What’s Dragging Your Agency Down?

Welcome to the Agent Leader Podcast. This is the podcast for independent insurance agency leaders to challenge the status quo, to uplevel your thinking, to break through plateaus, and ultimately become that best version possible, both for you as a leader and leadership team, and of course, your entire independent insurance agency. My name is Brent Kelly. I am your host. I am delighted to be with you on this episode and super excited to share with you a really important topic. We're gonna talk today about drag, the drag on your agency, or at least potential areas of drag, these things that are hindering you and your agency, not just from growth, but from freedom, from true opportunities. Now, there are no perfect agencies. That's not the point of this podcast, but I do think there are huge opportunities for you as an agency leader to take a step back, analyze your agency and go, Where are there some drag or friction points that are holding us back from maximizing our team, our people, and of course, the effectiveness with our clients? So why do agencies have drag? In fact, I would just start off with this. Why do good agencies, and if you're listening to this podcast right now, I'm guessing you're a really good agency. Now, not just because you're listening to this podcast, haha, but because you care about growth and development. Because if you care about growth and development, you're looking to get better and you listen to podcasts like this. So why do good agencies— and by the way, in working with agencies of all sizes and shapes over many years, over all of North America and coaching agencies, I've seen agencies get stuck in terms of revenue at $1 million, at $3 million, at $5 million, $10 million, $25 million, $50 million, $100 million plus in revenue. I've seen agencies get stuck, not because they're not good agencies. In fact, you can't get to some of those numbers. Without being really good agencies, but because sometimes they start to do things, right, that become just a way of doing things without taking a step back and going, maybe there's a better opportunity or a better way. And as I said earlier, not just for growth and profit, which is fantastic, but also for freedom of the agency. So I want to start off and just paint up a picture here. And this is an analogy I had in my mind. I've shared this before in different formats, but Imagine that you or your agency is a world-class sprinter, right? You picture a world-class sprinter and that's you and your agency. Talented. You're disciplined. In fact, you're moving fast, right? Going fast. But there's a problem, right? Every time you go to the track, you add a parachute and that parachute gets a little bit bigger, right? As you grow as a sprinter. And of course, the analogy is you grow as an agency. We add more parachutes or a larger parachute, which does what? Slows us down and creates drag. All right. And the fact is that you're still talented, you're still disciplined, you're still really skilled in many areas. You're still trying really hard, but now you're running with this hidden drag. So here's the first point that I want to share with you as we kick off this podcast today is that growth Growth in your agency doesn't remove drag. Growth hides it. Growth doesn't remove drag. It hides it. See, here's the thing that I found about in very talented and driven agencies. What makes you good is that you're talented and driven. And because you're talented and driven, you also work through things that are slowing you down. Maybe you're not moving as fast or efficiently as you would like or want, but you're still moving forward. And that's why I said growth doesn't remove the drag. Often hides it. So let's just start off by identifying what is drag or where might drag come from? And I'm just gonna highlight a few things. We're gonna go deeper in some of these concepts on the podcast today, but I think one of the things that we often see with agencies, in fact, one of the first things that we do with agencies when we begin our partnership is we look at their client allocation mix, looking at different areas of their clients and how their people work and serve them. And I think there's a client mix, uh, misalignment. That often happens that causes drag in the agency. I think producers for agencies often get stuck in busy work or service-related functions. I've talked about that before. It creates a ton of drag. Now, there are a lot of reasons for that, but there's drag because they, they're still working hard. They're still going out there. We'll bring another person in. But again, growth sometimes hides that hidden drag. We often find that the revenue is growing overall, as I mentioned, but the revenue per employee, which really talks about our efficiency and our profitability, remains flat. And I'm sure I'll share this at the very end, but what we'll find is that agencies often grow wider than they grow taller. Does that make sense? Right? So we're growing, but we're kind of growing out and maybe a little bit up, but mainly out versus really growing up and accelerating growth. Now I want to start with the client mix allocation, and I've had some discussions on this, but I want to bring it up again. So last year we had some pretty pretty major breakthroughs at the Sitkins Group in analyzing books of business for agencies. And for years and years and years, and I'm sure you've heard me talk about it on this podcast if you're a regular listener, we talk about the power of 80/20, Pareto's principle, that 20% of the right input leads to 80% of the desired output. And of course, for agencies and studies that we work with, we see in thousands and thousands of these studies that 20% of the clients produce 80% of your agency's revenue. We go much deeper than that. In fact, last year we took this to a deeper level where we analyzed the 4 tiers of an agency. So instead of just looking at 80/20, we looked at Tier 1, Tier 2, Tier 3, Tier 4, which is simply the top 25% of clients, next 25%, next 25%, and the bottom 25% of clients. Now, none of this is going to shock you as far as how it breaks out. Well, I wouldn't think it would shock you. Guess what? The top tier clients by far had the most revenue for the agency. In fact, the studies that we did showed that the top 25% of clients produced about 88% of the total agency revenue. The next tier, the next 25%, produced another 8%, which meant the bottom 2 tiers only produced 4%. 50% of the clients that agencies work with only produce 4% of revenue. And it goes back, are we allocating our team, our people, our resources, our energy in that manner, or are we just serving Everybody kind of the same. So just to give an overview of this, um, higher level of the 4 tiers. Again, this isn't going to shock you, but I just want to share some of this. Top 25%. And just thinking about your agency, if you haven't run this, look at it. Obviously the largest, most strategic, they typically most appreciate the tools and services at the highest level that your agency brings, and by far have the highest profitability. And not only the revenue, but produce by far the most profit. For an agency. Again, we want our best people working with our best clients. We also want to have more focus, not just that we have larger clients, but what are we doing not just to keep them, but to replicate them. The next tier, the next 25, solid clients, generally profitable overall, and there's some growth opportunity. So a good opportunity we often see for maybe newer developing type of producers, right? So I think they're worthy to have in your agency, but we just have to be very careful and clear in how we work with them. We start to get to tier 3 and tier 4. And by the way, the scope of this podcast is not to go overly deep on all we're going to do with tier 3 and tier 4. We'll talk more about that. But bottom line is this, they're smaller, high service intensity needed relative to revenue. The tier 4 clients in particular are extremely unprofitable, high complexity. And here's some things we've heard too. They typically cause the most E&O issues for an agency. In fact, overall, we talk about, um, with agencies is an acronym called TPEE. T-E-P-E-E. Let me explain it to you. TPEE. It's time is the T, E is energy, P is the problems. The next E is employees that you have at your agency. And the last E is expenses, the cost of doing business. We often find a very disproportionate amount of time, energy, problems, employees, expenses spent on tier 3 and tier 4. And so we just have to understand that this principle, the Sitkins Principle that we introduced last year, applies to all agencies, but it's not just knowing what it is, but starting to leverage or understand how we can maximize it to what? Reduce the drag, the friction. And there is processes around this that we help agencies with, but the first step is just knowing and understanding that there might be some significant drag. And even though we're growing. There's a much better way and better option, uh, to, to navigate this. See, the math that I talked about reveals the parachute. And so some things that you could look at, I know, um, you know, I don't want to get highly into KPIs, key performance indicators, but a few things that we look at, that two KPIs, and by the way, we have this in our Sitkins white paper we released last year, that are often overlooked or not analyzed or used as much as I think they could be. Number one, I've already mentioned revenue per employee. Which is obviously total revenue divided by the full-time employee equivalent. And I will tell you that, you know, best practices out there, depending on the agency side, is somewhere typically in the $250,000s, $260,000s. We believe that every agency can certainly attain $300,000 revenue per employee. It might be a process for some, depending on where you're starting. Obviously, we know geographic areas matter and all those things, type of clients you work with, but bottom line, it is certainly Feasible for an agency to achieve a $300,000 revenue per employee mark. Number 2 is spread per employee as a drag indicator. Revenue per employee, pretty common. Spread per employee, not as common. Spread per employee is your revenue per employee divided by your average compensation per employee, or excuse me, subtracted your average compensation per employee. And you take those 2 numbers together, you get a spread per employee. So again, the average revenue per employee is $240,000 and the average compensation is $200,000. We have a spread per employee of $40,000. Just using numbers that I could do math on. But that's basically gets you down to gross profit per employee. So a very important metric for you and your agency to look at. Again, revenue per employee minus the spread per employee. And then looking at just the concentration analysis, right? If we haven't really looked at it, and one of the things that we help agencies do is not only looking at the 4 tiers, but how are people allocated and what would be the best practice, best version possible as we move forward to begin to allocate people in the right area. Because oftentimes we'll hear this from leaders. Leaders will say, Brett, we're just out of time or we're out of capacity. I hear this from sales. I hear this from service. We're out of capacity. We're overworked. We're tired. Well, they're probably just carrying too much drag, right? Because here's something I want to share, and this is really important. Where most agencies, I believe, make a mistake. And I've done some keynotes based around this, is that they're probably asking the wrong question, right? Most agencies are asking questions based around how do we find more good people? We're out of capacity. We're busy. We're tired. We're overworked, whatever it may be. How do we find more people? If we just had more people, Brent, then our problems would be solved. Now, please hear me. This does not mean that finding or getting new people isn't something your agency shouldn't be doing, right? I believe you should be looking to acquire good people for your agency, at least for most of you. But I do think it's fundamentally the wrong question to ask first. The best and first question should be, how are we most effectively optimizing our current people? How are we most effectively and how are we optimizing our current people? Because a line that I wrote down that I wanted to share to go back to the sprinter analogy is this: you don't fix a parachute problem by hiring another sprinter. Let me say that again. You don't fix a parachute problem by hiring another sprinter because you're throwing people at a problem that you haven't addressed, right? So maybe our client alignment's out of mix. Maybe our producer culture is really about service versus sales, or we're locked in the red zone. All right, this could be true with our service team as well. Too many interruptions, all these things. Well, if we just find another person, well, you might find the unicorn. You might, but you also might find a really good person who gets sucked back into your drag. And now you've got the same problem with just more people. So this is really important to address that. Yes, we have to understand the math and what it means for the parachute, but we also have to understand this. Just throwing more people at a problem doesn't address the problem. And I think it's, even though finding good people is really challenging, I get that. I think in some cases it's actually easier than fixing the problem or addressing the problem or identifying the problem. So where do we see the drag show up operationally? And again, some of this I've, I've mentioned, but I wanna go a little bit deeper. I think where the drag shows up operationally is this. Producers, again, that are busy or stuck or trapped in the red zone and not in the green zone. And if you're not familiar with that terminology, red zone is busy stuff. It's interruptions, it's distractions. Oftentimes you see with producers, it's not that they're trapped behind service, it's that they're hiding behind service. Or if they're trapped behind service, it's because they've never taken the time or energy or thoughtfulness to be able to say, I don't need to be the only person to handle this stuff. I have a team for a reason. Now there's a lot greater depth that we go into on that, but just overall, that's a concept that we often see. I think service teams are often reactive and overloaded. Now this comes back to client mix. It also comes back to what I said earlier with producers. You know, one of the things that we find with producers is that when they get involved in service, they think they're being the hero, but they're actually becoming the great interrupter. And when I talk to service teams during our Account Manager Fit program, and I've talked to hundreds and hundreds of account managers, service professionals, and we ask the question, do you like it when your producers get involved in service or take your job or certainly interrupt you? The answer is no, I don't. Right? And that happens all the time. And something that I share with groups is that studies now show that every time that you are in a state of flow or focus, you are in the zone, you're getting work done and you get interrupted, it takes the human brain 23 minutes to get back in the same state or flow. I hope that interruption was worth it. And agencies sometimes don't even think about it. Oh yeah, well, we just, no, like, how are we better navigating that we are intentional in our communication and our relationship with sales and service versus reactive? It's super, super important. I think one thing that we see too, where drag shows up, is that leadership measures growth, but not optimization. It goes back to what I said earlier. We're looking at, you know, some growth numbers, our revenue jumped this, but we're not looking at what we're losing out the back door. Or we're looking at growth, we're not looking at profitability. We're looking at growth and we're not really looking at revenue per employee or spread per employee on some of the things I've talked about. And here's the other thing. We keep and spend way too much on clients that we shouldn't. And this is typically tier 4. I mentioned the 4 tiers. Yeah, Brent, but every client's a good client. Every client needs service. We brought them in, we need to take care of them. Yeah, I agree. If you're going to have them in your agency, you need to take care of them. But I will tell you, most tier 4 clients, many cases when we go through the book, We find out a few things. Most people don't even know who they are. We don't even know how we got many of them. Yet we still have to handle them. We still have to deal with them. We still have all the different transactions that go with it. And again, this podcast isn't to talk about all the different things that you can do, but I would just, I would ask you as a leader and leadership team, look at your bottom 25% of clients. First of all, who are they? Who works with them? How many transactions do we have? How many problems do we deal with? And what are we going to do with them moving forward? Those are some pretty basic but really important questions, right? So let's go a little bit further. I wanna spend some time and ask you as a leader some questions that you can reflect on. And one of the things I want this podcast to be is hopefully a, an engaging conversation, some thought-provoking questions for you. And with that, some reflection that you can take back on your own time, whether you're sitting at your office at night, or maybe you're lying in bed and you're thinking about some of this stuff. Here's some things I want you to think about because If we're going to design a best version possible agency, we need to start with the end in mind. And we also need to ask some questions that maybe we've been avoiding for too long. So here's the questions I'll ask you. Number 1, if you started your agency today, what clients would you pursue and what clients would you not pursue? Seems like a pretty innocent question, but ask yourself. And then of course going, wait a second, now that I answered that, how does our current book look? Now I understand there isn't a perfect world, but you've got to be intentional in your design. Here's another question. I mentioned tier 4 clients. Again, it doesn't mean you have to do this. Just ask yourself the question. If you removed tier 4 clients, your bottom 25%, which by the way, produces about 1 1% of your revenue. In fact, our studies showed it was less than 1%. Let's just say it's a percent or two. If you removed all tier 4 clients, again, maybe they went to a third-party resource, maybe they were outsourced somewhere, maybe it was a carrier service center, maybe you sold them. There's a lot of things you could do, right? And again, the point of this is not to go through all those things, but if you remove them, what would really happen? What would really happen? And the last question I'm going to ask you is this: if your revenue per employee— is your revenue per employee improving? Excuse me. Is your revenue per employee improving or are you just getting bigger? You're incrementally growing. Maybe you're growing at 4% or 5% or 6% or 7%, and all that's good. You know, by the way, our numbers are higher than that. But maybe you're growing along. The question is, is your revenue per employee improving with that? Because that talks about optimization and efficiency. And to go back to what I started this podcast on is levels of freedom, not just for you and your leadership team, but for your entire team. Guess what we find? The agencies with the highest revenue per employee, not only the most profitable, so the most valuable, but they also typically have the highest and best cultures. Think about it, right? They're handling better clients the right time with the right processes. So just things to think about. Is your agency getting taller or is it getting wider? So that's my podcast for the day. Where is the drag or friction in your agency? I gave some ideas, some points, some things for you to ponder. And again, I want you to think about it. I love to get feedback from you. Um, love to hear from you. And again, if you got questions or send into our team here, we'll have links on this podcast. But here's my closing message to you all. Good agencies, and you are a good agency, and you wouldn't be listening to this if you didn't care about the growth of your agency, but good agencies stay stuck because they confuse activity and movement with progress, with optimization, with efficiency. And the breakthrough isn't about just finding more people. That's not the breakthrough. Not that there's anything wrong with finding good people. The breakthrough is optimizing the systems in your agency and to be able to change the question, not as how do we find more people, but how do we optimize our current agency and the people that we have? Because this is what's going to free you from so much of the drag. And help you move forward. Challenge the status quo, uplevel your life, uplevel your freedom. And I'll just say this, my closing call of action to all of you. If you're an agency that you're doing really well, right? You're having some success, but you do feel the drag. You know, there's a better version waiting for you to arrive. If you could just make some slight adjustments. And by the way, I have to share this. This was something that Roger Sitkins said to me years ago after a chiropractic appointment. And it's true. It's true with our agencies. He said, you know, Brent, sometimes a slight adjustment can make a huge difference. A slight adjustment can make a huge difference. And when we talk to our agencies, it's not about changing 17 things in your agency. It's about, is there a slight shift in a certain area that will multiply long-term results for you? Finding those areas of opportunity. So if you're ready to run without drag or less drag with less friction, If you're looking for some perspective, not pressure, but just perspective and overview on your agency of, hey Brent, we're a $12 million agency and we're doing really well. We're a $7 million agency. We're a $28 million agency. We're an $85 million. It doesn't matter the size, right? But we are a reputable growing agency and we're really proud of who we are and how we got here. We know there's a much better, brighter version of us in the future. And you're looking for perspective. Reach out to us. We'd love to have an initial conversation with you just to get to know you, see where you're at, see if there's an opportunity. We are only working with 50 private clients as we move forward at the Sitkins Group. We want to go very deep and very wide with our best clients that we can provide the most value possible and also connect the smartest brains in the room to have the most quality and deep conversations. You know, my belief is this: if you're the smartest person in the room, You need to go find a new room. So if you're interested in Perspective, go to sitkins.com/bookacall. Sitkins.com/bookacall. If you do enjoy this podcast, give it a subscribe, give it a like, whatever it is. As my kids would say to me, smash that like button or subscribe or whatever it is they say. Uh, but really wanna add value to you as you move forward. So thanks for being a listener. I wish you all the best in your success. Take care. Hey there, agent leader. Brent Kelly here. Want to take just a few seconds to remind you that now is the time to create your true best version possible agency. If you go to sitkins.com/bookacall, sitkins.com/bookacall, we'll get to know more about your agency, conduct an agency assessment, and provide your agency with a customized plan to help you avoid some of the pitfalls, frustrations, challenges, and roadblocks to get your agency to true ultimate freedom and become its best version possible. It all starts by going to sitkins.com/bookacall.