When you are running an insurance agency, you have so many KPIs (key performance indicators) you have to monitor: hit rate, conversion rate, quote rate, decline rate, average premium/revenue, retention rate, loss ratio, and so on. One KPI that is often ignored or simply unknown is the customer LTV or customer lifetime value.
According to Hubspot, customer lifetime value is the metric that indicates the total revenue a business can reasonably expect from a single customer account. It considers a customer's revenue value, and compares that number to the company's predicted customer lifespan.
In insurance terms, how much revenue/premium does each customer generate annually and how long does a typically customer stay with you.
For example, Customer A has one workers’ comp policy with you that averages $4000 in annual premium, and you receive 10% commission. They stay with you for 5 years. The lifetime value or LTV of customer A is:
$4000 x 10% x 5 = $2000
A different example, Customer B has one workers’ comp policy with you that averages $4000 in annual premium, and you receive 10% commission and a general liability policy with you that averages $2000 annual and you are paid 15%. The customer has both policies with you for 5 years. The LTV on customer B is:
$4000 x 10% x 5 = $2000 plus $2000 x 15% x 5 = $1500
For a total LTV of $3500
You would want to do this for all of your customers so you can come up with an average customer LTV for your entire agency.
So why is it important to know your insurance agency’s average customer LTV?
If your goal is to grow your agency, it’s critical to increase the LTV of each customer. Increasing the customer LTV provides consistent and sustainable growth and more profit. It’s not just about bringing in new customers, but also increasing the LTV of these new customers and your existing ones.
So how do you increase the customer LTV for your insurance agency?
Remember the two main components of LTV:
The simplest way to increase your LTV is to drive up both components. Here are 4 tips to increase your customer LTV.
Tip One: Cross-sell
Cross-selling drives two major factors for LTV.
Think of every major bank you deal with. Their goal is to sell you every product they have. If you just have a checking account, it’s easy to leave them. But if you have checking, savings, loans and a mortgage, the chances of you taking all of your business somewhere else reduces dramatically.
Step Two: Increase customer satisfaction
According to HubSpot research, 55% of growing companies believe it's "very important" to invest in customer service programs. In comparison, companies with stagnant or decreasing revenue, only 29% said this investment was "very important."
Increasing customer satisfaction can be accomplished in a few ways:
Step Three: Increase customer retention
Acquiring a new customer is much more expensive than retaining one. In an article published by Harvard Business Review, gaining a customer can cost as much as 25 times more than retaining an existing one. In addition, a Bain & Company study showed a simple 5% increase in retention rate can lead to an increase in profit between 25% to 95%.
We dived deeper into customer retention strategies in a previous blog, “Don’t Bother Selling More Insurance Until You Get This Right.” Please read it if you are looking for tactics to increase customer retention.
Step Four: Additional products or services
Consider adding complementary products or services as part of your overall product suite. Additional lines of insurance, risk management services, consulting, payroll, HR, are some possibilities that can be considered. You can develop expertise in house, hire, partner, or even white label to add these services. You can become a one-stop shop for all of your clients needs.
Bottom line, gaining insight into your customer LTV and developing strategies to increase it will help drive more e revenue and profit for your insurance agency. Invest in the time to calculate your customer LTV and follow through on your strategies. You can utilize the tips above as a stating point. If you need additional help, consider signing up for our coaching program. Either way, investing in improving your customer LTV will help you create loyal long term customers that buy more from you which ultimately translates to a consistently growing and profitable insurance agency.