Episode 327: The 3 Rules of Your Agency Profitability

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. Well, Mike, we did it again. We said last week that it was the one-time thing, and that we're just like, yeah, we're we're gonna try this podcast uh episode with just hitting play, and we started preparing for this week's podcast, and what happened? Same thing. Boom, we decided to hit play because we're having this conversation about where we're identifying the three rules of your agent profitability. So kick us off, like lay this, lay the phone work for everybody and kind of like where our conversation was going, all this research you're doing, and we can we can ping pong off each other on what uh what we were just before we hit record.

Yeah, Daniel, I'm loving these conversations, these impromptu conversations. And now we get to share the insider information or secrets of those conversations with everybody. But you know, we were talking about the three-profit rules for your independent insurance agency that are driving everything. And, you know, look, I'm an independent insurance agent by blood, by love, by passion, by 40 years of history and all of that. And it's once I figured this out, everything changed. And so that's what we were talking about. And we want to help people change and, shall we say, update and improve faster. Okay. And so I identified that I had a and I have a servant's heart. I just want to serve people to the highest level. But if you're thinking about the profit rules of an agency, you've got to limit where that service heart comes into play. And you got to start thinking about your agency as a business. And that's where Daniel and his team have come in so strong because they have automated and put the numbers for the agency, the KPIs and everything else on automation and steroids, if you will, so you constantly know what your KPIs are at your fingertips. So great job, Daniel, and your team. But the profitability rules, once I when I learned about the Pareto principle, the 8020 rule developed by Vilfredo Pareto back in the 1890s. Once I truly got my mind around that, it changed everything. And it is not uncommon that in agencies, I've got a vi I've got an example that uh I was toying with before we jumped on. It's absolutely incredible to me that I'm looking at an example of a thousand clients, Daniel. Okay, the top 5% of those clients generate 50%, 50% of the agency revenue. Half. And then so out of a thousand clients, that's 50 clients, generate 50% of the agency revenue, and then 950 of the clients or 95% generate the other 50%. Now, that shifts from agency to agency, but it's the thought process of it all. And you know, when we're talking about the profit rules and those top clients, whether it be the top 5%, top 20%, or even top 30%, the profit rules say that regarding your existing clients, do not allow your profitable clients, those top clients, to subsidize unprofitable clients. And the only way that you can know how and when to do that is by identifying who they are with regard to producers. Do not allow profitable producers to subsidize unprofitable producers, and then it comes to teammates. Do not allow profitable teammates to subsidize unprofitable and unengaged teammates. So there's a lot of that stuff going on out there, and you know, based on the the research that I've been doing, employee engagement continues to go down. I mean, the the latest numbers that I've got are it's dropped to below 30%.

Wow, where do you think that's coming from? Well, from your research, like where you know what what are some of the factors that are playing into this?

Well, I I think it's cultural, it's absolutely ownership and leadership. That's where it starts.

Okay.

But it's it's about agency design as well. So you know it's it's understanding that structurally and operationally, we're not going to provide a level of service to every single client the same way, right? And it's called client segmentation or tiering uh in many agencies. And I've got agency story after agency story where once they identified the same thing that I learned, the Pareto principle philosophy, the 80-20 rule, and they actually implemented that in their agency and identified that wow, we've got all these bottom per bottom 20% of clients who are taking 80% of our time. So based on what's happened recently in the industry, Daniel, our partners running the AI and the excuse me, the automation and technology powered by AI, they're able to do a lot of the service work for that bottom 20%. So, what does an agency need to be thinking about to position themselves to be able to do that? Thoughts?

Well, they need to be able to identify what the steps are necessary to maintain that level of client, right? And how to make it profitable. If they want it to be a more profitable client, can we use AI automation as a way to make that client more profitable?

Right.

And what does it take in order to make them serviced? And in many instances, and I think we can have a long conversation about this, as we said before, which is the self-service model.

Yeah. And it might possibly be true, and I found this in my own agency experience, sometimes those clients need to be with another agency, not yours. Or fired, and it became reality. And I remember my teammate said, What took what took you so long? You know, life is better and our operating structure is better because they're no longer there. So don't forget about the three rules of profit, and that's why we're building and structuring an operating environment driven by that thought process. So um it's about capacity as well, it's about freeing up the human capacity to be able to serve these top percentage of clients at the highest level. And that's directly related to retention.

But we're back into the engagement side of it. So where and you said it was from the ownership and leadership side. So where if if engagement's at its lowest peak ever and it's based on the ownership and leadership, what do we need to start thinking about or adjusting ourselves to increase that engagement?

Well, the increased lack of engagement has was referred to at one point as the great detachment.

Okay.

Right? Remember that?

I do.

People became unengaged and it became societal, I guess, if you will. Quiet quitting and that type of thing. And the human capital cost is enormous. But you know, really what it points to the top two agency expenses back to the profit ab profitability of the agency. The top two expenses in an agency's profit and loss statement are payroll and employee benefits. Right? So does low low employee engagement indicate a high percentage of your payrolls being wasted on unengaged employees?

How does the rest of the work get done?

Exactly. Exactly. And and how are we positioning our agency operationally to do that work that needs to get done? And a lot of times, as we discuss often, it's the repetitive, you know, predictable activities that are being done in an agency. And because they're unengaged, because many, many times they're not fulfilled by doing these repetitive over and over and over again activities. They want to be engaged doing the human work. So in in my experience in working with agencies and listening to what's going on in agencies right now, that disengagement is because the agency is not being redesigned to allow humans to build depth of relationship, to build greater trust with the marketplace, to have those human conversations. Because agency leadership and ownership is saying, well, this is the way we've always done it. So this is the way we're gonna keep on doing it. No, it's not about bringing on more people because it's not getting done, it's about redesigning the agency to free up people, to do that repetitive, predictable act to do the repetitive, predictable activities that need to get done as part of the day-to-day operations in an agency.

Right.

So the profitability rules are driven not only by how leadership views agency operations into the future, and we were in a super robust conversation about this in our last Saturday session, right? Right. What they believe. What do they believe what the future looks like in the agency business? And are they ready to shift and update and improve and adapt to the future of the agency business?

Right. Do you do you believe that if you know we we've been talking to some other um leaders within just the industry, right? And a lot of and and a lot of what we've been talking about is getting our employees that are a players, no matter what role they are within the organization, back out into the community. Back out in the community that this that they represent, back out in the community. Like it's not just for the producers anymore to go and go network and to go be and volunteer and to go and um be a part of the associations when it comes to what you know, if you're in small commercial or you know, um, it's not just the role role of the producer anymore, it's the role of the brand of that independent insurance agency to be more in the community, whether it's trying to find more COIs, whether it's um, you know, try to hire more hire employees or bring on more team members, whatever it is, right? More of that team approach and doing like that's the human work. So when people are asking, like, that's what we're saying is like, hey, get from behind the screen, get from behind the screen, the spreadsheet, get from behind the email box and get out into the community more. That's what's going to be the differentiation. And not just being in the producers, not just being in the owners, right? They need to do that too. But can we get our account managers doing that? What if you know some of our interns, whatever that might look like, right? That like how do you know getting them back out to the community? Do you believe that would help the engagement rate?

100%. 100%. I mean, most independent insurance agents are in this industry for a primary reason. And that's serving the customer, serving other people to his highest and best level. So, with that being said, it's about building those relationships. And, you know, based on my law of 100, I believe with my heart with all my heart that everybody knows 100 people that we either come to their wedding or come to their funeral. So it's about building those relationships and those depth of relationships. It's critically important.

Right. So if you gave them the opportunity throughout that that week, right, of hey, let's all, you know, during your Monday morning meeting or whatever your weekly or your daily stand-up, whatever it is, and say, okay, what what did we do this week? Like you're supposed to be out of the office for this, that, the next thing. Like, what's the next uh volunteer we're gonna do? What's the next ball game we got to be at? What's the next whatever, right? And we have that. And they're like, hey, but I'm gonna have all this work when I get back, right? Or it's gonna be, oh, what if I miss this or miss that? Wouldn't it be amazing if they were all their work was batched for them so that when they then when the time they were in the office or right, uh whether in their home office, if that's the next closest place for them to be, all their work was batched from a decision-making standpoint, an analytical standpoint, seeing if everything that was being done by machines before I, you know, before I left and when I returned was still working. Like, think of a different way of work, even for each of those individuals, and say, we're gonna measure how often people are in that community, how many, you know, and have different metrics around how that profitability of both the producer, the customer, and the teammate, right? That having that different mindset. And that's what that you and I were talking about of like that's that's what's gonna make you look different than you know, someone else down the street.

100%. And you know, giving people that opportunity, and that's all driven, what's coming to my mind is I'm listening to you, Daniel, is the dashboard. I mean, you create a custom dashboard dashboard by agency that shows the KPIs that are necessary for them to 4X to 9x their business. Right? And so when they're aware on a consistent basis through the weekly review and beyond that, to know where they're at, they can see what are driving their numbers, the data, right? Whether it be from a production standpoint, from a retention standpoint, and if they segment their clients, and you know, we teach people uh, you know, how much consistent touch there is and what kind of touch that is by the segments or tiers within a business, uh, and the service standards and the claim service and everything else, so that you automatically know the right next steps to do that. So I love the fact that you're talking about the workload, which people it's always in the back of people's mind, right? They're like, oh yeah, I'd love to go out and serve at the you know the boys and girls club or another local charity, and that's fantastic. But when I come back, I know that all this is gonna be there. Unpack that batch for us just a little bit more. When you're talking about batching things up, what does that look like, Daniel?

Well, you think about, you know, hey, if there's if there's service tickets that are that come in while you're gone, right? And those service tickets start to pile up, and you have to analyze every single one of them. You've got to go to like nine different uh full file folders to find everything and three different systems, and the phone's still ringing, and you know, you still have a pile up from the day before. What do you prioritize? That that is not a batching system, right? That is that is the firefighting system you talked about. But could you imagine a place where every ticket came in and it already analyzed what it was? These are the ones that need a licensed producer to make a decision. These are the ones that need a non-licensed producer that just need, you know, that a robot doesn't have access to, that someone has to go and gather all the data and get something out to them. But it was all batched for you based on the level of priority, level of um profitability of the client, whatever it might look like, so that instead of you firefighting throughout an eight-hour day or 10-hour day or 20-hour day, you are batching over a couple of hours, you know, head down, everything's turned off, and all you're doing is working on all those client needs, right? Are there going to be the 911 lead things that come in throughout the day? You should have something in place to say, hey, I'll stop. This is a 9-1-1. But that should be the exception, not where the exception becomes the rule. And so that's where we're talking about that batching type of type of work, right? Not the not the chair that's got the 360-degree circle that I can do, right? It's the chair that's sit sits straight in front, so all you ever can do is do whatever's right in front of you at that particular time. Um, so no swivel chairs. It's just right, stagnant chairs.

Focus. Focus. And so it's critically, critically important to identify the profit levers within your business and actually where the majority of your profit is coming from. And if you'll step back and do that work, I believe in my heart of hearts, especially through working with hundreds of agencies doing this exact work, that you will find as much as 70, sometimes 80% of your profit will come from 20 to 30% of your customers. I know the example that I gave out of the gate was a little extreme, but it's reality in some agencies as well.

Right.

I I think of things like every single time we reverse engineer and figure out how to bring in Daniel on the team. Go ahead.

You got it. And that's what I was just thinking about, right? So if you can, if you take the time to identify, hey, look, when we go and we support every single one of our real estate agent partners' events, right? Whatever it's there, if it's their charity or it's their event or their association, right? Same with the auto dealers, right? So if it, you know, auto dealerships still hold, seem to hold a party or some type of event, you know, once a quarter at the minimum, right? But we're always there to support those events, right? And we have the five dealerships in the you know, three city area or whatever it is, right? It all those things. And that's where we get the most amount of uh of profitable referrals, right, from if we get profitable referrals from there, we are going to make sure that they're the top of our priority list every single time, right? And if you can take the time to go and start to measure those out of like, okay, what we did, what did we get out of it, right? Um, what could we have done different? What could we have done better, right? Then you know you're gonna constantly move that rock forward and move that flywheel forward because you and you can use the KPIs, you can use the dashboards, you can use a way to be able to understand that, right? Same when you can split out the, you know, if you're able to take your current um customer base and start to um separate it based on, hey, our most profitable ones look like this, right? A B C segmentation. Hey, what happens differently if we communicate twice a year to our A clients, right? And or three times a year to our A clients and twice to our B clients and once to our C clients or whatever that might look like. Does our profitability change? Does our count rounds change? Does our cross-sale upsells change? And you can measure that on a regular basis if you have your system set up this way to be able to do so. Everybody's following those systems, and then you combine those with the tools that'll do the math and analytics for you. That's that's what a winning looking system looks like in this three rules of profitability.

100%. And that that is gold. That is absolute gold. Thank you, Daniel, for that. So, what's going through my mind right now is you know, like Google Alerts. I'm not sure if that's still the right tool, but let me back up for just a minute. Let's say you've identified who your ideal client profile is or your ideal client avatar. Same thing, right? So you know who your ideal client is for commercial lines, for small commercial, for large commercial, and whatever else you're doing, right? And so you set up an automation tool to go out there and find all the alerts concerning events for these ideal client or anybody attached to it, whether it be vendors and everything else, and they just automatically do all that back-end work for you. And you wake up in the morning and you say, All right, well, here's all the events coming up that your ideal client might be hanging around at if you want to position yourself to go to one of those events or vendors who are attached. I mean, one of our mutual uh acquaintances landed, landed an absolute whale, super who on LinkedIn just through that kind of work. And this was a banking firm that opened so many doors to hitch his niche industry. And as they say, for that particular agent, the rest is history. Right. Now dominating in I think last check 30 states.

Wow, was it 30 now? Oh my goodness.

Yeah. You know, I think you know what I'm talking about.

I know, yep, yep.

He wrote a book on it, and he's happy to tell you.

Yes.

Because of one relationship.

One.

So be thinking, how can automation and technology build a Gentec bots and whatever now is coming to your area, Daniel? But you know, build that so it automatically tees you up and it says, hey, here's your opportunities for today. Go build the relationships that you want. And really, back to the profit rules, right? Don't allow profitable clients to subsidize unprofitable clients. The other areas that you want to look, the profitable clients are probably hanging around other profitable people in your realm, right? Or triple A's hang around triple A's, tens hang around tens. Same thing with you know, where people are producing. You know, don't lose sight of the fact that you've got to serve every single opportunity that comes down the pike for you, or the pipeline, if you will. When I finally learned that over 20 years ago, to quickly disqualify people changed everything. So great opportunities are happening out there. But our greatest encouragement, pay attention to the profit rules of your business and then capitalize on that by building relationships with those opportunities and the things that are already driving the profit within your business, and then work with the automation and technology team to find a way to serve the people in a way that's profitable to the agency. Such good, good stuff.

Yeah.

So unrealized capacity, unrealized capacity, and that's really what it's all about because a lot of agencies today still, and it was verified by a conversation I had this morning. The people are still bogged down by doing things that they shouldn't be doing. Therefore, they fact, I'm overwhelmed, I'm at max capacity. No, they need to redesign their thinking. Would you agree, Daniel?

Yes, near redesign their thinking, and they need to redesign the way that they do it then. And and start to look at um, we call sacred cows, right? Is it just the way we've always done things? I'll always love that fable about you know, daughter starts cutting off the hams, both ends of the ham, right? And then asks, mom, why do we cut off the both of this? I don't know, it's the way we've always done it. Yeah, grandma, why do we always cut off the ends of the ham? Well, I don't know. Hey great grandma, why do we cut off all the ends of the ham? Like, well, because my oven wasn't big enough for the ham.

Uh-huh.

So it wasn't for flavor, it wasn't for anything other than the fact that at that time there was capacity issues. And over time now we have unrealized capacity.

Because that's the way we've always done it.

That's the way we've always done it.

Well, there's not enough pain to really make the change. And I got this from you, Daniel. The pain has to be greater than the pain of change.

Correct. That is uh that is the human condition of decision making. Pain must be greater than the pain of change.

And and people will invest to eliminate pain before they will to have the next pleasure. Absolutely. So that's why we exist. We don't want you to experience the pain that you are going to experience if we don't update and redesign the future of our agency. They there will be suffering if they don't acclimate. Would you agree, Daniel?

I I'd agree. And it's and it's getting it's getting tighter and tighter every day in many, many ways, of the longer they wait, the greater the pain's going to be.

The longer they wait, the greater the pain is going to be. And we don't want that for any of you. So each day that goes by, it's the compound effect, and it's mounting. And and we don't want that for any of you. No. So it's time. The present is a gift. Open it today. Vitally, vitally important. Daniel, uh I this has been a great conversation about the profit rules. Uh, and albeit that there's a lot of things involved in the profit rules.

Yes.

But it's really all about spend some time, invest some time with your KPIs, numbers don't lie, and identify where the majority of your revenue is coming from. And there's a good chance that you're gonna find that it's probably the top 20 or 30% of your clients who you unfortunately discard because the bottom 20% or 30% of your clients are taking up to 80% of your time. And so, how can we think about this differently? Mom, why are we cutting it off both ends of the ham? I don't know, because that's the way your grandparents used to do it, or et cetera, et cetera. You got it. Right? Or, like Elon Musk, like him or not, he went into the factory in the middle of the night and he said, We're gonna stop doing this, we're gonna stop doing this, we're gonna stop doing this, we're gonna keep stop, we're gonna stop doing this until it breaks. And he went down the manufacturing line and finally it stopped working. He said, All right, we're done. The rest of that stuff, no more. Efficiency, put it all to the test. And then that's the you know why Daniel and his team have uh assessments for your agency. They're free, right? Assessments to figure out the things you're going to eliminate. How can it be automated? How can we do this better? How can we do this more efficiently? And most importantly, where are you at now? Exciting times, but they must act. People must act when, Daniel?

Soon.

Soon.

Today. Today. Today. Yes. Sorry, I had to go to this baseball reference, you know. You know, Mike and I, we just we gotta we got our own uh references, right? When will then be now? Soon.

Yeah. Yeah, for sure. Great, great stuff, Daniel. Well, thank you very much. Anything else to add before we wrap this up? Not a mind. Ladies and gentlemen, whether it's a free assessment uh and technology automation and AI assessment, uh, if you're interested in something like that, or you want to jump on an onic scaling session to learn about making your agency more profitable, to understand the profit rules of your agency, to understand where there might be gaps, to prepare your agency for the future so you don't experience the pain. And that's what we want for you. We want you to flourish, to thrive, to grow, to scale. That's why we exist, and that's why we are here to help you with all of that. There's a link around the show notes. Uh, please click on that link. We'll jump on a session and learn how to help you. Daniel Metcalfe, great job, sir.

Yeah, you too, Mike. It's an honor to be here, as always.

All right. Everybody, we'll see you on the next episode of the Scale Your Insurance Agency podcast.

That's a wrap on this week's episode of Scale Your Insurance Agency. Quick reminder: everything we talk about on this show is built 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 good operators help each other level up. Please subscribe, download, and share our podcast and all your other favorite podcast engines. And if you're ready to stop figuring this out alone, Mike and I are both in the field working with agencies right now. Please reach out. Find us on LinkedIn or on our websites, and we'll tell you exactly where your biggest opportunity is to scale. Until next week, build the system, protect your time, and scale the right way. See you next week.