Management skill. The lack of management skill is a common reason why many agencies do not double, triple or quadruple their sales. However, this shortcoming is easily rectified if the agency owner is willing to hire or partner with people who can manage, and the agency owner learns to delegate. Being an average manager isn't necessarily a fatal defect, but not recognizing it and doing something about it may be.
o Coverage knowledge. Producers who do not know their coverages are unquestionably limited in the accounts they can write. The only cure is education. It's that simple.
o Sales skills. Agencies spend woefully little on sales training. If your agency employs people with raw sales skill, get them the training they need to get up to speed. If your agency employs people who cannot sell but are nonetheless employed as producers, ask yourself why you're trying to fit square pegs into round holes.
o Demographic knowledge. If an agency wants to expand its market, demographic information about prospects is easily accessible. There is no good reason not to have it.
o No time. Some agencies feel their production people have no time left to sell. If this is the case, a review of the agency's procedures will likely reveal inefficiencies. Correct them and producers will be freed to do what they were hired to do: Produce.
o Inadequate knowledge of market potential. I once gave a presentation during which an agent advised me that there were no sizable accounts in his county or any of the adjacent counties. At the break, another agent quietly told me he had just written a $1 million account five miles from the other agent's office. It's time to take off the blinders and see exactly how huge your market potential really is.
A similar example: I recently researched the market for a small agency in a small town. There were literally millions of dollars of commissions to be earned in commercial lines alone in that town. The agency's share was only $400,000. They had been there 40 years and simply took it for granted that their market was limited. They didn't know where to look for more business, so they never bothered to try.
Insurance agencies are among the few businesses that enjoy virtually unlimited market potential. No natural restrictions interfere with growth. Why let self-imposed limitations prevent you from taking advantage of such a great industry?
Chris Burand is president of Burand & Associates LLC, an agency consulting firm. Readers may contact Chris at (719) 485-3868 or by e-mail at Chris@burand-associates.com.
Why, then, do so many agencies feel they've already maxed out their possibilities? Most of the time it's because they've allowed self-imposed obstacles to fence them in. The three most common artificial barriers I find in agencies are imaginary boundaries, a "takin' it easy" attitude and a correctable lack of skill or knowledge.
Imaginary boundaries. Many agency owners believe they can't grow because their city or county isn't growing fast enough. Others believe "the economy" prevents them from growing. I also hear many agents say their potential is limited because not enough businesses exist in their locale.
Unless yours is a top 100 agency, these notions are simply mistaken. These are imaginary boundaries. Nothing prohibits agencies from writing business in the adjacent town or county. After all my years in this industry, I'm still surprised by how many agencies lack expansion plans--or worse yet, haven't even so much as thought about them. Many use the excuse of not having enough "presence" to market in other locales, but that only means the agency needs to market smarter and work harder. When agency owners say local conditions limit opportunities, they're actually admitting that they've written all the easy stuff and don't want, or don't know how, to expand their reach.
"Takin' it easy." I also often hear agents say they don't have enough sizable accounts or prospects to grow. The overlooked potential here is twofold.
First, virtually every correctly written commercial account will generate at least $500 in commission. I define "correctly" as including all the proper coverages--comp, auto, umbrella--and adequate limits. Many agencies have hundreds of accounts generating less than $500 in commission. Writing these accounts properly requires more work, but the opportunity to grow them definitely exists, and the payoff is enormous. Agencies that write accounts properly are much more profitable than those that do not--and their clients receive better coverage too.
Second, agency owners who believe they don't have enough sizable prospects to grow are kidding themselves. The truth, as noted above, is that all the easy larger accounts are written. Agents who only go after easy accounts hobble themselves, because the market for easy accounts is very small. For those willing to put the effort into writing more difficult larger accounts, however, opportunity is unlimited.
Inadequate skill/knowledge. Not having the skill or knowledge necessary to take full advantage of market opportunities is usually a self-imposed yet entirely correctable limitation. Here are some examples:
o Management skill. The lack of management skill is a common reason why many agencies do not double, triple or quadruple their sales. However, this shortcoming is easily rectified if the agency owner is willing to hire or partner with people who can manage, and the agency owner learns to delegate. Being an average manager isn't necessarily a fatal defect, but not recognizing it and doing something about it may be.
o Coverage knowledge. Producers who do not know their coverages are unquestionably limited in the accounts they can write. The only cure is education. It's that simple.
o Sales skills. Agencies spend woefully little on sales training. If your agency employs people with raw sales skill, get them the training they need to get up to speed. If your agency employs people who cannot sell but are nonetheless employed as producers, ask yourself why you're trying to fit square pegs into round holes.
o Demographic knowledge. If an agency wants to expand its market, demographic information about prospects is easily accessible. There is no good reason not to have it.
o No time. Some agencies feel their production people have no time left to sell. If this is the case, a review of the agency's procedures will likely reveal inefficiencies. Correct them and producers will be freed to do what they were hired to do: Produce.
o Inadequate knowledge of market potential. I once gave a presentation during which an agent advised me that there were no sizable accounts in his county or any of the adjacent counties. At the break, another agent quietly told me he had just written a $1 million account five miles from the other agent's office. It's time to take off the blinders and see exactly how huge your market potential really is.
A similar example: I recently researched the market for a small agency in a small town. There were literally millions of dollars of commissions to be earned in commercial lines alone in that town. The agency's share was only $400,000. They had been there 40 years and simply took it for granted that their market was limited. They didn't know where to look for more business, so they never bothered to try.
Insurance agencies are among the few businesses that enjoy virtually unlimited market potential. No natural restrictions interfere with growth. Why let self-imposed limitations prevent you from taking advantage of such a great industry?
Chris Burand is president of Burand & Associates LLC, an agency consulting firm. Readers may contact Chris at (719) 485-3868 or by e-mail at Chris@burand-associates.com.
