Before Bill McGhee tells you what his agency spends each year on advertising, make sure you’re sitting down. The seven-year-old agency in Little Rock, Ark., spends $200,000 a year on the Yellow Pages alone and budgets another $50,000 for TV ads.

Yet, that $250,000 is just 1.25% of the agency’s revenues. Do the math, and you’ll find that McGhee Insurance, Inc. boasts revenues of $20 million a year, brought in by 25 full-time producers. And most of this business is organic. How, in seven years, did this agency climb to such stellar proportions? “

Baby steps,” says McGhee, the agency’s president. The firm started with quarter-page ads and worked its way up as revenue permitted. The key is that as revenue grows, McGhee grows his advertising hand in hand with it. Not only does one $50,000 ad bring in $300,000 of new business; the renewals are free, with the exception of the labor needed to process them.

How much does your agency invest to attract desirable new business? Do you market consistently to generate steady and long-term results, or do you use most of your profits to support a lavish lifestyle? Undoubtedly this is a harsh question, but owners of many high-growth agencies can answer it without flinching. “I probably pay myself about half of what some others in my position do,” McGhee muses. And yet, he emphasizes that he is hardly poor; that he is, in fact, quite comfortable. Says McGhee, “I just want most of the money to go to my employees and to my business.”

If you think growth is expensive, try stagnating. Instead of remaining at status quo, your agency will actually regress because it won’t be able to keep up with inflation and unexpected costs. The key, then, is to grow profitably.

Reinvesting in Yourself
If you don’t have much money to spend now on advertising or any form of marketing, Patrick Linnert, executive vice president of corporate development and sales management at Marsh, Berry & Co., Inc., has ideas for finding some. By taking the following steps, you’ll increase your agency’s efficiency by leaps and bounds and motivate your staff to sell, sell, sell.

1. Restructure producer commissions.
If you’re still paying 35% renewal commissions, you may be spending yourself into a hole. “We’re seeing high-growth agencies taking down renewal commissions to 20%,” Linnert says.

At the same time, these agencies are hiring highly capable CSRs who handle all of the service work that renewals generate. By taking away the work associated with renewals, producers have much more time to prospect and bring in new business.

2. Mandate minimum production.
To further reduce any remaining temptation to live off renewals, Linnert recommends that agency principals or sales managers set a minimum volume of new business that producers must bring in to keep their jobs. A related tactic is to stop paying producers for any business whose premium is less than a certain dollar amount.

As with restructuring commissions, though, agencies should provide new tools when taking away old practices. One idea is to diversify your product line to hedge against the current soft property-casualty market. Whether you beef up your life-health offerings or begin selling benefits programs, for example, you create new opportunities for your producers to sell and to cross-sell (see “Avoid Cross-Selling Headaches, p. 42).

3. Pave the way for fearless cross-selling.
Before you order your producers and CSRs to do more cross-selling, though, consider this: Unless your agency culture promotes and rewards teamsmanship, no one will feel comfortable marketing for what they see as another employee’s business. “Agencies that hold joint meetings [composed of both internal and external producers] and facilitate working together are the ones that are successful in cross-selling,” Linnert says. Unless you nurture internal relationships to establish trust and cooperation, cross-selling in your agency may never get off the ground.

4. Campaign for referrals.
 Stephen Shook’s agency has made—and kept— a lot of promises to customers, and now the referrals are pouring in. “About 60% of our producers do nothing but referrals,” says the president of Russell & Schrader Insurance Agency in Charlotte, Mich. These agents work to multiply accounts and go after friends and neighbors, not only in personal lines but in commercial business as well.

The agency’s personal lines office began conducting annual reviews for its customers about five years ago when Shook saw many agents “ignoring their best customers” and didn’t think that was right. The resulting growth in new business has been phenomenal. Customers receive a review letter and are asked to check boxes denoting changes or additions in personal property. Response to the letter is roughly 20%, and those who don’t respond get a phone call or another letter from a producer. “Whether it’s a phone call or a letter, there’s an opportunity to get referrals, and we’ve been successful,” Shook says.

In the agency’s commercial lines department, Shook has directed the focus onto selling health insurance. “We had a number of inexperienced people who needed something to do,” he says, “and getting the opportunity to quote health insurance is fairly easy.” In fact, during the past five years or so, most Michiganians have experienced increases in their health insurance premiums of 20% to 50%.

By soliciting and obtaining quotes for health insurance premiums, the agency’s new producers gain confidence and earn commission if the sale closes. At closing, a more experienced producer accompanies the new agent and works to further the client-agency relationship.

Charlotte, Mich. is home to less than 9,000 people, but Shook and company have grown the agency he bought in 1994 from $80,000 in revenue to $1.1 million today. Even so, Shook measures growth not only in revenue, but in policy count. And despite the present soft market, he says organic growth for 2006 is “close to a double-digit increase.”

5. Hire more producers.
At the Hartland Insurance Agency in Hartland, Mich., Dave Walker is cultivating organic growth by hiring new producers. Three have joined the agency in the past nine months, the most recent of whom sold construction equipment and materials for 20 years before coming to Hartland. “He’s been on the business side all this time, so all we have to do is teach him insurance and the technology,” Walker says. He expects this new producer to become profitable within two to three years.

Meanwhile, Walker will shepherd all three salespeople through a development program that he knows is different from what many agency owners use. Instead of paying commission only, he pays starting producers a salary plus commission. After three years, the salary is adjusted to reflect the business a producer has written, and from that point on, salary is based on retaining existing business, while commissions are paid only for new accounts.

“When someone starting out is paid only commission, I think you force them to lower your standards,” Walker says. Instead of acting as field underwriters and pursuing profitable business, new producers look for anyone with insurable assets who will write a check. Their desperation is understandable: they need to eat.

6. Be choosy about customers.
But Hartland Insurance Agency does more to attract good-quality business than pay its producers a salary. Dave Walker has built business models to illustrate the type of customers he’s looking for. “We look at their long-term potential,” he explains. “Will they be around 10, 15 or 20 years from now?”

Fledgling firms can be just as attractive as established entities, Walker says, as long as they have a management plan and are motivated by business and altruistic goals. “If they’re a quality business and they’re profitable, we have a place for them,” he says. “Our niche is not a class of business, but a quality of clientele.”

Walker didn’t dream up this approach by himself. He got it from the agency’s tax attorney who, before accepting the agency as a client, told Walker he wanted to interview him first. “We were intrigued,” Walker remembers. “He needed to know whether we’d fit the class of operation that would use the things he could offer and go through his processes.”

When Walker asked the attorney why he felt it necessary to qualify clients, he answered that he’d tired of chasing customers who weren’t motivated to improve their bottom lines. “I was a little taken aback at first,” Walker admits, “but afterward, I started thinking about it.” That was five years ago. Today the quality of Hartland Insurance Agency’s clientele has improved, and retention has improved along with it.

Invest More, Spend Less
Bill McGhee says other agents ask what he does to achieve his agency’s doubledigit growth, and he happily gives them instructions so specific that they amount to a blueprint. “But most of them don’t do it,” he says, “and it may be because they’ll put that extra dollar into their pockets instead of using it for growth.”

If you’re still not convinced you need to do anything special to keep your best customers and add new ones, consider this: “We see a lot of agencies who say they don’t need to do [anything] for their clients, because they’ve been with them for 12 years,” says Marsh, Berry’s Linnert. “But we also see competitors walking in and asking these clients what their agencies are doing for them—and then they explain what they will do if the client moves business to their agency.”

Nathan Bell, a financial analyst at Marsh, Berry agrees, and says in the firm’s monthly newsletter that value-added services are key to high retention and to high growth. “Insureds are trained to buy on price,” he reminds. “A value-added service platform allows agents to help their clients reduce risk exposure and severity of claims by designing a risk prevention program for each [qualifying] insured.” Such services, when combined with adequate market representation, enable agents and brokers to compete on both price and service.

To align client profitability with the cost of value-added services you provide, Bell suggests grouping clients into buckets based on account size or profitability. Your next step would be to assign value-added services to each client group. In this way, your smallest clients might receive a newsletter and an annual account review, while larger clients receive these services and several more, such as a facilities review, a custom-tailored risk-management program that includes risk-transfer alternatives and a wellness program for employees.

By doing more for existing customers, you’ll keep more of their business and generate additional referrals. And if you’re like Bill McGhee, you’ll get back more than you invest by several times over.

Susan L. Hodges (hodgeswrites@aol.com) is an IA contributing writer.

Success Stories for All
Dave Walker of Hartland Insurance Agency finds it ironic that many agency owners pay themselves first. “Agency owners need to structure their agencies so that the people who work for them can be successful—not so the owners can take home a huge check at the end of the year,” he says. “If everyone working there can be successful, the [owners’ success] will come by itself.”

By “successful,” Walker means:
• licensing everyone who has contact with customers, adding to the professionalism and knowledge of employees and embedding continuing education in annual requirements for employee development;
• paying service staff a commission for every piece of new business they generate. To that end, Walker’s agency expects to change its internal producer commission structure so that employees are paid either monthly or quarterly for new business instead of at the end of the year. The problem with paying at year’s end is that taxes take a significant chunk, leaving many employees to feel that this extra pay is worth very little; and
• making a financial commitment to producers that includes not only a salary, but adequate training and guidance on pursuing the types of business the agency has targeted.

Significance of SBUs
Why should any agency go to the trouble to create small business units? High-growth agencies will tell you that doing so is just one tactic in their overall strategy to boost efficiency and help producers produce. In a recent survey by Marsh, Berry & Co., Inc., agencies with an SBU to handle service and support for group health sales reported organic growth in this line for 2005 at a whopping 28.5%. High-growth agencies with an SBU to service and support small commercial lines reported organic growth for the same period at 10.3%. In both instances, agencies with SBUs generated more than twice the organic growth of agencies surveyed that did not use SBUs.

This is not to say that SBUs in and of themselves produce extraordinary growth, but they are an important part of an overall business strategy, especially when combined with minimum account thresholds and minimum business goals.