3 Reasons You Should Care About Best Practices
By Jacquelyn Connelly
The Best Practices Study, a joint effort of the Big “I” and Reagan Consulting, Inc., celebrated its 26th anniversary with the update released last fall. Since 1993, the Best Practices Study has aimed to help agencies measure themselves against best-in-class agencies, identify performance gaps, and better manage their businesses to address problem areas. If you’re still not convinced you have something to gain by engaging with the research, here are three specific reasons that might change your mind.
1) Valuation.
Reagan Consulting recently determined that if an agency increases growth across the board for commissions and fees by 1% each year, it creates a 5% premium on agency valuation, says John Merrill, vice president at Reagan Consulting. On average, Best Practices agencies achieve an organic growth rate of about 4.6%, according to the 2018 Best Practices Study Update. Calculate yours by taking the yearover-year change in commission and fee revenue (excluding acquired revenue) and expressing it as a percentage of prior-year commissions and fees. “The difference between those two numbers is your organic growth, excluding any contingents and acquired revenue,” explains Tom Doran, partner at Reagan Consulting. In short, “the value of a company that is growing at a fast pace is much, much higher than one that’s not,” Doran says. “There is a real premium on organic growth in the valuation, so a relentless focus on organic growth should be at the top of any agency owner’s priority list.”
2) Perpetuation.
The 2018 Best Practices Study Update classifies producers by age group: up to age 35, age 36-45, age 46-55, and over age 55. Understanding the age banding of your agency’s sales force is an important consideration when evaluating the strength of your sales culture, Merrill says, because “you don’t want to be too concentrated in one age group.” “You don’t want to see all your new business generation in the senior category that could be retiring within the next five to 10 years,” Merrill continues. “That’s going to be an
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issue when you’re thinking about valuation, perpetuation and mergers & acquisitions—you’d like your new business generation to be more balanced across the board, and you want to be investing in some of those younger classes to create long-term value.” If you discover, for example, that “you’re getting a lot of production out of your junior and senior classes and not a lot from your freshman class, that’s an easy way to determine you’ve got a shortage of young producers being developed,” Doran says. Especially if your agency has producers in their 50s who are “really doing well and hitting big numbers,” Doran says, looking at your new business generation alone isn’t enough to determine whether your sales success is sustainable long-term. “Those producers are going to retire at some point, so you better make sure you’re investing in that next generation of producers in order to maintain your production capability.” As with everything in the Best Practices Study, the research enables you to compare your agency’s production numbers and validated producers to those of your peers, Doran says: “That would help you make sure you’ve got enough producers on board to drive the growth you want to accomplish.” “That’s an issue a lot of us are struggling with—where’s your next sales force coming from?” says Michael Newsom, fifth-generation owner of W.J. Wheeler Insurance Agency in Bethel, Maine. “Are we going to turn one of our current employees into a producer, or are we going somewhere else for that next person who’s going to sell? Are we looking at someone who has insurance experience, or are we going outside the industry?”
3) Motivation.
When the Best Practices Study first started in 1993, “it was a fairly new concept,” recalls Trey Starke, president of Starke Agency, Inc. in Montgomery, Alabama. “I’ve always tended to want to manage through data—I think data can tell you a lot of things. But at that point in time, the data Reagan was getting didn’t exist. I wanted that data from a management perspective.” Why? “We’ve gotten kind of competitive about it, because
