“Detail Schmetail! Who cares? Salespeople aren’t detailed oriented.”
Throughout my career of leading sales teams, I’ve heard a version of that sentence from various salespeople. They just want to go out and sell, and not worry about the details like metrics and numbers. So I wasn’t too surprised when I met some agency principals and producers that were also not well versed with their agency’s numbers and metrics. They too wanted to focus on selling and other top priorities.
The irony is that while I've heard "Detail Schmetail" throughout my career, I’ve also heard this common statement about sales.
“Sales is a numbers game.”
So how can you play a numbers game when you don’t know your numbers?
Why are numbers and metrics so important? Let’s talk baseball for a second. What’s the difference between a 275 hitter vs. a 300 hitter? If you are not familiar with baseball, this simply means a 275 hitter has a .275 statistical average of getting a base hit , so for every 10 chances at bat, the player will get a base hit on average of 2.75 times. Where as a 300 hitter will get on base 3 times for every 10 chances at bat. So we are really talking about a difference of .025 right? While that may not seem like a big difference, a career 300 hitter will make tens to hundreds of millions of dollars more in their career than a player that hits 275.
Stats aren’t just important in baseball or sports. It’s also crucial when you are running an agency. Understanding your numbers and metrics are crucial to hitting your revenue goals, meeting the production requirements of carrier appointments and understanding trends and issues.
Let’s first talk about revenue goals. One of the biggest issues I have seen with agency goals and individual sales goals are the lack of details. In order to develop an effective goal, it is imperative to understand the numbers, metrics, and drill down to truly know what it’s going to take to reach these goals. Let’s walk through an example.
Let’s say your agency is a one million dollar agency (either premium or revenue depending on what your agency tracks), and you would like to grow 20% next year. How are you going to get there? How do you figure what you need to do to get there? Let’s walk through this example:
For this agency to achieve one million dollars in new business, we need at minimum the following data:
Let’s start with the big revenue/premium number, the annual goal of 20% growth.
20% x $1M = $200,000 new business or $1.2 million dollars overall by end of the year.
So in order to achieve 20% growth, the agency just needs to add $200,000 in new business, right?
If we set $200,000 as a new business goal, we will in fact fall short next year, even if we hit $200,000 in new business. We must factor in one important number, the retention rate.
Let’s say the same agency has a policy retention rate of 80%. (Note: it’s important to utilize policy and not premium/revenue retention rate since premium/revenue can be greatly skewed by large or micro policies)
So on an annual basis, the agency loses 20% of their client base (100% - 80% retention), which equates to $200,000 So the starting point of growth isn’t actually $1,000,000, but actually $800,000. The agency has to replace lost premium/revenue and add in additional premium/revenue to reach its goals. For simplicity sake, let’s do the following math.
Take the 20% growth goal + 20% client loss rate = 40% needed to achieve overall goal. The actual goal the agency needs to achieve 20% growth next year is actually:
40% x $1,000,000 = $400,000 in new business
This number is drastically different than the original $200,000 but a great deal more accurate based on the agency’s data.
Now, let’s figure out how many sales (policies) the agency needs to hit it’s goals. If the agency’s average premium/revenue per policy is $10,000, then take
$400,000 divided by $10,000 = 40 new policies
Now, some of you may say that you will get a large bind during the year so 40 policies isn’t really needed. Well that may be true, it’s something that isn’t guaranteed. What if no large policies are sold next year?
I was taught early in my sales career to plan my goals according to my true average data. This doesn’t mean setting an average goal. It simply means once you set your goal, you plan to achieve the goal based on your real data or true average numbers. You plan to “put food on the table” first. This means if you plan based on your average numbers, you will hit your goal and most likely more. At minimum, you can count on putting food on the table. If you happen to land a large sale along the way, you get to buy something new and shiny.
Now, let’s figure out how many prospects/submissions you need to hit your goal.
If this company closes 25% of its submissions, then it would need:
40 new policies divided by 25% = 160 prospects/submissions
In order for this agency to achieve its goals next year, it needs to submit 160 different prospects to carriers for quotes annually based on its historical client closing percentage.
The company can drill down further to divide the 160 submissions by month to get monthly submissions needed. It can use the monthly or seasonal data of their agency to get an even more accurate monthly goal if this data is available.
For example, if this agency knew on average, they get 20% of their annual new business in January, then it should take
160 total annual submissions x 20% = 32. So this agency needs 32 submissions in January to hit its January goal.
I used a similar process on the carrier side when I screened potential P&C agencies seeking a direct appointment. On a weekly basis, I was approached by a handful of agencies seeking direct appointments. After discussing the basic appointment requirements, nearly every agent was confident he/she can hit the goal, until I walked through the math.
Let’s say I provided the requirement of $100,000 new business premium production to the agent. I would follow up and provide our average policy premium of $5000. After which, I provided our national hit/close ratio (binds/submissions) of 20%. Lastly, I did the math and walked through it with the agent.
“So, in order to achieve $100,000 in new business premium, you would need 20 new binds a year based on our average policy premium of $5000. Based on our national hit ratio of 20%, you would need 100 submissions, which roughly translates to 8 submissions a month. “
Usually there was a long pause after I walked through the math. I didn’t do the math to scare or intimidate new agencies. I did it because I knew very few agencies had the ability to achieve the numbers necessary to achieve this goal. I also knew that most agencies approaching us did not understand what it took to be successful with us. The last thing I wanted was to set a new agency up for failure. Many of the agencies appreciated this and ended up withdrawing their application. I'd then refer them to one our trusted GAs/wholesalers. The ones that stuck around are now in a better position to have a deeper conversation to discuss their plan and how we would be successful together.
Numbers and metrics are also crucial in identifying trends and problem areas. For example, if the example agency was behind goal half way through the year, looking at the numbers can usually identify the issue(s). When the plan isn’t working, it can usually be traced back to one of the following guilty parties:
If it’s one, two or all of these issues, the agency should examine what is causing each issue so it can adjust the plan and its approach accordingly. For example:
1. Lower closing percentages
By looking into the numbers first, the agency can then look into the potential cause of the problems by asking the related questions. It can then drill down and identify specific issues and potential resolutions to resolve them.
Although numbers and metrics are often not the most exciting items to discuss or analyze in your agency, they are valuable and critical to your agency’s success. You don’t need to become an accountant. You simply need to track, and stay on top of the numbers. By understanding and managing your numbers and metrics, you will stay on top of your business and industry trends, and stay ahead of your competition.