Episode 14 : Client Segmentation

Welcome to the Unstoppable Profit Podcast. This podcast will give you all the tools to grow your business and live life on your terms. Millionaire agents and entrepreneurs think and act differently than others. This podcast will give you a simple, proven three step blueprint to grow your business. Over the past 31 years of research in your industry, Mike Stromso has created a unique philosophy called the three people process and promotion. This outside the box thinking and guidance provides agency entrepreneurs just like you the knowledge and tools you can quickly implement to explode your agency business. He has been there, done that, and he's still doing it. Wherever you are today, if you're starting with nothing or are well on your way to the success you desire, with the right people, processes and promotions in place, you will be unstoppable. And now I'd like to introduce your host, Mike Stromso.

Hey friends. Welcome to episode 14 of the Unstoppable Profit Podcast. This is Mike Strompso coming to you live from the Living Agency Laboratory. And today we're going to be talking about client segmentation. Two words that will turn your agency upside down for the better. If you're willing to implement, execute and take action. And that's the key. You've got to be willing to implement, execute and, and take action on all of the principles involved in properly, you know, dividing up your client base, understanding who the clients are that are bringing you the majority of your income. It's really that simple. It's a numbers game, alright? And our encouragement today is that you dig in and figure this out because it will be an absolute game changer for you. And a. I will be transparent with you. You're gonna find some things that you're not gonna like, that it's gonna cause extreme discomfort for you. Like maybe people that live on your street are in the bottom 20%. Sorry to tell you that, but I found that to be true. Okay. So in my own world, and so I had to figure out a way to, you know, possibly fire one of my neighbors. It is what it is. All right? So there's tough decisions that need to be made in business. And as a reminder from our hiring segments that this applies here as well. There's two kinds of relationships in the world. There's personal relationships and there's business relationships. And they are two different things. We are talking about purely business relationships here in this particular.

Episode today. Alright, so let's dig in. Where did client segmentation, the thought process and everything that goes into it come from? So it started way back with a business management consultant by the name of Joseph M. Duran, who suggested the principle. And he named it after the Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population.

Wow.

He developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peasants. And so today, the 8020 principle is commonly known to most as the Pareto principle, developed originally and brought on by. Is developed by Vilfredo Pareto and brought on by Joseph M. Duran. So the client segmentation process is very much about the same kind of mindset in business. All right, so what does this mean to you? Well, in many instances, it means that 80% of your revenue is generated by the top 20% of your existing clients. It's really that simple. And our strong, strong encouragement is if you will dig in and get to the truth, you will likely find the same thing.

And it's going to open your eyes to new horizons and new opportunities like you've never had before. And that's what we want for you, ladies and gentlemen. We want these new horizons to be existent for you every single day. So, question. And in your next team meeting or your next interaction with your teammates or your leadership or wherever that might be, I encourage you to ask them this question.

Do you know who our top clients are?

And you've got to do your best to just shut up, don't say a word, let them answer. And they're going to squirm in their seat and they're not going to know the answer. And they're going to be embarrassed not to say anything except. But you got to let it go because what you're doing is you're from a leadership standpoint, bringing to the table an important question that they don't know the answer to. You're getting them to identify that they don't know the answer and how important it is to know the answer. Got it? Alright, so do you know who our top clients are? No. Okay, well, let's figure it out. So let's say hypothetically that you know, or maybe they do, that they're able to rip off, you know, 20, 30 top clients on a quick list. So the next question for you is, of that list of 20 or 30 clients, how often are you on the phone with them? I said the phone, not an email. An email is a communication tool which is, you know, I use hundreds of emails a day. It's a communication tool, but it's not as personal as a phone Call.

How often are you on the phone? Reaching out to your top 20% of your clients, letting them know you care about them. Remember, no one cares how much you know until they know you care. Expressing your professionalism, checking on their coverage, making sure they're protected and everything they work so hard for. I mean, let's face it, ladies and gentlemen, your clients are working their tails off every single day. Driving to work. I was driving up the freeway this morning. I had an early morning meeting this morning, so it was before 7am My time. And on the other side of the freeway, guess what was sitting there? Nothing but cars stopped in the middle of the freeway. So we got people working their tails off to earn a living sitting in traffic for an hour to a day. Oh my God, I can't believe it. You know, I'll tell you a story about that some other time. But anyway, my own theory on that, right? So they're working hard. So are we protecting everything they work so hard for? Let me ask you this about your top 20% of your clients. That list.

Do they get preferential treatment when they call in? You have any kind of VIP program for that list? Do they know they're on that list?

Think about that for a minute. Or is your team spending all of their time on the bottom 20% of your clients that are always complaining about something, constantly having problems, not paying their bills on time, I need to make a payment. Etc, Etc. Etc. We have an affectionate term in our agency for them. And in fact, I have a picture of that term in my hand and it's called ankle biters. Okay. You know what I'm talking about. And agents that I consult with all the time all over North America tell this story about that. So what are you willing to do about it? I don't know if you're familiar with this term or not. I commonly use it. I learned it years ago. It's called hutzvah. All right, so it's a. It's. I believe it's a Jewish word for guts. Do you have the guts to do anything about it? Yes or no? How badly do you want to have a preeminent insurance agency business? How bad do you want it? In the words of my friend Jeb Blunt, if you want it bad enough, you'll do something about it, right? Let me ask you another question. You might want to write this one down. What is a good client worth to you? There's been lots of studies done in our industry and outside of our industry, the ones that are very familiar within our industry. Are called the Bain and McKinsey studies. And it revealed that over a hundred clients out of 100 clients over a 10 year period. 100 clients over a 10 year period. If you have just one policy for those hundred clients, you're going to lose 90% of them over a 10 year period, 90% of them. If you got two policies, you're going to lose 38% of them. If you got three or more policies, you're only going to lose 10% of them. How bad do you want it and what are you willing to do to go get it? So pencil me this out, if you will. The average lifetime value of a client, let's say it's eight years, okay? The annual commission for that client is $500. $500 times eight years equals $4,000 in commission revenue. Got it?

What are you willing to Invest to earn $4,000 time and time and time again, my friends, how bad do you want it?

The cool thing about this industry, in this business, and I think a big part of the reason that I'm still in it and still having great success, it's really pretty simple. It's just basic blocking and tackling and nuts and bolts, but it's what you do with them. You know, if somebody said to me, you know, what's your one trait that has led to a lot of what you've been able to accomplish? It's really simple, friends. It's called implementation. Don't think about it, don't talk about it, just do it. And you got to have bf. Alright?

I was having breakfast with some business buddies this morning and I was talking about BF to a younger business buddy and he said what his. I said, have I told you what BF means? And he goes big fat. I said, no, I guess I haven't. BF means belief and faith. If you have belief and faith in yourself.

You can do this. You got this.

So with a client segmentation system installed in your business.

There'S been a huge need that's been identified. And we have to understand as a company who's really paying the bills.

Who'S allowing us to provide the high quality service, who's allowing us to provide good paying jobs for our teammates and allowing us to provide quality products that protect their families, their homes and their businesses. My friends, your AAA clients are allowing you to keep your best company appointments. I don't know if you can see that or not. It's not the AAA clients that normally have the loss ratio issues.

It'S the ankle biters and those are the ones that are costing you. Possibly conversations with your company reps about your loss ratio. Think about that with me for a minute. You see, industry experts, through my deep investigation all over our country and North America, see, they estimate that your top 20 to 25% of your clients produce over 50% or more of your profit, and your bottom 20% actually lose over 20% per customer in some instances. You know, we could try and say that we're different as many ways as we want for whatever reason.

That we choose to delude ourselves. But my friends, it's just not true.

So let me give an example of our most recent client segmentation update from this current year. Okay?

And I personally did this. It was a bit of a grind because, you know, it used to be based on number of claims, say over the last three years and various other factors. But you know, now we have clients that have a couple of claims a week, but their loss ratios are really, really good. You know why? Because their premiums are so really, really high. Okay? So we had to come up with a different formula to calculate our client segmentation. So our AAA clients are based on primarily three things or all of our segmentation is based on three things. And let me back that up for just a second. We don't call them A, B or C clients in our agency. And this is completely our opinion and choice. You can do whatever you want to do in your world as well. We have AAA clients, we have double A clients, and we have single A clients. Okay? So we just choose to make them all A clients. And if somebody slips down to B, that means they're a bozo and they're gone, I guess we'll say. But anyway, so.

A triple A client.

And a double A client and a single A client are all based on three primary criteria, right? Number of policies. So a AAA client has three or more policies, and this can be a combination of accounts as well. So if they have their personal insurance and their business insurance, we combine the accounts for client segmentation purposes. For example, a personal lines and a commercial lines account for the same individual. Okay? So if they have three or more policies, that's one number of policies, number two claims. And I'm reading verbatim, the account is profitable and or the ratio of the number of policies to the number of claims in the last three years is less than.03. So I've gone into a mathematics factor that determines if they're profitable or not, because I figured out I'm looking at the number of policies agency wide. And I came up with A mathematical formula, and evidently it works based on the feedback from my team. So, for example, an account has five policies and three claims in the last three years. Three claims divided by 15 policy terms. See, I built the policy terms in there. Six months versus a year.

I thought it through to the end. Right? Account has five policies and three claims in the last three years. Three claims divided by 15 policy terms equals.02. They qualify to be a AAA client. All right, Payment history, one or fewer late pays per policy term in the last three years. So, you know, stuff happens. Okay, so that's a AAA client. Let's go down and look at a AA client again. The three criteria, policies, claims and payment history. Now, I've got much more elaborate samples for you if you ever wanted to see them. But we've chosen to whittle it down to three to keep it the KISS theory. Keep it stupid simple. Okay, policies for double A. Two or more policies. This is going to be a combination of accounts. Again, claims the account is profitable and or the ratio of number of policies to the number of claims in the last three years is less than.05. The factor got ratcheted up a little bit because AA's sometimes have more claims than AAA's do. Right. It's a qualification factor. And I'm going to get to something at the very end that's an absolute key for everything. Then the payment history. Still one or fewer late pays per policy term in the last three years. Okay. And actually.

That might have been a typo on my part. That should have been two. Okay, so two or fewer late pays per policy term the last three years. They're not quite as preeminent as a aaa, but they're still good enough for a double A. And frankly, you know, you're going to find that 60% of all of your revenue is your double A clients. And those are people that can be moved up to AAA status if your messaging is right, if your positioning is right, if your story is right, facts tell and story sell and explain to them that you'd love to move them up to AAA status. And so the question that they might be thinking in their mind is the conversation that's always going on in their minds. Right. What's in it for me? They're playing their favorite O station. So you've got to have a program, you know, preferred status, et cetera, et cetera. Okay? And then we've got single A again, policies, claims and payment history. A single A client is somebody who has just one policy. The account is marginally Profitable or is unprofitable. The policy and claims ratio does not meet AAA or AA criteria. So it's just flat. They don't qualify payment history. They got a late payment history. However, we're not ready to fire them yet.

So it's really that simple. AAA or single A. So in speaking with teammates about this theory and how what they need to be doing to continually to keep it up to date in our agency management system and I'm going to talk about. Just a second.

We had a training about a decade ago in our organization. It was probably one of the most important things we've ever done. It's one of the longest trainings. This went on for a couple of months.

One of the most important, one of the longest. But influential is another word that comes to mind. It's called judgment. It's really that simple. And judgment starts back in the hiring process. You see, if you're hiring fast and firing slow, you're probably not hiring people who are qualified to make good judgments on behalf of your organization. Think about that for a minute. That's why you hire slow. You've got to dig in and see if they've got what it takes.

Okay.

So if you've done the pre qualification with for them and through them and around them and done the background on them and done the reference checks and all that kind of stuff and found out that they really have what it takes, then you don't have to worry as much about them making a judgment call. Alright, so I encourage my team make a judgment call. You're smart.

Are they AAA or single A? You know the answer. And my strong encouragement also is pretend like you own the place and make a call.

It's really that simple, friends.

Allow them, empower them to make that judgment call and that decision. Okay, so a lot of people have asked me, well, where does this located on your systems? Well, we're fortunate enough to be in partnership with an agency management system. And I'll proudly drop the name, it's Hocksoft.

Who has a miscellaneous info field within the system that allows us to customize. Looks like 14 different fields. Okay, so the very top left field, the number one field is client segmentation. So in our agency management system, every time you click the miscellaneous info field you look at it. We've customized it to a segment and it either says triple A, double A or single A. It's really that simple. And today only because you listened to this entire podcast, I'm going to throw you some bonuses at the end.

Would you like to Know what else is on our miscellaneous info page? I'm going to share it with you today only. A free bonus just for you. What this means for you, it means that you're going to also be able to get this information out of your existing client base, your clients, your, your future clients, your centers of influence. And what this means for you is going to allow you to grow your business to levels that you've never achieved before. You're going to have more influence in your community and people are generally going to know who you are wherever you go. It's mostly a good thing. The thing is, if you go out during regular business hours, you may not be able to get away. I got a note from a client that we were an agent that we worked with this morning. He goes, you know, I saw you at an event last month and for two days I was trying to, you know, get a couple minutes with you and there were people all around and then it was your wife. I said, I'm sorry, we couldn't connect. So he sent me an email follow up and friends, it's really a good thing and it's awesome. Okay, so aside from client segmentation.

Thank you. Directors reminded me to settle down because they get excited about this stuff. Okay.

Aside from client segmentation, we have the best communication method.

You see, they want to get ahold of you. When they want to get a hold of you, it's not about you, it's always about them. It's always about them, never about you. So we've got listed the best communication method for people and if we know the best time to reach them. So it might be email, it might be phone, might be cell phone, might be text. And 10am in the morning might be the best time to reach them. That's information you need to know. Friends. Okay, who referred them to you? That's the first thing that I look at when somebody on my team comes in. I said, I need to talk to you about a client. We got a problem. First thing I look at, I go to see how they found about us and if it was a referral, I want to see who referred them. Why? Because if something went wrong with that client, I want to know who they're going to go tell. Because the next call after they get done chewing us, they're going to go say, you referred me to that agency and they suck. Now fortunately that's a rarity that that happens. But I mean think about that psychologically, right?

Their category of business, you know, like the restaurant business or a non profit or Technology or whatever or their cat or their industry that they work in if it's a personal lines customer. Because if you can group influential industries and become the center of influence for that industry, you are going to win more. The next line is their favorite charity because they make a donation to their favorite charity for every referral. The next one is they've been a prospect since. The next one is they've been a client since. I like that information because it tells me how long it's taking my people to close deals. And the norm is it's normally about one to two weeks. And if it's commercial, it's normally longer than that. Okay, I've got a line for center of influence for personal lines. I got a line for center of influence for commercial lines. We've got a line for contractors, state license board number. And the last one is where they like to go on vacation. Why? We had a question in our JAR program a few years ago and the question of the month was, and maybe we'll be doing a podcast on the JAR program coming up soon. And my director is shaking her head and I agree with her. Now I'm holding up two fingers. Anyway, the question of the month was, where do you like to go on vacation? And we put it in our agency management system. Friends, think about this with me for just a minute.

Think back to the greatest memories, the greatest personal memories that you've had in your life. Were many of those on vacation of some kind. I mean, the ones that you got the pictures of that picture that you look at and say, I remember that vacation. Remember we did this. Remember we did that. Do you remember this memory? You remember that memory. You see, friends, if you have the information in your system and you know where that occurred, when things are going wrong with the file, and let's be clear and transparent, things go wrong with files. I encourage my team. Hey, jump over to the miscellaneous info screen and while you're looking up the information, work on it. Say, hey, by the way, have you guys been to Hawaii lately? You'll be amazed. The tone of the customer immediately changes, changes to one of friendliness, one to happiness.

No, we haven't been to Hawaii. Where'd you get that information? I said, well, we keep notes on everybody because their most important moments are really important to us.

Wow, that's fantastic. Got it. I hope you understood understand what I just said because at the end of the day, we're in the relationship business. And like I was talking about on a recent podcast.

Experience plus feeling equals connectedness. Connectedness builds relationships. Relationships builds trust. And money follows trust. You may want to write that down. You may want to share that with your team. You may want to teach them that exact thought process. Because at the end of the day, that's what it's all about. Friends, I hope this has helped you. I hope this helps you have a game plan now to fully segment your entire database and to know who are the ones that are really bringing in the money.

Don't think it, ink it, and go make a difference. Be unstoppable, leave no regrets, and get uncomfortable. I'll talk to you soon. Thank you for listening. If you would like to listen to more episodes or share this podcast with someone you care about, please visit www.unstoppableprofitpodcast.com now go out and make a difference. Be unstoppable and leave no regrets.