Episode 316: Leaky Bucket... Retention Is Quietly Killing Your Growth

Welcome back to the Scale Your Insurance Agency Podcast, the show built for independent agency owners who are done being the bottleneck in their own business. I'm Daniel Metcalf, and every week I'm joined by my co-host Mike Stromso, one of the most respected operators in the independent agency world. Between the two of us, we bring you the real levers that move a $3 to $20 million agency from successful but maxed out to systemized, scalable, and running without you holding it all together. Here's what we focus on. Mike brings the people side, leadership, team development, niche sales mastery, and a three-piece system that helps agencies build a business worth owning. I bring the machine side. AI, automation, and workflow design that frees your team from the operational drag, eating your margin and your time. Together, we're building a framework that can grow an independent agency 4X to 9X without burning out your people or your checkbook. If you're an agency owner who's tired of growing by hiring, who knows you have a capacity sitting on the table but can't figure out how to unlock it, this is the show for you and your weekly edge. Let's get into it. Mike, another fantastic week of gold nugget conversations. What's our favorite one? The uh the acres of diamonds just sitting there within our agencies on how they're gonna scale. I'm super excited to be back for another week, Mike. Welcome to the show and and uh glad to see you.

Daniel, I am so fired up right now because of this week and everything that's been going on. Acre of diamonds, the other word that I was thinking about listening to you is leverage. I mean, there there's so much to leverage, and it that's what we're gonna get into today. We're gonna be talking about your acre of diamonds, your your true wealth in your agency.

Absolutely.

Which is the retention piece. And and and how do we not only leverage that, but we want to you know close the back door, so to speak, or in the words of one of my early mentors and yours, uh Mr. Dan Kennedy, put a fence around our herd, right? Absolutely. And and Daniel, the the the work that was done this week, uh, I had a chance to dive into it, and I'm still gonna continue to revisit because you know, as we talked about, we need to hear things how many times? Seven or more sometimes, right? So I'm gonna keep revisiting this phenomenal plan that you and and your team put together for an agency to complement the framework that has already been installed. Now it's time to take it to the next level. And you said something in the intro that we see again and again, and shall I say again, in the independent agency world, and it's that bottleneck. And that bottleneck in leadership of doing things the old way. Uh, the goal is to bring people forward to do it the new way and to position them in that future agency self, operating in the present, because that's the essence of scaling versus growth, right? Operate as a future agency in the present, not do things the same old way. Let's get into it, man. I'm excited.

Sounds good. Yeah, and this week what we want to cover is what we call the leaky bucket. Um, retention that quietly kills your growth. And so what's out there right now is that you can't outsell churn. Renewals, count rounds, cross-selling that is not systemized will eventually find itself behind on what the churn can operate under. So we want to start talking about how you can use retention and retention systems to stop always funding new business with lost business, right? This will allow you to create that flywheel that we talked about in previous episodes. Is this part of that flywheel process? Um, part of the revenue flywheel includes retention, upsells, and cross-sells. And so if you have a leaky bucket, that flywheel will continue to get the it's not going to move smoothly around. There's going to be a hitch as it tries to go go around. So we want to talk about retention and we want to talk about close and closing up the gap in those leaky buckets. So, Mike, we we both talk about how renewal is a sales process, not an admin task. What does that renewal process look like successfully for an agency?

Well, you know, I love that compliment uh of a thought process that you just said, Daniel. But the other thing that we teach in the executive coaching arm is continuing a relationship. So that continuing of relationship, meaning renewal, right? From a sales perspective, you look at it as a profit seat in a business perspective, you look at it as a profit seat, okay, it's an opportunity. And the agency that we're working with this week, they want to get to a certain, they're using uh policies per client as a metric, which is fine, right? And we want to help them get there, but you have to think about it as a revenue opportunity and how can you maximize the leverage of that existing relationship to continue the relationship, to build it, to grow it. And you know, the thing that just blows my mind, and I talk about this a lot in the framework of people, processes, and promotion and helping agencies, every person within your existing acre of diamonds, my law of 100 says, knows a hundred other people that will either come to their wedding or come to their funeral. So, I mean, the opportunities are massive. So it's a new way of thinking. And we run into this a lot because people are stuck in their old way of churn thinking. And, you know, as I was listening to you, Daniel, another thought that came to my mind was ladies and gentlemen, please don't listen to the world around you. Uh, with all due respect to the rest of the agency world out there, I know there's forums out there that involve a lot of captive agents. We're independent, we work for you, the customer first, and it's your business. So operate it like a business and think of each relationship as a potential greater opportunity for greater revenue. And again, like we said in the beginning, when we put that herd around our client base, they're a lot less likely to leave, and they'll bring their friends with them. I won't get into client segmentation, but yeah, great opportunities.

So, what what do you coach agencies on on how a renewal is a sales process, not an admin task? So, what what does a renewal sales, a successful renewal sales process look like?

Well, it starts with preparation. You know, preparation is 98% of success. Uh, you know, the execution, of course, it's important, practice is important, but it's the preparation. So uh one of our core tools is a pre-renewal checklist to begin to properly prepare for that entire process. And it starts months out. I mean, you know, a lot of agencies that uh we start working with and we'll say, tell us about we'll take commercial insurance as an example because it's more complex than personal insurance, right? So we'll talk about their commercial relationship continuation or renewal process, and we'll say, you know, tell us about one of your accounts. When do you start, et cetera, et cetera? And a constant struggle is we just can't keep up. I mean, we're like we're lucky to be 60 days out right now. And so I'm already thinking about Daniel and his team. All right, what can we lift? And one of the agencies that we're starting to work with, Daniel, this is a pre-conversation that we haven't had yet, so listen closely. We want to free up their time with what they have going on now so they can be freed up to start working 90 and 120 days out and maybe start preparing with our tools that we provide to them even further out so they can, and here's the key, strategically work for their customer to not only improve their current situation, but when you improve a problem solved, if it's been said, is an opportunity for that sale, right? So that's the tool that we use, and that's a part of the thought process that we share.

Certainly. So one of the um one of the tasks that we were brought in to do was use artificial intelligence first as a way to do data analysis and data analytics um for the organization in order to determine um some of the key, if you will, uh leaky buckets that they were dealing with, and they just didn't quite understand what the leaky bucket looked like. And so one of those was um they were down three to four points in their retention uh year over year. And so we started on the data analytics side, and we didn't analyze the data based on why people were leaving. We actually reversed it and said, what is making people stay? And of those that are staying and renewing, what what was the process, what was the um outcome, and how many of them actually increased based on the different types of cadence that we put that was being delivered. And after a couple weeks of this analysis, um, we determined that those clients that were connected with 90 plus days in advance from their renewal time, even if they didn't have the information on what the new rates would be or any changes, but just the fact of reaching out and starting to prepare them, giving them the expectations, running through exactly how they're how their renewal process is gonna go, exactly like some of the other forms and things that needed to be filled out ahead of time. It just showed that the agency itself was giving that um attention to their client instead of it just being another renewal conversation, or I hope that they just renew, or hey, we're just waiting for the you know, for the renewal just to happen, that they felt like someone was there to continuously build off of that relationship. We then used uh automation as a way to segment the clients out the timing of when it was getting to those 90 days, being able to send out those messages in a um uh in a regular format and a way that was personalized to their situation so that we could move them down that checklist, if you will, along the way and continue to communicate with them without the team having to go, okay, oh man, I'm six days behind. I forgot to do this one, and oh, I gotta go to this one. And it just put it in that cadence. Within the first 30 days, they immediately saw two points back on their retention that they had lost. So they lost four points, they got two points back just within the first 30 days because we started that process. Many of them were already wanting to talk about other insurance products, other other types of uh risk analysis, other items that they wanted to prior to them even being renewed. And and what we also saw was that many people are looking to be guided on their insurance, they're not out there already looking. And so if your competitor starts to reach out to them to say, hey, have they have they done this for you yet? Have they done this for you yet? Have they offered this up? That starts to creep into the mind of the of the client. And so then you're now on left, you're now on a level playing field with your competition instead of being in control, putting that fence around it. So we are just a big believer in that a great um a great offense starts with an amazing defense. And so that's the part, right? Defend the clients that you already have and defend the relationships that you've built because you're providing them the greatest value as possible. So that's that is how we combine um Mike and the UPP's renewal process and combine it with automation in order to help you scale your business and grow the business. So that is just to show where this needs to become on the forefront instead of it just being another activity where it's just another admin task. So with that said, Mike, like let's let's shift focuses more into let's break down where retention starts to slip, right? So between onboarding, I mean it starts from what people, what agencies started not to understand was that retention actually starts on the onboarding. Right? It starts at the beginning, not at the end. So it's the onboarding, the expectation setting, the claims, the service handoffs, all of those pieces is actually where the retention starts. So just help break it down from what you've seen as far as where this starts to break down.

It's even before that, it's something we were talking about yesterday. But Daniel, what you just said, man, so good. So good, such great stuff, great work so far. But I just have to reiterate a couple of points that Daniel brought up. Incredible. First of all, proactivity versus reactivity. What the AI and automation tools are doing, they're allowing the humans, they're freeing up human time, so that they can actually do the work that humans do. And some work that I've been deeply involved in for the last few months, and I'm going to be sharing this more and more in the coming months. When technology does the work of machines, which is what Daniel's talking about, when technology does the work of machines, people finally get to do the work of humans. And so what Daniel just described is exactly that. AI and automation is doing the work of machines. Now, if humans can do the work, which is risk analysis, and the the the gold nugget that you dropped on data, you know, mind-blown emoji, right? Reverse engineering the data, thinking about it differently, that was huge. I hope everybody caught that. Yeah, get back to it. Um, where does retention start? We were talking about this in our own business this week. The ideal client avatar or the ideal client profile. I mean, think about it like that. That's where it starts. And, you know, something that I developed in the insurance agency business. It took me a few years to figure this out, but I finally came up with a great question. Because the question is the answer, right, Daniel?

Right.

So I had somebody that came into the office and we required that people brought their policies into the office, and people like, well, what do you want those for? I said, Because we are going to look at your insurance protection. Well, I don't want to. I said, Well, let me give you some people that can help you because it's not us. Back to taking, I mean, there's millions of opportunities out there for y'all. You don't need all of them, right? So the ideal client profile. So one of them came in, brought the policies, and I'm looking at it, and I knew I knew I had this one because I'm looking at the coverage. They owned a home, they had 2550 on their liability protection. I'm going, so the question that I came up with, and this is my encouragement for everybody, and the retention end of it, right? And you can say this to people as well there. When you hear the word insurance, what's the first thing that comes to your mind? Protection or price? Right? And I would I just watch them. And if they say price, that tells me a lot right there that they're price trip. Okay? We may or may not be a good fit. But when they say protection, that tells me a whole lot. And I'm gonna go down a different path and and I'm gonna counsel them in a different way through risk analysis and everything else. So um it really does start in the ideal client profile. What does your ideal client profile say about the customers that you're looking to bring on? And your sales team, your production team, back to everybody being on the same page, right? I mean, working with agencies this week as well. There was a lot of those conversations about everybody being on the same page, the board, right? Needs to be on the same page to help the agency truly scale. You mentioned 4x to 9x. If you're gonna 4x to 9x, everybody better be on the same page because if they're not on the same page, it can't happen. So it starts with the ideal client profile to the sales team and training the sales team to be good counselors of what the handoff is gonna look like immediately after the close to introduce the retention and relationship continuation team, explain to them what their continuation and the renewal is gonna look like early so there's no surprises. And you know, doubt is real when people have a doubt about how you're gonna take care of them, that's when they go start thinking about connecting with somebody else because they don't know. People are silently waiting to be led and they want a strong, confident insurance agency team to continue that relationship to lead them. So it's it's all about the systems and the process, right, Daniel?

Yeah, and I think what I hope that they that the audience really gloms on on that is the idea of the team, right? That this isn't just where they're purchasing a piece of insurance, they're purchasing a team who's gonna be there to help them with their insurance needs and everything that goes with it. Because again, if it if it's just looks commoditized where, hey, I just have to have it, so I'm just gonna sign up and have it, instead of saying, hey, I have this whole team of people that are here to protect my financial life from that standpoint, right? And any of those types of calamities from breaking my home or breaking my business, right? Um, my personal life or my business life, that is the power of the independent insurance agency. That is what is the value behind it. And so that making sure that you express that team and celebrate that team and show them what the team will do and set those expectations, that is where you're really going to see your retention numbers rise from that standpoint. So good set of advice there.

The other thing that I wanted to add on, real quick, and piggyback on what you just said, Daniel when you're transactional, you become a commodity. And so you don't ever want the the the customer or the prospect or anybody in your communities to feel that you're transactional in any way. It's based on deep, significant, meaningful relationships. Right? So you don't ever want to be viewed as a commodity because that's when, again, uh, we'll check price and and we're gonna move, you know, for a hundred dollars. Or five hundred dollars.

Right. So let's go to the next part of the leaky bucket, which is uh on the cross-cell flywheel. And so the the largest hidden amount of revenue within an agency, it starts with number one on abilities to round out their accounts. And number two, on what we talked about earlier, is on the review, uh referral side of it, uh getting reviews and referrals. So let's talk about the cross-sell really quick. That is the number one hidden uh revenue source within any agency is that we bring them into the agency, we have a couple of, you know, a couple of products to help protect their lives, but they don't fill out the entire thing because we want to um build that relationship over time and things may change, right? Things change all the time, even faster, things might change within their life. And so being able to look at ahead of time coverage reviews, um, householding, what's changed, that's when we got back into that whole, hey, when we start reaching out to people 90 days, 180 days in advance, uh, we're actually trying to build the story of where we want to protect them for where they should need to be protected in the in the next upcoming year. And so where we start started seeing some places that were just not getting addressed was in the life insurance. Um, depending on where you are, there might be other special circumstance insurance like certain types of wind or earthquake or whatever it might be, other other risks that we just don't quite want to talk about because it's not part of the bread and butter of what you provide from a policy, some other other types of areas. Asking about, hey, do you have an ATV now? Or what you know, what are some of the major purchases you've made, other things that just aren't getting asked because a lot of times we're just talking about, okay, well, here's your new policy uh, or here's your your your new rate for next year based on the policy that you have with us. Today. And so that is a hidden place. And if if we can systemize using AI and automation, systemize gathering that information, right? Doesn't mean that we're out there um eliminating the relationship side of it, but some of the admin task it is to gather this necessary information in order to do a household review or a commercial review or whatever it is, it can do that for you. And many of our customers are willing to interact. We've seen the numbers. Many customers are willing to interact with artificial intelligence and automation to get to do data analysis, to do data gathering, to do data sharing, because they just don't want to have to sit on the phone or want to have to, you know, do it at that particular moment or in a rush. So if we continue to work with them on, hey, here's this, here's an easy way for us to get that information. Here's, you know, please interact with this. And you can even talk the information into this tool if you like, whatever it might be to gather that information so that when we get in front of them, we can be ready to give them the entire picture, right? Because we see a very low conversion rate on cross-selling when we do our data analysis. When you have the meeting with the customer and said, Oh, okay, I'll get you a quote on this, this, and this after the renewal. That the the conversion rate goes down almost in half, if not more, in many instances, when you try to cross-sell a product after the renewal process, after that um account review, uh household review, whatever it might look like, because it's out of their mind at that particular point, right? It's the um the pain of change, if you will, is already has already uh maximized itself. So we want to use these tools so that we can help be prepared when we have that, because that is going to be that that account review is going to be when your best chance of being able to grow that revenue.

100% agree. And just a couple of quick hits. Uh, and let me say this before I forget what Daniel just said, yeah, we'll get to it after the renewal, we'll get to it later. If for some reason they're checking somewhere else, and that other agency comes in with the information now, you might have just lost the account.

Right.

If you're not coming to the table with what's needed and what it takes at that moment, you no longer become the authority. But I encourage you to be looking for those stories within your current work as well that you can lend to situations because you know, something that we've been saying for years, facts tell and stories sell. So have stories. And one of the things that I used to tell from a leadership perspective, when I did what we call the state of the agency in the agency for my team, my large team, the last visual of the state of this agency was always a picture of one of our clients who wrote a check to no other agency for any insurance need, period, except our agency. And when they needed a 401k for their business, they thought we did that. They said, Hey, I need a 401k. We said that's not something we do, but we have a partner that can help you with that. They said, Give me the information because everything we need in your realm, we you're the only person we deal with. That's what you want. And if you don't, if you're not the source that they write a check to for any insurance need and nobody else, you have opportunity there. What's the cost of math, Daniel? What does that look like? I mean, you just did work, right?

Right. If you look at when we look at you know, a size of an agency with round numbers of $10 million, right? And if you in in we'll just use $10 million in in premium just for easy math right now, right? And if you retain 100% of it, right, and let's let's say there's no organic growth and rate increases, right? It's just straight, whatever the rate was last year, this year, obviously 100% is 10 million, right? But if you lose 2% of that, look at how big that number is by losing 2%. Now look at losing 5%. On the opposite side, also look at the lifetime value that you're losing from that retention. So not even just on renewing the premium there, but the lifetime value beyond if they if they don't stay with you going forward. So you don't get the year after year, you know, lifetime value is hey, they stick with you for five years or 10 years, they constantly grow their account by 3 or 5% because they're you know, their lives are updating, right? People get older, they have families, they uh businesses grow, businesses add more key employees, they expand locations. Think of all those things. So the lifetime value that just multiplies what happens when we lose an account. And so what we want to, we don't always just want to look at the number of, hey, how are we doing from retention? We want to look at, hey, what's it worth to invest in the retention because of what we're gonna gain on the lifetime value. And so that is the math that we're constantly looking at using our data and analytics is not necessarily what does retention do just for you know for the revenues for this year. What does what are we losing if we don't retain it? If we don't invest the time, if we don't invest the dollars, if we don't invest in the technology to help keep our retention rate at an acceptable rate. And what are what what are we losing? And then we start looking at, okay, what can we do to where our retention rate staying steady is positive because, hey, we've grown by 30% or 40% year over year. And it doesn't always mean new business. It means we've grown because we've account rounded and we've grown because of cross sales, we've grown because of referrals, we've grown from that standpoint of it. Now that 2 to 5% becomes a big number. So a 1% shift could be a huge number. And I learned this lesson from uh our friend Darren Hardy when he talks about an airplane. If you think about it, if an airplane's off just one degree on where it's going to a destination, it's gonna end up somewhere on the opposite side of the country, right? So that's that's why we use these numbers to say, yes, it might look like a small percentage point. That small percentage point, based on where you want to scale your agency to could put you on the whole wrong side of the map of where you want to be. So this is why the sleaky bucket means this is where we invest the most. This is where we invest our time and energy and money because it could make or break how you scale going forward. Also, for our friends who are looking to try to acquire other agencies and agency books, one of the numbers that you want to start to look at is the retention rate. That is a place where you can determine the value of that book. You can determine the value of this. Is this something that I just compete with, or is this something that I value? Because I know the renewals will be coming in and I can grow these. What age group are they? You know, what's their average age of their clients? What's the average age of their businesses? Where are they trying to go? Like these are all the types of math because you want to think about what that retention cross and cross-selling flywheels look like, because that is really where the scaling growth is going to come from, even more than just organic new business.

Yeah, and that's where uh your work with your team, Daniel, is so important because I mean, I I talk to independent insurance agency owners and leaders, and I say, let's talk about retention for just a minute. How clean is your data? How good is this number? And that's what I hear, silence. You know, the combination of your expertise to be able to make sure that that data is clean and the number is accurate, et cetera, et cetera, is just so vitally important, ladies and gentlemen. I mean, but working so hard for so many years to get to a place. Why would you risk it all, right? But let me just say something. We're here to be transparent to tell you the truth because we believe that telling people the truth is kindness. Here's the real truth, ladies and gentlemen. We're in 2026 right now, the markets are softening in some areas of the country and premiums are going down. An agency that we're working with, bigger agency, and the bigger they are, the harder they fall, right? And so when the market starts to soften, what's your fastest way to the cash? Your existing book of business to leverage or new sales that cost you sometimes seven times more to bring home? Natural answer, right? It's your existing business. But if you are not prepared to do that, it's just like bringing on a new employee to your business. How long does it take to get them up to speed to where they're at maximum production? After you go through the hiring process and the interview process, which is two to four weeks, then it's one to three months to train. So get really, really good at it now. And what you said about the numbers, Daniel, spot on, man. Spot on. So great, great stuff. So I mean, I I think all of this really sums up the last point, does it not?

Yes, where what I've always appreciated about the three-piece system is your save plays for risky accounts. Um, the ability to look at risky accounts that are meaningful, that meet the ICP, they're meaningful for the agency, um, and and getting out ahead of them before they shop. That save plays program that you put together has always been something that I've that I've admired and try to push along to to others, um, is how they do that. So explain to people what that means about the whole save plays um for at-risk accounts.

Well, I mean, I mean it's back to what we said earlier. It's it's preparation. Okay. But you're prepared at all times for whatever might have happened with the account. But I will lend this for everybody. Part of it, the biggest part of it is communication. Overcommunication, if you will. And you know, email and text is for information and other ways of lending information is for information. But phone, Zoom, face-to-face, that's for communication. And so effective communication is the key. And part of the safe plays philosophy is setting the next meeting. It like if you're dealing with a more complex commercial account as an example, and it's gonna take multiple meetings to get to that point. Like, if you're in a meeting, always set the next meeting at that meeting. You are always in control, you're always in charge of the next step, you don't need anybody else. You give them that oral confidence that you got this, you are in control, you have in control of their entire account. But there's so much to it. I mean, I could go on for hours about the entire part how say plays comes together, but it's the system. If we're gonna say what's one word that describes it, it's the system, the processes, right? Yes, the people are important, but that central process to start preparing early, to be prepared, team collaboration, meeting about accounts if they need it, and darn it, pick up the phone, pick up the damn phone to drop a term and communicate with the decision makers, maker or makers of your accounts. Don't just assume that they're gonna continue with the account. If you want them to renew uh continue the relationship or renew, don't assume anything.

You don't know what you don't know. So short, short answer there, Daniel.

Short but powerful. That's that's what we do around here. All right, well, that's a wrap for this week's episode of Scale Your Insurance Agency. Quick reminder everything we talk about on the show is to build to do one thing. Turn your time into profit. More revenue, more margin, more freedom without adding headcount to make it happen. If something landed for you today, please share it with another agency owner who needs to hear it. This community only grows when other good operators help each other level up. So please like, share, uh, subscribe to our podcast so that we can help other great operators grow and scale their agencies as well. And if you're ready to stop figuring this out all on your own, Mike and I are both in the field working with agencies right now. So please find us on LinkedIn, uh, hit us up on our websites, reach out uh where you can find us and tell us exactly where your biggest area of leverage is. But until next week, build the system, protect your time, and scale the right way. See you next week.

So good, Daniel. Thanks so much. Big industry call small community. Big industry, small community. Great job, man.