1. Have your support team in place

One of the biggest issues behind retention/new business success are organizational. If an agency doesn't build the right structure of qualified account managers and CSRs to support its producers, those producers will not be freed up to sell new business, Lieblein said. “This is the No. 1 issue I see,” he said. “Most agencies struggle with the concept of building service teams focused on servicing and account relationships. Agency owners need to make a commitment to build the proper infrastructure, plus a willingness to look at existing compensation plans to determine if they really offer incentive to sell new business.”

And although the initial outlay is high for building this structure, the cost as a percentage of revenue shrinks as business flows in. “Compensation expenses are the biggest an agency has, but you need to continuously invest in growth to offset ongoing costs— and hiring talent is costly,” said Shirley Lukens, AAI, of Reagan Consulting, Atlanta. “Good agencies typically invest 1.5 percent of net revenues in pure payroll expense for new production talent. But as those producers validate, the agency's cost to acquire new business goes down in that the producer's compensation doesn't have to be subsidized—the producer is covering his or her payroll expense.”

For their part, CSRs and account managers often can take over the smaller business accounts in an experienced producer's book of business, which helps the account manager roundout the existing business and frees up the producer to find new business, Lukens said.

2. Rethink old ideas about producer compensation

“The industry has a lot of old legacy structures; in the old days, the producer sat on top of the pay structure. But this pay structure doesn't encourage new sales, and producers would end up being high-paid account executives. A lot of agencies still operate that way, but more progressive firms moved away from that business model, especially in today's market,” Lieblein said.

In some traditional commission models, producers are paid commission splits of as much as 40 percent for renewal business—which doesn't give them the motivation to go out and sell, Lieblein said. And even if they are being rewarded for new business, the differential is not substantial enough.

A newer commission concept shifts the emphasis from individual pieces of business to overall book growth. For instance, on a $500,000 book of business that goes up to only $550,000, the producer might have sold $150,000 in new business, receiving 25 percent commission on the $500,000 and 40 percent on book growth of $50,000, Lieblein said. Although this aligns the producer incentives with the agency owner, the producer gets penalized because of matters outside his control, such as carriers reducing commissions or clients reducing payrolls.

3. Let your old business feed your new business

“In a sense, Best Practices agencies automatically balance new business and retention because most have a strong referral process in place,” Lukens said. “They're constantly focusing on retention, but the byproduct of that focus generates new revenues and new clients because they're always cross-selling, upgrading, and asking for referrals from existing clients.”

This means leveraging the good relationships you've developed with existing clients instead of turning to less reliable sources like sales lead lists. “Some agencies may have been successful buying lead lists, but most agencies I talk to are not buying referral lists unless they're starting into a whole new industry or product line, or even new geographic area,” Lukens said. “And you might be more successful in this by buying a good book of business in the area than trying to buy leads and working from cold calls based from those leads.”

“I haven't seen list purchasing or telemarketing firms really work effectively for agencies; you might get many appointments, but most won't be qualified leads,” Lieblein agreed. “The best way to get new business is through referrals, with your clients as 'raving fans' who will provide you with leads and names, 'warm' referrals. It's all about networking and meeting the right people—the basics.”

4. Focus on constant growth

“One thing that has surprised me is that even when the market has been as bad as it is, good agencies are still really focusing on growth,” Lukens said. “They are investing in what it takes to grow even as they struggle to keep profit margins up, which is critical to agency value.”

Reagan and IIABA's Best Practices agencies rely on the “Rule of 20,” which looks at the importance of growth and profitability in maintaining agency value. The simple rule uses the following formula: (ProForma EBITDA x 50 percent) + Organic Growth Rate = Rule of 20 Outcome. If the outcome is 20 or higher, an agency is creating value for its shareholders. “Generally, shareholders in a well-run agency can expect to earn 15 percent to 17 percent per year through stock price appreciation and/or shareholder distributions,” Lukens said. “However, the persistent soft market has made it very difficult to achieve an outcome of 20 or more. Good agencies will strive to achieve solid organic growth with an EBITDA margin that is at least twice as high as its growth rate. This emphasis on constant growth means the agency is always headed in the
right direction.”

To keep on growing, more agencies are focusing on advertising and target marketing, “something that was more in the background in the past,” Lukens said. And although more Best Practices agencies have reinvested in advertising, spending a lot of time and effort, the amount of money being spent hasn't particularly increased, probably because they are using free services like social networking and letting go of more expensive types of advertising that aren't effective, she said.

5. Use technology to track your progress and reach customers

Technology is core to an agency's ability to effectively manage its books of business. “If they're not analyzing what business is coming in and what it's costing them, they will have a hard time continuing to do what's effective,” Lukens said. “Management systems are critical, but it's all in how agencies are using them—are they putting the right data in to get the right information out.”

Lieblein agreed that social media is becoming more important, not necessarily to get new clients but to build brand awareness and connect with people. “Over time, social networking will build centers of influence and be a big piece going forward, especially with the younger generation. However, it will never be a substitute for older methods,” he said. “Insurance is still a relationship business. Retiring producers didn't have today's communications resources, but they built reputations for their firms the old fashioned way: through relationships and staying in front of the customer.”

Special Reports /

Retention versus new business acquisition: What works?

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