Canadian Underwriter
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Setting the “Minimum”


April 1, 2004   by Rick Bauman


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One thing we see regularly with brokerages that have “hit the plateau” is a poorly defined vision of what a typical customer, or account, should look like. It is the same old story – if you are a hammer, then everything in the world looks like a nail. Go out and start pounding at anything in sight!

The problem is that all accounts are not created equal. Many brokerages wind up with a mixed bag of business, with many smaller accounts taking up disproportionate time and resources. Some accounts simply are not worth the time and money it takes to write them. Brokers, and perhaps more importantly account executives, have to draw their line in the sand and sharply define the “minimum account size” (MAS) for their firm. This is the only way to stop the pattern of low-revenue accounts clogging the operation. Do not replicate the problem – rectify it.

As a principal, or account executive, ask yourself this simple question: what is your time worth? The size of your income, whether individually or as a brokerage, is directly related to the size of the accounts you handle. And it does not take triple the amount of time or energy to write an account triple the size of your current average business client.

SETTING MAS

So what is that magical MAS number – is it $2,000, $20,000 or $200,000? There is no “right” answer – it depends on the ambitions, resources and niche of the individual brokerage. For general purposes, however, the MAS should be set at a breakpoint between your “B” and “C” customers. This is a critical transition point, because it marks the difference between truly profitable clients and marginally profitable customers.

In fact, the MAS can be set at different levels for different salespeople. For example, a top account executive who has forged strong relationships within a specific niche of “A clients” should set the benchmark higher, at say $25,000 to $50,000. An independent business unit, set up within the brokerage to service “C accounts”, should also have a MAS, but at a lower benchmark, typically $1,000 to $2,000.

Once clients have been divided into “A”, “B” and “C” accounts, you need to look at the “revenue per relationship” (RPR). This is important because we are not necessarily talking about premium volume or even commission income, but total revenue per client. In fact, many brokers do not even know what their average RPR is for customer segments. The goal should be to stick to your cutoff point for MAS and then increase the RPR for “A”, “B” and “C” accounts over an extended period of time. An important consideration is that the MAS is not set in stone – rather, it is a moving target that should be bumped up each year to raise standards and profitability. To begin, identify the following particulars relating to your brokerage operation:

Where do you want your RPR to be five years from now?

What would the necessary adjustment in MAS have to be?

Have you developed a rolling five-year plan to increase your RPR?

SETTING PROCEDURES

One question we get asked frequently from brokers and account executives is, “what about the call-in customers?” First, recognize the fact that most people shopping around for insurance quotes are not “A” or “B” clients, but more likely “C customers”. Remember the principle: what is your time worth? That will dictate how these client calls are handled. They should go straight to the independent business unit, which can provide them with appropriate and satisfactory service.

Simply setting a MAS for your salespeople sounds easy enough, but how do you actually do it? First of all, it will not come about through wishful thinking. There will likely be some resistance encountered by various level account executives, who may believe that the new benchmarks are unrealistic or unachievable. However, principals have to manage their salespeople and create the rules of the game. There is a reason why we call it “forcing vertical growth”. Specifically, they have to break the cycle of thinking that every account is a good account. Get rid of the “head trash” that says servicing all customers equally is the way to profitable growth.

The first step is to actually establish what the MAS will be for account executives and other salespeople. Setting the MAS can be done through tools, such as the “account executive performance agreement”. This is essentially a contract that sets out performance standards, non-optional behaviors, and any incentives or rewards for account executives. Spelling out what is expected of your account executives – and how they will benefit – is a critical part of a brokerage principal’s role.

The next phase is to ensure that the MAS is never violated, no exceptions. All account executives must understand why this benchmark is important and how it contributes directly to profitability. For clients who are “borderline”, creative options can be pursued, such as rounding out accounts to bring them up to your MAS through effective cross-selling or “up-selling” of products and services. After the MAS is set, understood and never violated, it is time to bump the number up. Try a 25% increase as the next step, then 50% as the next mark. That number is not static – its change will significantly alter the profitability of your brokerage.

If, as a brokerage principal, you do not visualize and write down your goals, you will not realize them. It is that simple. Setting the MAS is all about visualizing your goals in terms of the kind of clients you want to do business with, the performance you expect from your sales team and the profitability you expect from your brokerage. Why not start now?


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