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$200,000
Commission
Plateau
page TWO
$400,000
Commission
Plateau
page THREE
$1,200,000
Commission
Plateau
(continued)
page FOUR
Further
Commission
Plateaus
May 2016
www.iroquoisgroup.com
TOOLS ®
To build agency revenue, profits and value.
Breaking through Revenue Plateaus
Agencies tend to reach a certain size and then have difficulty growing beyond that size,
until the owners step out of their comfort zones and do something different. Owners who
don’t take the next steps to grow can see their agencies remain plateaued at their current
revenue size or begin to slip downward. In this article we will discuss actions owners can
take to break through one revenue size group and advance towards the next.
$200,000 Commission Plateau
Agencies tend to hit their first plateau around $200,000 in commission by which time they
typically have one administrative support person and themselves. The rapid growth they
experienced in the early years slows or even halts as they now have little time to sell due
to the many administrative functions that agency owners need to perform. To begin solid
growth again they need to add a licensed support person and obtain an agency management
system. These actions take time and cost money but quickly pay for themselves by enabling
owners to be better organized and delegate service and simple sales tasks to licensed staff.
This increases the owner’s time for networking and soliciting new prospects.
Choosing the right type of hire is the key to moving forward at this point. Though the
temptation can be high, hiring family and friends because they are available is often a
mistake. Instead, owners should always consider taking a little longer to find the truly right
person and focus on hiring who will best meet long term needs. For example, recruiting to
build a sales-oriented service-culture should start early. Recruiting service people who can
pass a sales test and who will eventually be comfortable handling cross selling, up-selling,
walk-ins and call-ins should be the objective. If a licensed CSR with aptitude for in-house
sales is not available to hire, owners should be sure that the person hired has such aptitude,
is committed to quickly obtaining a license, and is willing to eventually do inside sales as part
of the service role.
Editor’s Note: www.insurancehiringsystem.com is a good source of information on hiring
practices and also of assessment tests to help ensure your candidate is a good fit for
your agency.
The same holds true for selecting an agency management system. Some agencies in this
size group try to function without the right agency management system and later regret their
choice. There are so many agency management systems available that choosing can be

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a difficult task (Applied TAM, AMS 360, SIS, EPIC, Instar, Stone River, Hawksoft, Agency Command, Inspro, EZLynx,
NASA, Eclipse, Jenesis, etc.). A key point to consider is that over half of small to medium sized independent agen-
cies have chosen the top 2 (Applied TAM or AMS 360). It may be the functionality of these systems and/or the
vendors’ commitment to support the many users of these systems from whom they obtain significant revenues.
Whatever the reason for such wide agency usage, it is critically important that owners take time to carefully consider
their options and talk to other agency owners before making a system selection.
Editor’s Note: before buying a new agency management system check to see if Iroquois has negotiated special
pricing with that vendor, as we have with Applied, EZLynx and others.
$400,000 Commission Plateau
Agencies tend to plateau for the second time when they reach around $400,000 in commissions because the
owner’s renewal servicing and administrative responsibilities have grown even more and again leave little time to
sell. At this point the agency typically has a part time bookkeeper, an administrative support person and a licensed
CSR. Now they need to hire a producer who will enable them to grow further. Small agencies find it difficult to recruit
producers because their larger agency competitors tend to offer rich employee benefits plans, more markets, and
more sales support to the prospective producer. However, the smaller agency does have a tool it can use to recruit
producers in this situation. They can offer the producer the opportunity to earn a vested interest in the business he
or she produces for the agency. Millennials are especially drawn to the opportunity to be entrepreneurs and most
large agencies do not offer these vesting arrangements.
$1,200,000 Commission Plateau
At this commission level, most agencies have an infrastructure that is well established to handle key functions. They
typically have a receptionist, multiple CSRs and producers, a bookkeeper, and possibly an assistant CSR/processor.
Agency management, administration and servicing a much larger book of business (especially in these competitive
times) take too much of the owner’s day. As a result, his or her new business time, or time to manage CSRs and
producers, is diminished. CSR training and efficiency can suffer. Sales can slow and, even just 10% client account
attrition, can cause net agency growth to halt.
Two common solutions are merger or appointing/hiring an operations manager:
1. Merger - If a like minded agency owner within the same marketing territory can be found, merger can be a
very good solution at this point. As long as the 2 locations can be consolidated into one, significant benefits
can be realized. These include expense savings, additional markets and the ability to divide management
responsibilities between the partners leaving more time for each to sell.
a. Examples of savings include -
i. Savings from elimination of duplication in the following areas -
1. Receptionists;
2. CPAs;
3. Bookkeepers; and
4. Attorneys.
ii. Savings from economies of scale that reduce combined costs in the following areas -
1. Advertising;
2. Convention travel;
3. Technical support;
4. Insurance;
5. Donations;

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6. Subscriptions;
7. Dues and fees;
8. Rent and utilities;
9. Equipment rental and maintenance; and
10. Outside maintenance.
b. Common approaches that facilitate successful mergers of small to medium sized agencies include -
i. Having the new merged entity own only the new accounts written by employees of the merged
entity (house owned accounts) and
ii. Having the accounts each former owner brought into the merger (plus any new business
each respective owner writes going forward) be owned by each respective owner individually -
1. Doing this avoids friction that can occur if one owner produces a lot more than
the other;
2. Segmenting ownership of accounts in this way also enables each owner to be
rewarded at retirement from the value of his or her book, according to how much he
caused his respective book to grow;
ii. Having the owners pay themselves based on the gross commissions of their individual books
and contribute to the merged entity’s expenses pro rata, based on their respective book size;
1. Doing this enables a more productive owner to earn more than a less productive one
and creates an incentive for both owners to keep producing.
iv. Having the shareholder agreement define -
1. The buy-out price upon death, disability or retirement -
a. Through a formula price (commission multiple) for the book of each respective
owner and for his respective 50% ownership of the house accounts; and
b. Through defining how market value of other physical assets will be determined;
2. Promissory note duration, number of payments and interest rate that will apply;
3. Mandatory retirement age to avoid any owner continuing beyond the time he or she
is capable.
Editor’s Note: If you wish to consider a possible merger of your agency with another one but have not yet identified
the best candidate, make sure to register for Iroquois’ Exchange Program on www.imember.org.
2. If merger is not feasible, another common solution at this revenue size is to hire an operations manager to
oversee daily operations. Doing this can free-up the owner significantly so he can focus on identifying ways
to increase leads, sell more and increase overall agency productivity. For example, an effective operations
manager can establish benchmarks for performance and hold employees accountable through performance
plans, monitoring, and periodic bonus and salary reviews. Examples of benchmarks that operations
managers use to get the most out of CSRs include -
a. Book size (benchmarks for commissions handled per individual PL, CL and L&H CSR);
b. Retention (95% retention of revenue/policies in force);
c. Backlog (zero backlog objective);
d. Turnaround time;
e. Accuracy (low error ratio);
f. Following established procedures;
g. Keeping diaries current;
h. Cross selling;
i. Upselling;
j. National designations completed (one per quarter);

4. Further Commission Plateaus
Plateaus can continue to occur at even higher revenue sizes. Common reasons typically include -
• Complacency of the owner(s) once higher personal income is achieved;
• Need to create a specialty to differentiate from tough competition;
• Need to address aging producers who no longer want to (or are able to) produce;
• Need to replace staff who have not kept up with technology or cannot relate to the new demographics of
the buying public;
• Need for a marketing (central placing) person who is dedicated to knowing the competitiveness and risk
appetite of various carriers and building strong working relationships with underwriters so agency proposals
will be viewed favorably and win ratio will be high.
Owners need to keep track of their growth trends so they can easily recognize when they have hit a plateau and take
appropriate action to restore growth.
page FOUR
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The
IROQUOIS Group
®