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Don't be a Cheapskate

To Bob Pendleton, technology was never exciting. He saw it as a bother, an annual cost that he preferred to spend on other things. Nor did Bob spend much on marketing. He had a small community, and he relied on referrals to fill the void created when clients passed away or turned elsewhere for coverage.
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To Bob Pendleton, technology was never exciting. He saw it as a bother, an annual cost that he preferred to spend on other things. Nor did Bob spend much on marketing. He had a small community, and he relied on referrals to fill the void created when clients passed away or turned elsewhere for coverage.

Life was good for Bob and his small agency—until he was ready to retire. The moment potential buyers found out that Bob’s business was marooned in the backwaters of automation, their offering prices sank like rocks heaved into a pond. Had he grown his agency through marketing and proactive selling, its value might have been higher, despite the lack of automation. But since this was not the case, either, Bob has yet to sell his agency because no one will pay his asking price.

Although his name has been changed to protect his privacy, Bob is a real agent, and his predicament is bonafide. It’s a consequence that will bubble to the surface for any agency that minimizes technology and marketing dollars in a misguided effort to preserve profits. These two oft-neglected line items hold untapped potential for agencies looking to grow—and there can be a huge payoff for spending more.

Cutting Corners
Cost-cutting can be smart in certain areas, such as operations, space usage or even head count, and it can be vital to remaining competitive. But Shirley Lukens, senior vice president at Reagan Consulting in Atlanta and director of IIABA’s recently-released Best Practices Study, draws the line at trimming money spent on automation or marketing. “If you’re not continuously investing in technology to be as productive as you can be, service your customers the way they deserve and make it easy for your carriers to do business with you, you’re affecting your agency’s value in all of those relationships,” she says.

Principals who skimp on marketing are limiting their agencies in a different way. “Marketing oils all the sales activity,” Lukens explains. “It creates name awareness, it shows that the agency is professional and it’s easier to get referrals when you’re a well-known name.”

But according the 2007 Best Practices Study, even the best agencies are not devoting as much attention and money as they should to technology and marketing. Agencies across the study’s six size categories spend an average of less than 2% of annual revenues on technology (see table on p. X). In the marketing arena, agencies across the size categories spent at most an average of 2.1% of annual revenues.

Why Technology Matters
If you’re a producer yourself, as well as an agency owner whose retirement is more than 10 years away, you might be wondering why you should be concerned about spending more than 4% for technology and marketing combined.

“Do you want to watch or do you want to play?” says Ed Higgins, president of Thousand Islands Agency in Clayton, N.Y. “Do you want to have an agency worth selling, or do you want one that’s paper-based?” It’s not rocket science, he says; agencies that haven’t gone paperless are burdened with a cost of daily execution that is disproportionate to their value. “It’s not that all the paper goes away,” he emphasizes. “It’s that retrieval of documents you need to store is so much quicker and easier.”

Technology is about speed of process. If you can use it to shorten a task to 15 seconds that normally takes three minutes and employ the time differential productively, your agency is bound to profit.

For example, take multiple monitors. Employees whose computers are equipped with dual or even triple monitors can “drag” documents from one screen and “drop” them into another without clicking multiple times to close one window, open another program and open a window within that program to move or copy a file. The beauty of multiple monitors is that they provide more screen space, allowing numerous programs and files to be open—and visible—at once. When you can see more, you can do more tasks more efficiently. In the words of one technocrat, “Multiple monitors save mouse miles.”

Multiple monitors also negate the need to print documents for reference before moving to other applications. And the more comfortable employees become with electronic documents and online applications, the less they’ll want to feel paper in their hands. The sooner this happens, Higgins says, the better, because he thinks carriers will go paperless themselves. “The next big paradigm shift is that my carriers will tell me to turn off the paper in 180 days, because they can realize a 4% savings,” he forecasts. “They may even say you can keep your paper, but it’s going to cost you 4%.”

Andy Siegel, president of Siegel Insurance, Inc., a Best Practices Agency in Atlanta, says agency owners need to change their mindset and view technology not as a cost, but as a crucial investment. “Instead of spending money only when something breaks, invest in technology each year,” he advises. Don’t just maintain the functionality you already have, because as competitors invest in new capabilities, your agency will fall behind. Instead, Siegel counsels agents to invest continually in upgrades and new equipment to reach ever-increasing heights of productivity.

Where to invest? “Look first at your user needs,” he suggests. Ask service employees where they encounter process problems, and solicit their recommendations for improvement. And remember: you don’t have to complete a project all at once. Siegel’s agency added dual monitors over a two-year period. During that time, the office also relocated and upgraded its server. For financial help, Siegel turned to one of his carriers that offers to pay up to 50% of an agency’s automation costs, based on business volume, as part of the agency’s profit-sharing. “Central Mutual has been doing this for years,” Siegel says. Several other carriers offer similar programs; if you’re unsure which ones, ask your field representatives.

Role of Tech ROI
Regular investment in technology that provides new tools and greater efficiencies is simply good business practice. But if your employees don’t know how to use fully the technology they already have, your resources should first be invested in training.

“My theme has always been return on investment,” says Mike Foy, vice president of Foy Insurance in Exeter, N.H. An agency can spend all it wants to on technology, he explains, but if its people don’t know how to use it well, those dollars fly out the window. 

Foy spends at least $500 per employee per year for automation training, in addition to the 2.5% to 3% of revenues that he annually invests in technology. To track his agency’s technology ROI, he calculates the time saved by each employee on each improved process and multiplies that amount by the number of employees.

Dual monitors, which cost roughly $300 each to acquire and another $100 each to install, paid for themselves in about six months. Each of Foy’s 50 employees using the monitors saved approximately 15 minutes a day, or more than one hour per week. By multiplying 50 employees by $15 for one hour of work, Foy figures that the extra monitors saved $750 per week, or $37,500 per year. The monitors cost less than $20,000.

Another recent upgrade at Foy Insurance: installation of T-1 lines for data transport. Foy says the high-speed lines cost $200 per month, which means that if each of 50 service employees saves 15 minutes per week via faster data transmission, the T-1 lines save 12.5 hours per week. Multiplied by $15 an hour, the savings calculate to $187.50 per week.

Is there a correlation between investing in technology and an agency’s growth? Not if you don’t exploit your technology fully. But agents that commit to technology will see a clear link between the investment and the agency’s profitability.

Make Marketing Count
ROI is also key when it comes to marketing. Craig Kanter, a sales consultant specializing in insurance agency sales and president of Risk Resource Partners, Ltd. in Skokie, Ill., says that an agency’s lack of ability or desire to invest in effective marketing strategies causes it to miss opportunities to increase revenue. This in turn may create a need to cut costs, particularly during a market downturn. 

"With the soft market and diminished profitability, agencies need to look for new ways to enhance sales,” Kanter says. One way to do this is to supplement traditional phone and one-on-one strategies with a powerful Internet marketing strategy. 

Consumers are not only buying good and services online, he observes; they’re using the Web to learn information necessary for making intelligent insurance-buying decisions. “Agencies must be proactive in getting their message out to insurance decision makers,” Kanter says. “No agent wants to get stuck selling on a price basis only. That’s why agencies need to do more marketing: to communicate how the value of their services and skills differentiates them from their competitors.”

Fundamental to marketing, Kanter says, is that an agency tailor messages to the various target audiences. He sees the rising cost of postage significantly diminishing the U.S. mail as a cost-effective marketing tool. But by hiring a professional writer, a graphic designer and a consultant with agency marketing experience to develop content and determine distribution, Kanter says an agency can send “hundreds of e-mails a month that vary in type and quantity, and are directed to the specific insurance issues of a particular group of buyers.”

Agencies without a current marketing plan should first invest in developing one, Kanter advises. Sitting down with someone outside the agency to discuss what distinguishes the agency from the competition can crystallize ideas and create the messages that agency owners need to convey. “From these discussions, it’s surprising to see that many owners begin for the first time to understand how to effectively communicate their differences to various types of decision makers,” Kanter says. Once your plan is established, the rest of your marketing investment can flow from it.

Calculating Marketing ROI
To measure the effectiveness of each portion of your agency’s marketing plan, train your employees to ask each new prospect or customer how he or she learned of the agency. Mike Carroll, president of Carroll Insurance in Maumee, Ohio, says tracking results is mandatory to building a plan that works. “If you don’t,” he warns, “you could be losing money, and you wouldn’t even know it.”

Carroll’s agency spends between 17% and 23% of revenues each year on marketing and another 4% to 5% on technology. These numbers didn’t just fall from the sky. Carroll set out to learn more about marketing and studied material from such gurus as Dan Kennedy, Michael Jans and John Carlton. One thing he learned quickly was not to copy other agencies, but to form his own message and approach.

“I had some restaurants [as clients], and I decided to specialize in them,” Carroll says. He bought a list of 180 restaurants in Ohio for $50 and sent out a broadcast fax. Twelve recipients responded and Carroll wrote seven of them, averaging $1,200 per commission. “We made $8,400 on a $50 investment,” he says, and was spurred by the success to tackle personal lines marketing next.

This time, he purchased an ad in Val-Pak, the monthly coupon mailer, for $2,000. His ad offered a free report on ways to save money on car insurance, and the Toledo version of the product was mailed to 220,000 homes. Carroll received 191 calls requesting the report. “I sent it with copies of a million-dollar bill attached,” Carroll remembers, “and then I followed up with calls.” His agency wrote 77 personal lines accounts with an average commission of $247. Translation: a $2,000 investment yielded roughly $19,000 in commissions. “This was the beginning of the death of the guy who worked 75 hours a week,” Carroll says.

In other words, smart, strategic marketing produced more business more quickly than pounding the pavement. “You can’t afford not to market to grow your business,” Carroll says. “Quit the country club and invest in marketing. And watch the difference.”

If you decide to invest more in marketing but are unsure of where to start, Carroll advises contacting a marketing expert and running your first campaign for at least six months. He also suggests hiring outside faxing and e-mail services that know and comply with laws regarding junk correspondence.

“You can’t get away with spending less than 15% of your gross revenues on marketing,” he stresses. Spend less, and inflation will erode your profit, and “you’ll be like a professional athlete who goes home for the summer and does nothing but eat Fritos,” he warns. “You’ll get out of shape and fall so far behind your competitors.”

Hodges (hodgeswrites@aol.com) is an IA senior writer.


Compare Your Agency at the Best Practices Gateway

You can see how your agency’s performance compares with a Best Practices Agency peer group by going to the Best Practices Gateway at http://bp.reaganconsulting.com. Once there, click “Best Practices Performance Quick Check,” enter your annual revenues and your year-end results for each of the seven Quick Check factors, and click “Calculate.” The resulting Performance Ranking indicates the percentage of the firms in the comparison group whose results you exceed.

 

—S.H.

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Tuesday, June 2, 2020