Insurance Agency Math

Let’s say it costs less than $20 to acquire a customer(it should)  and most times can just be measured as a fraction of fixed operating costs since there is no official advertising expense?  Is this really possible?  Yes,yes and yes!!!

Even if we broke down all your fixed costs, which are hopefully almost ” to the bone” and put some slight variables in you are hopefully at a very, very manageable daily cost.

Is being hired by one new household per day unreasonable?  NO NO NO.  If it is, time to change business.

But what about retention?  I think the industry accepted amount of the high 80’s, maybe topping out at 92% is PATHETIC.  Think about it, in any sales/business article I have ever read on the topic the prevailing wisdom is that it costs more to acquire new customers.  Sure someone could disagree but I don’t.  There is also the overriding human piece of it that does not seem to have a big role in the life of an insurance agent.  So let’s do some math;

The average gross commission is 15% with the average premium, lets be conservative and say $2000 per year.  So the gross revenue per account is $300.

Why can we lower rates? **This could be a post by itself but here is the short answer.   Well because $300  is better than $0.  $285 is way better as well.  Lets say we reduced the rate by $100 annual.  Is that really a marketing expense of $15?  Who cares.  We really have two years with them and lots of unmeasurable potential so why wouldn’t you want to keep them.

I HAVE NO IDEA.  Every other industry seems to be focused on getting and keeping customers.  Not as much in insurance.

Let’s put another way, I had heard and then read about what an agency should expect as far as referrals.  This was from one seemingly reputable place and the other was from an “iffy” consultant.  None could really show where their numbers came from except by saying they did surveys of agencies.  Many of them were talking about the amount of referrals you should be receiving per household.  It was said that the very best of them were receiving 1 referral per 50 households.


How is it possible that everyone you work with does not want to refer you business?  Now wanting to refer other people to you and actually referring them are two different things.  That being said, I am still baffled.  You provide a good service, follow a process, create some rapport, etc and yet you still only see one referral per fifty households?  Some, most actually, were even worse.

**Much bigger issues surrounding advertising, marketing expenses, lean agency, etc.  Save this for some other posts**

Take this as an alternate scenario;  You have 100 households.  Hopefully you are striving to keep 98 of them, not some week effort of 92 or less that the industry seems to think is acceptable.  Now, let’s say you average a 1/2 of a referral per household.  So you get 50 referrals from them which is WONDERFUL.  Now, with the right mix of companies, and being conservative,  7 out of 10 should be what you  are able to “close” as new business.  so net 35 new household.  Minus the two that left for whatever reason and you increased your households by 33.   This is wonderful!!!  Oh and it is also extremely realistic.

**start of what could be a much bigger post

Who uses the phone book?

So like a lot of people, a phone book shows up in a plastic bag in my driveway.  Seems like it happens a couple of times each year.  For whatever reason this weekend I decided to open the bag.  Yes, it is smaller than I remembered.  It is also apparently very eco-friendly addition produced by Hibu .

Now, I am sure somebody keeps them and uses it a few times a year.  My household does not, fortunately today is garbage day so it is now in the recycle bin.  I did learn about and have now opted out of the three available books.  Now what?

Do you have Google?  Then why would you need a phone book.  I feel kind of the same way about Angies List .  I firmly believe it is great to get recommendations but I prefer to get them from friends not strangers.  Again, I can see why some people need this sort of service.  Sort of a shame though, relying on an online forum rather than human beings you know.  So like all things I take a look at the insurance side of things.

In the yellow pages there are 200+ insurance companies listed.  Some are agents who take on numerous listings.  Others are names I recognized that are no longer in business.  I suppose I hope that they are not paying for these listings but some have full blow ads.   This is sad to me but hey; do whatever works for you.  I do wish I new who called them because of these ads, that would be much more interesting than the ad itself.

Bottom line, my phone book is my phone.  If there is not a number in my personal listings then I search via Google or even Facebook.  How about you?


Either way, just a thought.