Ignoring the Power of Pareto - Mistake #3

Foreign. Welcome to the Agent Leader podcast. My name is Brent Kelly, your host. Thanks so much for joining me for another episode. Excited to be with you again and excited to share part number three of my series that I'm going through. And if you've listened to the first two, thank you. On the five biggest mistakes that agency leaders, agencies CEOs manager. So this will be part number three today. All of these mistakes are impactful and important. And as I've stated before, it doesn't mean they're the only mistakes, right? There are other mistakes out there. There are other pitfalls that agency CEOs make. But my goal is just to share with you, the listener, through my experience, through my discussions with agencies, I get to work with and coach on a weekly basis. The trainings that I do, obviously my conversations with Roger Sitkins and other team members who of our company who have been doing this for a long time. You know, these are really important areas to address for agency leaders. And so I'm hoping that they're providing value to you, the listener. And that as I went through the first two and part one was running the wrong way enthusiastically about having an agency plan with purpose and with vision, with a true mission in mind, what that looks like, and understanding that our direction has to match our destination. So that was part number one. Part number two last week was wearing busy as a badge of honor. And too often we see agencies wearing busy as a badge of honor. Which leads us to part number three, which is ignoring the power of Pareto. Ignoring the power of Pareto. For some of you, that's going to jump out and go, I know exactly what he's talking about. For others, maybe you're not quite sure what I mean by that. Before I get into mistake number three and take a deeper dive today on this podcast, just a quick reminder again that we are having our CEO Boot Camp. This is for agency leaders, our virtual CEO Bootcamp that begins on September 28th. So still time. If you're listening to this podcast, soon as it comes out, or at least relatively soon when it comes out, there'll still be time to sign up for that. And we're going to be having five virtual sessions, live sessions with Q and A, a lot more information you can check out. If you want to learn more, just go to sitkins.coms I t K-I-N s.com CEO-bootcamp so sitkins.com CEO Bootcamp and learn more about it and register. Going to be a lot of interaction, a lot of peer roundtables as well. And we can't wait to kick that off. So, again, invitation to you, the agency leader. All right, let's get into mistake number three, ignoring the power of Pareto. And I guess if you're Italian, you'd probably have a. You'd say it fancier, like Pareto or Pareto. But I'm not. I'm just a basic English speaker, so I probably don't say it perfectly. So you can send me nasty emails if you want to about my pronunciation. But the point of it isn't the pronunciation. The point of it is, is the impact that this has on your agency. And as I said, beginning, some of you are going to know what I'm talking about. Some of you are like, okay, Brent, what does this mean? Pareto, however you want to say it. Well, here's the deal. Pareto comes from Vilfredo Pareto, who in 1896, discovered or uncovered, however you want to say that this idea, and it first came because he was an Italian economist. If you read the story that realized that 20% of the population in Italy owned 80% of the land, right? So is this, this, this imbalance of 20% owned 80% of the land, you may go, okay, well, that makes sense. There's probably rich people that own the land. But he went on to do more findings and discoveries. I just got curious about different things. I mean, everything from economic situations to the pea pods in his garden that 20% of the pea pods had 80% of the peas. And there's been ongoing books and discussions. And I, if you listen to this podcast, I have talked about Pareto and 80 20, I think in a couple different episodes. I know, I think back in February of this year, prior to the pandemic, I talked about objections to 80 20, because we hear that from people sometimes. But this, I just want to talk about the scope of the mistake and really more of the impact that it has for insurance agencies. Because, you know, the bottom line is this. There is a predictable imbalance in the universe that when it's really understood, number one and number two, it's applied, actually done, it will accelerate your results. It will reduce your frustration as an agency leader and both in business and in life. And, you know, the bottom line of this, of the Pareto's principle, Pareto's rule, the 8020 rule, all the names you want to give it is this, is that 80% of our output is created from only 20% of the input. So that 20% of the input we give into anything gives us 80% of the output. Well, that begs the question, first of all, is this true? And I will tell you that it is, and I'll provide a few examples. But if it's true, then the next question is, well, how do we find the 20%? Right? Isn't that the question we should be asking as an agency leader? Where are Those levers, those 20% factors that are going to generate the 80% of the results, the effectiveness that we want? Because right now, even going back to last session or last podcast that I did, it was around wearing busy as a badge of honor. Well, a big reason why we're busy as a badge of honor is because we don't know what levers to push as an agency leader. In many cases, like, well, there's lots of good things to do. But when you understand the power of 80 20, a Pareto's rule, Pareto's principle in your agency, you begin to push on the right levers. And what you realize is that not only does it increase your results substantially, but it reduces your frustrations. It's kind of a win win. Right? So let's just talk about some examples. And you know, again, I've done other podcast on this, so go back and search and you can probably see stuff on 80 20. But let me hit, I want to talk about four key areas of 8020 examples that we see. This first example I'm going to share with you is the one that we spend the majority of our time at Sitkins talking about and working with agencies because it's huge. In fact, when you, when you pull this lever and you understand it and apply it, it changes mindset, philosophy, strategy and accelerate your results in incredible ways. And this is the bottom line. 20% of your clients produce 80% of your revenue. 20% of your clients produce eighty percent of your revenue. Well, okay, what does that mean? Well, it means what I just said, that just your top 20% of clients give you 80% of the revenue. The money in your pocket, in the agency's pocket. Now, does it mean that every agency is exactly this 80 20? No. I mean we've seen some that are, you know, top 20% produces 84% of revenue. We've seen some where it produces 72% of revenue. And I will tell you that if you were a personal lines heavy agency, it may be more like 2050. Right. So it does depend a little bit on the size and scope of the agency. But I will tell you that at Sitkins we have looked at and observed and I say this with 100% transparency, thousands of 80 20s, whether it be agencies and, or production producers, books of business. And it's always pretty darn close to this, right? If you're, you know, do a lot of a mixed agency or primarily commercial or benefits, it really almost always comes down to 20% of the clients produce 80%. If you're personal lines, it might be 20%, that's 50 or 60. But the key is the predictable imbalance. It's again going back to kind of pushing or understanding and using the proper levers. And so the first aspect of this is awareness. Now, the next part of it, when it comes to clients and the mistake that we see within this aspect of Pareto's principle is that even if they go, yeah, we see that 20% of our clients produce 80% of our revenue, they don't change any of their behaviors or strategies. Nothing changes. We continue to look at every client basically the same. And one of the trademarks that we teach around at Sitkins is we can never allow a profitable account to subsidize an unprofitable account. Never allow a profitable account to subsidize an unprofitable account. And, you know, the truth of it is most agencies are allowing this to happen all the time. And in fact, we actually spend, in some cases, more time, more energy. More of our problems are focused around clients, probably because there's more of them that produce a very minimal amount of revenue. And I would say beyond that are our least impactful relationships. I mean, you think of your best clients. We don't think always just in terms of revenue. We think in relationships as well, in the risk advice that we can provide and the service. And so it's just getting really focused on the right clients. And there's a lot of different things that agencies do. I mean, sometimes even in our world, as a coach and trainer with Sidkins will hear, well, you guys really don't like small accounts or personalized accounts. The answer is no, that's not true. We don't like unprofitable ones. There's a difference, right? There's a difference. And understanding that it's not just necessarily the size, it certainly has something to do with it, but it's the profitability behind it. If you're spending your time and your energy and your problems and your expenses are focused around clients that are losing you money, A, you're wasting time and energy. Number two, B is your best. Clients aren't getting your best. Maybe that's the first question I ask you as a listener. Are your Best clients right now this is, you know, if you're an agency leader, you're talking about your agency accounts. If you're a producer, look at your own book of business or if you're a service team member, you're, you know, your team's book of business. Are your best clients getting your best? Are they getting proactive attention? Are they getting attention, that is ways that we can help them solve issues or are we like, hey, thank God we have some big clients and we'll do reactive service when needed and that's oftentimes what happens. And hey, thank God this is a great business in many cases. No one else is doing anything much more. So we continue the relationship. But boy, when you get laser focused and first understand this principle and avoiding the mistake. Right. Of Pareto and saying, let's really look at our top 20%, first of all, what can we do? Best example that we had in working with an agency, did a private client training for an agency in the mid south a few years ago and you know, a good sized agency, 6, $7 million in revenue for an agency. And you know, we went through a lot of different areas, some of the things I've already talked about. But at the end we had a conversation with the agency leadership before our final session and they said, listen, there's a lot of things that we can do, we'd like to do, but here's the bottom line. We know, and I know, I get it, that if we just as a team got really intentional, really focused on this principle that you showed us, 80, 20, which we ran our numbers and man, they are right on. And we just focused on doing some of the very basic things that we need to do, that it became part of our culture, our DNA, that our top, top 20% of clients were known, that we spent more time and attention on them, that we were proactive on them, that we made sure that they were full time clients, that we made sure that we had a continuation of relationship management program, the top 20% because of the profitability in the relationship and that because of this we were able to earn and ask for referrals, that needs to be our focus. Just that. And I'll tell you, for an agency again, about 6, $7 million in revenue, they tripled their organic growth in nine months from 3% to 9%. Their organic growth in nine months. Well, why? Because they got focused on this one principle, Pareto. They're like, we've got to stop making the mistake of either ignoring that this is real or if we know that it's there, then we're not really fully focused on making anything happen. There's no consistency or commitment behind actually doing anything. So that's the first part of Pareto. And I've talked about that and even some of the objections I mentioned earlier that we see to 80, 20, but it bears repeating because I am amazed, I am so amazed of really good agencies, I mean, successful agencies that they've been in business a long time. Smart agencies, smart leaders. And we look at these reports and they go, oh my gosh, what are we doing? Right. And then some cases, even if they see it, yeah, yeah, we'll get to it later. Right. We'll start to really focus on this later. And these are things again at Sidkins. We dive deeper with agencies of what do you do with the. You know that 80% doesn't mean they just go away. Right. We still need to treat them. Every client on your books needs to have a high level of service. But what are some ways that we can do things? There's not so many touches, you know, as far as, like personal touches, where we're taking up time and attention, energy again, where we've got clients who are paying a lot of money to be part of the agency and we're giving the exact same service as someone who's got a boat or a trailer or, you know, just a home or just a car or, you know, just one monoline policy, a GL policy. Like we're giving them basically the same time and attention that we are for a 10, 20, 50, 100,000 revenue account that really values the agency and the carrier and the partnership and all that goes into it. So that's mistake. The first part of the mistake I wanted to address. The second thing is, and I just mentioned carriers a second ago, that 20% of your carriers in your agency produce about 80% of your revenue. Your commission to the agency. Maybe you know that, maybe you don't. But I always find it interesting with Pareto when it comes to carriers that most agencies are almost braggadocious. That's a word about the amount of carriers they have. Oh, we got 67 carriers, plus we got all the ENS market. So really we can access 233 different carriers or whatever the case is. Right. And it's this idea that we can place anyone, anywhere, anytime. And it kind of goes back to the busy wearing busy as a badge of honor. But it's like the thing that they're excited about is actually probably something that's holding them back because it creates Too many options, right? With too many clients, with too many variables. And we have, we're chasing every rabbit hole. Let's try to place this and let's do this. And again, we're losing focus. And beyond that, the amount of contingency income that agencies miss by saying let's leverage our best relationship with our best carriers. And I know right now, if you're an agency leader listening to me, you know who your best carriers are. You already have an ide idea because guess what, they're the people that may come into your office. You have phone calls you're excited to talk to, no different than our clients. And some that you're like, oh yeah, I guess, you know, let's make up some number for 20, 21 for some premium value that we know that neither one of us are actually going to have a plan to hit. But we just have to put something there so we can, we can make it look good on the books, right? That's what really happens. Your best care is you actually do create a plan together, you work together. So that's another part of Pareto, a couple other things that's more internal with your team. If you're a sales leader listening to me right now and you've got, you know, let's just say three, four more producers, it takes more than that for the stat to really have any effect. But 20% of your production team produces 80% of your results and that's that we see it all the time. You know, if you've got 10 producers, there's two that probably have 80% of your book of business. Now, they may be producers who are on the way out or they've been doing a long time. I get that the bottom line isn't just, you know, the 20 to 80, that's the important aspect. But the application of this is are you spending too much of your only diminishing asset, as I talked about before, your time, your precious time and energy with producers who are never going to get to the level that you want them to. It's the squeaky wheel syndrome, right? Well, they're, they're barking a lot, they need a lot of help, they need a lot of hand holding, they need this and that and, and, and what happens is again, you've got producers and maybe they're not even the top two, but they're high potential producers who, if you just gave them more time and attention, if you just gave them some more resources, maybe if you did some joint sales calls with them, if you had some really good Debriefs, you know, they're hungry. They're hungry to get better, but they just need a little more. They're going to do just fine on their own because that's who they are. But if you gave them a little bit more, what would it really look like? So that's the mistake we see within this, too, is that we spend too much time and attention with those that no matter what we do, and you know who I'm talking about, they're never going to get to that level that you really hope. And the last part is the inverse of this or another version of this, I guess I should say, is that typically 20% of your team produces 80% of the problems. And this could be anybody in your agency, Right? And again, you probably know who I'm talking about. If I said, hey, who's a person or two, that maybe you wouldn't mind if they didn't come back to the office or show up virtually, whatever it is, you probably have an idea. Now, that may seem harsh or cruel, but it's also just human dynamics and human relationships that you know that it's back to the squeaky wheel. You know, there are causing a lot of the issues and problems. And maybe it's culture, maybe it's production, I don't care what it is, but it needs to be addressed, right? Draw a line in the sand, so to speak, of, hey, we need to have a very clear conversation. What's going on right now is not helpful for our agency and where we're trying to go and our future vision. Back to mistake number one, not having a plan. If you don't have a plan, well, how do you know if it fits? But when you have a plan, hey, if this person doesn't fit the plan and you lay it out, here's where we're at, here's where we're going. Here's some critical things we need you to do. You know, I'm here to help you. I want to help guide you. However, if it's never going to happen, everyone else on your team is looking at you going, well, if they can do that, I guess I can too. Now, whether they say that directly or not, that's a different question. But it's something that people are thinking mentally, right? So here's just a recap of Pareto. And again, some of this may be a little bit of a repeat, but I think it's so impactful and so important that I want to continue to share it. I talked about 20% of your clients produce 80% of the revenue. 20% of your carriers produce 80% of your commission. 20% of your producers produce 80% of your sales. 20% of your team produces 80% of the problems. You got to address that. So the first question is this. Do you know your agency's 80, 20 Pareto's power? Do you know that in these key areas, certainly with your clients and revenue with your carriers, that's important if you have a production team with them. Here's a second question I'd ask you. What is your client's strategy right now to round out, retain and replicate the top 20% that creates 80% of your revenue? If you believe me, and I hope you do, and I hope you just run over, see it yourself. But if you see it there, what is your strategy? Do you have a strategy? And just a few general questions that are hugely impactful is are you allowing profitable accounts right now in your agency to subsidize the unprofitable ones? Do you know the profitability of your accounts? I mean, it just becomes very clear. The agencies that have a plan around this and understand it have a huge competitive advantage. Are you allowing unprofitable or profitable producers, excuse me, to subsidize unprofitable ones? We got some good thing. We got Sally and John and Jim because they're taking care of these other seven people that aren't doing anything. Now, it doesn't mean that these seven people are never going to get it, but it goes back to what I just talked about. Who are the ones that are coachable and who are the ones, no matter what you do, they're just not going to get it right. So there's two choices. Either you've got to put them on a different seat on the bus, potentially see if there's a better fit in the agency. We've seen agencies do that. We realized that this is a great human being, just not a good producer. And this could be for any position. However, we had another opportunity where this worked out better for them. It fit their personality, it fit their unique abilities for others, no matter what you do. Maybe it's a culture issue, is that, listen, if we don't address this and have a clear conversation, it's going to spread. Right? And we owe it to our entire team as an agency leader to understand that and to take action around it. It's not always easy, but it's important. It's an effective right. Is there a conversation that, you know you need to have that you've been putting off? We've all been there. I've been there. Right. And because you. It's more than just you. It's more than just them. It's about us, right, As a team. It's about our clients, it's about our carrier relationships, all these things. Then you say, well, I don't want to have this conversation because it's uncomfortable. Yeah, but it's also uncomfortable that we're not serving our clients as well as we could. It's also uncomfortable that our team is seeing things and there's a culture issue. It's also important that our carriers aren't getting the most value. It could be community, but all these things are impactful. So the bottom line of Pareto is this. Find the 20%. The mistake that agencies make is they treat every person, every account, everything the same. It all looks the same, it all sounds the same, it all feels the same. Which, in essence is nice. It's good. But it's going to put you at a disadvantage and it's gonna. It's gonna prevent you from being that best version agency that we always talk about with the agencies that we work with. So I hope this was impactful and helpful to you, as always. If you have questions, reach out to me. If this podcast is adding value to you, I'd love a rating and review. Five star only, please. Kidding. You can leave whatever you want, but we certainly would appreciate the five star reviews. And also, last call to action. Again. September 28th, we start our CEO Bootcamp. If you want an opportunity to dive deep into five key areas of your agency, if you want to interact with other agency leaders, if you want some other coaches and training and resources that are going to help you, this is something that I promise you're going to get huge value if you attend. So love to see you on that. With that, I wish you all the best and your success. Thanks for listening.