Episode 81: The 80/20 Rule Is Always In Effect

Welcome to the Unstoppable Profit Podcast. 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. Greetings, friends. This is Mike Stromso coming to you live from the Living Agency Laboratory with the next episode in the Unstoppable Profit Podcast. And today I am excited to share with you a strategy that I learned many, many years ago that we took immediate action on in our agency business. And it's been a game changer. Now the key is we must inspect what we expect. And you've heard me say that before. And today we're going to talk about something that we internally discuss as client segmentation. Client segmentation. And that's the topic of today's Unstoppable Profit Podcast.

It's just awesome. Awesome in the way that it helps us identify the things that we should be working on. And I'm going to go into some detail today about exactly what we have done to implement that in our agency and how we use it on an ongoing basis, on how we update it on an ongoing basis to make sure that we are operating at maximum efficiency, which ultimately, at the end of the day, will result in maximum profitability to our bottom line in our insurance agency business. Thank you for joining us today. And please, if you're listening to this while you're driving, thank you again. You may want to make sure that you go back and go to our YouTube channel because you get to watch this as well if you experience greater impact because of the fact that you can visually see me. Yes, I talk with my hands a lot. Fantastic. And sometimes we can learn a little bit more when we can see things. Because as I am going to point to right now, the core of the Unstoppable Profit Producer program is a philosophy that has been developed over almost 35 years in our industry. And I continue to research it because I'm one of you. I've been there, done that. I'm still doing it. And It's a simple three step blueprint called the three Ps. It's people, processes and promotion, in that order. And client segmentation is a part of the processes with the within the Unstoppable Profit Producer program. So let's dig in today and let's talk a little bit more about client segmentation because the great thing is find something to write with and find something to write on. And take copious notes and begin to envision how you can implement what we're going to talk about today in your own insurance agency business. It will lead to the next win. It might lead to the next lesson, but that's the experience, it's the lessons. Lessons are technically failures, but we don't call them failures, we call them lessons. It's those lessons that cause us to grow. Don't be afraid to fail. You know, fear is false evidence appearing real. Don't have it. Don't let it become part of your mindset. And remember your mindsets, your skillset. So let's dig in today and let's start talking about client segmentation. What's at the core of client segmentation? You ever thought about that? I have, I've studied it, I thought about it deeply, I've investigated it and I have found what is at the core of client segmentation is the Pareto Principle. The Pareto principle is. Well, first of all, it's named after the economist Vilfredo Pareto, and he was from Italy. And the Pareto principle specifies that 80% of consequences come from 20% of the causes. 80% of consequences come from 20 percent of the causes, therefore asserting an unequal relationship between inputs and outputs. The principle serves as a general reminder that the relationship between inputs and outputs is not balanced. Okay. The Pareto principle is also known as the Pareto rule, or most commonly in our world, the 8020 rule. And I have found in my journey of business over the last some 45 years that the 8020 rule is always in effect. The 8020 rule is always in effect. So once you learn more about this, start looking to identify what's going on in your world and you will begin to find the 8020 rule seems to always be in effect. So let's talk about it as it relates to client segmentation. So the other thing that I want to share with you, and I say this a lot within our insurance agency business, I share it with my teammates. I do my best to explain to them why, based on the time that they have available for the lesson, less is more, less is more. And it's, you know, bigger isn't always better. It's been said as well. But you know, ultimately, at the end of the day, it's not the top line revenue that's important because you don't take that home. What you do take home is the net or the bottom line. And, and this will help your bottom line by simply causing the less is more to be in effect, sometimes eliminating the bottom 20% of your book. All right, so the most important thing that needs to be done is you need to go through your entire book of business and this will not be something that's going to happen in an afternoon, if you will. It's going to take some time. It's going to take some organization, it's going to take some discussion with either your leadership teams or all of the people on your team. And it's going to take an organizational and coordination effort on an ongoing business. Once you set the bar for your client segmentation, I'm going to give you some thoughts today to help you set that bar, a starting point, if you will, so you can continue to go forward. And don't be afraid to inspect what you expect. Don't be afraid to tweak and shift and make better or alter your plan in this particular realm until you get to the point where you have got it the way you want it and you have got it working the way you want it. I will tell you this in working with some of the coaching members within our programs, especially in our platinum realm, that people, once they start to implement this kind of stuff and they start eliminating some of those, no disrespect to anybody, shall we call them ankle biters? The people that seem to drag us down emotionally, time wise and otherwise in our business who always seem to have a problem with something, they call all the time, they've always got a problem with something and when they call, their attitude isn't the best, etc. Etc. Etc. You know what I'm talking about. Do you have any of those kind of clients within your agency business? If you do, the good news is regardless of your past, you've got a spotless future. So just turn the page to the next page in your future. It's a blank page. Design your business so it supports your life. See, we don't want to have a business that dictates how our life's going to be. We want to have a business that supports our life. And if you constantly have these people that are constantly have a problem, they, they're constantly calling, something's wrong, their policy constantly cancels and they want you to rewrite it as an example, and the list goes on and on, maybe you want to think about eliminating them. That's the bottom 20%. Okay, think about it like this. If you've got a thousand clients, it's been found and I've studied this and I believe it to be accurate. You know, around the 80% mark, sometimes it's down to 70. But that realm, okay, if you get a thousand clients, you likely have a top 20% of clients, or roughly 200. Who are your best clients? The ones who pay their bill, the ones who you never hear from, the ones who never have claims, the ones who allow you to place every single possible policy they have with your agency. And when they do call, they're friendly, they're coachable, they're nice, they refer you business, et cetera, et cetera, et cetera. Those are the clients that you want more of, Right? But why? Why aren't we pursuing more of those types of clients? Because the bottom 20% is taking 80% of our time and friends, we've got to eliminate that wherever possible. So if we got the top 20%, we got the top 20%. What about the middle 60%? Well, those are people who, you know, trust you. They are generally coachable. They are normally pretty friendly. But maybe we haven't done a good enough job in marketing to them or promoting to them to earn the rest of their business, or we simply haven't asked the right questions to cause them to think hard enough or other circumstances which have led to that. So that is our, if you will, the prime place to start within our acre of diamonds and to earn more business. So great stuff and a great opportunity for you. So once we learn this in our agency business, there's a lot of ways to look at what you're going to position the name within your agency business.

For your client segmentation program. You know, some people say we're going to call them A clients, B clients and C clients, F. Fantastic. It's up to you. We decided to call them AAAs, AAAs, AA's and Single A's. AAAs, Double A's and Single A's. Because our thought process was everybody's an A client if it's a client that we want to keep. So we decided on AAA and single A. I want to share something with you that just happened within our Platinum Coaching circles just this past week. And I love the thought process of this. One of our Platinum Coaching members said, I'm going to call mine Platinum, Silver and Gold. We're going to have a VIP level of services and we're going to call it Platinum, Silver and Gold. I love that. I love that a lot. So anyway, the sky's the limit, my friends. You can call it whatever you want. You can position it however you want. But most importantly, at the end of the day, do something, take action. That's my greatest encouragement. Do something. And so once you figure out what you're going to call it, you also have to figure out within your technology systems, where are you going to position this information? Where's it going to rest when somebody opens a client file, where are they going to see this information? You've got to figure that out in the beginning as well. We have it in an area, it's on a separate page. So it's not right there in people's face because we've been doing it for so many years. Our agency management system came up with a new feature within the last year or so which allows us to put tags, or if you will, a post it note right there on the front page in certain colors, with certain titles, et cetera, et cetera. We just haven't gotten around to moving it from this subfolder, if you will, up to the tags. We will sometime in the near future. So everybody can see it right when they open the file. So whatever agency management system you're using, or whatever data management system you're using, make sure it's right there present on the front page so that anytime somebody opens a file, they can see it. Boom, it's right there. So they'll know, hey, if Jane Smith calls and she's a triple A client, they open the file and say, jane, thank you so much for being a platinum client at ABC Insurance Agency. We're privileged to serve and protect you. Thank you for trusting us with our all of your insurance policies for both personal insurance and business insurance since 2007. How can I serve you today? That could be a sample opening for a triple A or a platinum or whatever you want to call it, Client within your business. And how do you think Jane feels when I say that to her? She feels special. Here's the word that seems to be the buzzword in today's world. She feels valued. She feels valued. And ultimately, at the end of the day, my friends, that's what we have to do. We have to meet people where they are and make them feel valued. Because in today's world, they don't need us anymore. They can move just like that. You got to make them feel valued, you got to make them feel special at every opportunity. And having your clients segmented is a huge opportunity throughout the to be able to do that. So let's dive in. Let me share with you some information about our agency business and how we've segmented our Triple A, Double A and single A clients. And please take notes about this.

We want to help you in every way. Possible. So here's the beginning that I wrote for our insurance agency business about client segmentation. Okay? We need to identify and understand as a company who's paying the bills and allowing us to provide high quality service, good paying jobs and quality products that protect people's families and their businesses. Industry experts estimate that your top 20 to 25% of clients produces over 50 to 80% of your profit and your bottom 20% actually lose over 20% of your of profit per customer. My friends, you need to pay attention to that. We can try and say we're different in as many ways as possible as we want. For whatever reason we choose to dilute ourselves, it's not true. This is a guide to help everybody understand what makes for an excellent client. An average client and a client will end up costing the agency more than they produce. And that might be the bottom 20%. The Pareto principle, the 8020 rule is always in effect. So our AAA clients has an identifiable high quality characteristic about them that separate them from every other client. Some of those characteristics are as follows. And we haven't broken down for both personal lines and for commercial lines. Ok? So in our world, by the way, individual health is personal lines, group health is commercial lines, and group life is commercial and individual life is personal. So it falls into that realm for lh. Okay, so personal lines, these are people that have three or more policies with us, Auto, home, umbrella, boat life, etc. They're friendly to deal with and they value our time and advice. Okay? Abusive clients are not triple A clients. As an example, okay? It's somebody that generates at least $250 or more per year in annual commission. They are profitable from a claim standpoint. You can design it however you want. Anytime there's less than two claims, there's. We take a hard look at it and see if it qualifies. They need to be profitable. It's hard to gauge that because, you know, it depends on the premium for their entire account as to whether they're truly profitable and how many losses they've had over a certain amount of time. Whether they 3 years, 5 years, 7 years, 10 years, et cetera. Okay? They generally pay on time. There's no late pays in the file and they're a strong referral source. Okay? Those are somebody that might be a triple A client for personal insurance. Okay? For commercial lines, generally they have two or more policies because the premiums can be higher there and somebody that generates at least $1,500 in annual commission. Again, the claims are commensurate with the account. They're not people that often have claims. They're risk management minded. They want to figure out how to limit the claims in their program because they know it will save them money in the long runs. They generally pay on time, they're a strong referral source, they're coachable and friendly and they want to do business with your agency first all of the time. Again, that's the mindset of a triple A client. So at the end of the day, they're your best clients. And you've already got these in your book of business. You know who they are, okay? And that's the people that you want to pay the most attention to. The other thing with segmenting your clients is if you've identified anything like this within your own insurance agency business, you already know that bottom 20% sucking a lot of your time, sometimes up to 80% of it. And you don't have as much time to pay attention to those top 20%. So they don't get the love that they deserve. So we have created a specific VIP program, if you will, to make sure we're extending the love to those AAA clients because they deserve it, because they are your best clients. And so make sure after you get all this set up that you install a program within your business to show your triple A clients or your platinum clients, whatever you decide to call it, the love because they deserve the love. Alright? The other thing it's going to result in for you, what's in it for you? What this means for you is once you start doing that, you're going to earn more referrals from the AAA clients and my friends. At the end of the day, that's what you want. Because AAA clients generally hang around other AAA clients. It's really that simple. So you want them referring their friends and everybody else they associate with because they're normally like minded people. All right, so let's talk about a double A client. A double A client can be thought of as our bread and butter. They help us keep the bills paid and the lights on, if you will. They're steady and solid customers that share many of the same characteristics as a AAA client, but they don't generate the income that maybe a triple A generates. So a personalized double A client might be somebody who has two or more policies, just the auto or the home or the auto and the life, etc. Etc. They generate an average annual commission of at least $175 and you can set that number for whatever works for your particular marketplace. They do not have excessive claim or transaction activity. So we take a look at that and we gauge it. They might not be AAA quality yet, but they don't have excessive activity and claims late pays. They generally pay their bills on time. They may not have a hiccup here and there. Friendly to deal with and values our time and advice. They're not abusive as well. Similar to AA clients. They're loyal acquisitions. Cost for business are very high and retention does matter. And they're a limited referral source. They may not refer us as much, but there are bread and butter customers. They're not necessarily down where the single A's are, but they're elevated above and they're reaching to become a AAA customer or you're trying to help them reach up to being a AAA customer. Okay, Commercial line, same thought process. Generates an average annual commission of at least 750 to $1,000. More than one poll, at least one policy or more. They comply with reasonable insurance company recommendations. They do not have excessive claim or transaction activity. Again, you need to go in and take a look at the transactions and see what they look like. You'll quickly identify this. Once you dedicate the time and create the plan to go in and do this, you will start to quickly identify who your best clients are, who the double A's might be, and you'll quickly know. And just by asking your team, they will tell you who those single A's are. Or more importantly, the bottom 20%. They normally have those people at the tip of their tongues. As in addition to that, if you're doing any kind of download activity and you have people that are constantly late, pays every single month, month after month after month, that's in your bottom 20%. And you might think about wanting to try to eliminate them. What would you do with that extra time that you gained by eliminating them? Hmm. Grow your business with more AAA clients. Aha. Right. Okay. Double A clients generally pay on time and they're a limited referral source and commercial lines as well. So at the end of the day, very similar characteristics. They're just a notch below, but again, they are your bread and butter. So let's dig into a single A client.

A clients, or A minus clients, if you will, are a drain of resources for both the agency and our AAA and AA clients. They take away the time that we can't spend with them because they're draining our time and our energy. We will not sacrifice professional service or standards to any client. However, we don't need to jump every time an A Client needs something. Okay. We are constantly prioritizing our activities, whether planned or not. We need to prioritize activities. We need to prioritize our activities to best serve our double A and our triple A clients, most importantly. So we need to be thinking about that all of the time. We need to give our single A clients every opportunity to move up to a double A or a triple A client. We do that through the use of our newsletter, our bounce backs, our phone calls with service staff, transaction communications, check in calls and more. That does not mean telling them they're an A client or you have to buy something else from us. It does mean that letting them know each time you talk to them that we do offer home insurance, that we do offer life insurance, that we do offer workers comp insurance, epli, cyber insurance and the commercial insurance realm. You get the gist. If they have only a singular policy with us and we also offer other lines of insurance like health insurance and life insurance, if that's your particular agency. So to give an example of a single A client in the personal insurance realm, they have just one policy, generates an average annual commission of less than $175. Sometimes they have excessive claim and transaction activity and you have to figure out where the lower bar rests. And if they're below that lower bar, are you willing or do you have the guts to eliminate them or can your budget handle eliminating. It's a wild card situation. I deal with agency owners a lot that say, you know, yes, I want to get rid of them, but our budget can't allow that yet. I said, fantastic, let's set a date into the future where we can revisit that. Let's get back to growing our business through the effective use of people, processes and promotions to get to the point where we can eliminate them. Okay. And we just have to know that if they rear their ugly head and it gets really ugly and they need to go at that particular moment, then we might need to send them one of our fire and client letters. Yes, we have developed those as well. Okay. Sometimes they're late payers, they're short with staff and never happy no matter what we try to do to please them. They're unwilling to let us quote any other line of business and they don't refer us at all. That might be a personal lines, single A or A minus if you will. Okay. Commercial lines, same kind of thought process. They generate an average annual commission of less than 700, 500 to $750. They generally have. We generally have just one policy for them, they're sometimes combative and they will not comply with recs. As an example, excessive claim or transaction activity. We need to watch again the claims activity, transaction activity, et cetera, et cetera, to see if they're completely unprofitable. If they are completely unprofitable, then maybe we just need to move them on right then and there. They're abusive to staff and insurance company personnel through inspections. As an example, commercial clients who shop their insurance every year, that's somebody who might be a single leg client, their late pays, they don't provide us any referrals, etc. Etc. Etc. So identify who they are, create your own client segmentation outline and move on and get with it and position your insurance agency business for great amazing growth into the future. You will have more control on your clients, your client base and who's the highest priority and who's the one who's worth going the extra mile for. All of the time, every way, every single day. The other thing that we did in our insurance agency business, we created a short sheet that it says is at everybody's desk, it's just a one, it's a buck slip, if you will, about the size of a buck slip. If you know what a buck slip is. It's an 8.5 by 11 piece of paper folded in thirds. One third of that sheet is a buck slip size sheet. So we created a buck slip for everybody to keep at their desk so they can quickly identify what a AAA or a single A client is for either personal lines or commercial lines on the fly, on the dime. Because we encourage and teach our team to also constantly be updating our clients. If they have fallen below AAA down to double A, change it within the system. If they have fallen from AA down to single A, change it within the system. Because we constantly are looking for ways to give our double A's and AAA's more love. But we have to be able to pull the data from within the system to be able to do so. My friends, I hope this has helped you today. I think it's just a critically, critically important exercise for progressive, growing insurance agencies to do within their own agency book. It will take some time. It's not going to happen overnight. It's an exercise. Depending on how many hundreds or thousands of clients you have, that will take some time. If you have say two or three thousand clients, it may take, I don't know, two, three, four months of organized activity. That's ok, you've got to start somewhere. But once you get it done, It'll be a sweet place to be. You'll be able to pull your Triple A list just like that. You're having a live event, an open house for your business. The first thing you do is invite every one of your AAA clients and you can, boom, pull the list. Boom. Let's invite them. Boom. We're doing this. Let's pull the Triple A list. Let's get them invited. We need to know more information, information how to make our insurance agency business better. And you need to do a cli complete one of your marketplace researchers or client avatars or a client profile map or a similar document. Who do you go to first? Your Triple A clients, my friends. It's a wonderful, wonderful, sweet place to be. I hope this has helped you today. Thank you for joining us in this episode of the Unstoppable Profit Podcast. This is Mike Somso coming to you live from the Living Agency Laboratory. And please, if you haven't subscribed, please go to Unstoppable Profit Podcast. That's Unstoppable Profit podcast dot com. Go there and subscribe. We will conveniently drop the next episode into your sphere and we're out there in all the stores. Whether you're on an Apple device or a Droid device, just go to the store. You can find US unstoppable profit podcast.com get logged in so you don't miss any of our upcoming episodes to absolutely continue to change the game for your insurance agency or other business out there. And please, if you got value out of this, please share it with your friends. Any other business people that you know, please feel free to share. Feel free to share this. Business principles or business principles. These strategies will work for any business, whether it be an insurance agency business or otherwise. Feel free to share with your clients if you think it's helpful. All right, friends, thank you for joining us today. I will see you on the next episode. Until then, get out there, make a difference, be unstoppable, leave no regrets, and above all, take action. I'll see you on the next episode. 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, the Unstoppable and leave no regrets.