Applying the Pareto Principle (80/20 rule) to Fuel Agency Growth

From our experience, most high-growth agencies require their producers to fill out annual business plans, as well as require them to fill out pipeline reports throughout the year. However, very few agencies work with their producers on developing a 5, 10, or even 15 year book growth plan.  If your agency does, you’re far ahead of the curve.  Out of the hundreds of agencies and thousands of producers we meet with each year, we can probably count the number of agencies that do some type of “career book growth planning” on one hand.

We believe there is a science to book of business growth.   When we partner with agencies, one of our first steps in building an organic growth plan is to evaluate each producer’s book of business by sorting their accounts from largest to smallest, then dividing them up into quintiles.  The plan is similar for each producer; a few basic principles to book growth are as follows:

1.  On an established book of business (typically $250,000 in revenue), the analysis almost always proves the Pareto Principle: 80% of the revenue comes from the top 20% of their accounts. For example, if a producer has a $1,000,000 revenue book of business with 100 accounts, their 20 largest accounts total $800,000.
2.  Just for their book to remain flat, a producer will need to write at least 10% new business as a % of their prior year’s book of business. That’s just to maintain their income level from the previous year! We know this to be true based on our $5.5B revenue database that agencies (and subsequently producers) will lose 8-12% of their book in leakage each year due to external factors (e.g. one of their clients is bought/sold, goes public, goes out of business, switch brokers, etc.).
3.  Therefore the only way to significantly grow their book is to write 15-20% new business as a % of prior year’s book of business.

These concepts are proven by data so they’re tough to argue, but many producers struggle to reach their new business production goals because they have too many renewals to handle throughout the year that their focus shifts away from new business to renewals.  This concept doesn’t necessarily hold true if your producers are rainmakers and aren’t involved in the client renewals or interactions (mostly in the employee benefits space).

From a producer’s standpoint, the concept of “giving away accounts” is not initially well received, but after reviewing our analysis it shows that the bottom 20% of accounts typically only represents 1-3% of a producer’s W-2. When producers understand this concept they are much more willing to shed their bottom accounts.

Furthermore, when talking to million dollar producers, we see that they typically don’t have more than 75 accounts in their book. To them, trading down accounts is not just a one-time event, instead it’s a continuous cycle that occurs every year during their business planning session. Instead of being leery of giving up the accounts they worked so hard to write 10 years ago, they are concerned with how to grow their book from $1M to $2M to $4M.

As a sales leader, capacity is the greatest gift you can give your production staff.  If they are truly “producers” and not “reducers”, then they will not only embrace but ask to trade down their bottom 20% of accounts each year.

 The Sales Performance team leader, Nick Kormos, will be speaking at our MarshBerry 360 events in May to discuss transformational change and the practical practices your agency can implement to fuel growth and profitability. To find an event near you, click the following registration link: MarshBerry 360.