When it comes to your personal health, you probably know key numbers — like your weight, cholesterol level, and blood pressure. Similarly, your car has indicators that alert you to problem areas such as low tires, a near-empty gas tank, or electrical issues.
But do you know the numbers for your agency? Successful owners proactively assess business performance by regularly monitoring key metrics that can alert you to possible problems with your agency’s short-term or long-term financial health.
Key Metrics Every Agency Should Monitor
Every agency owner has their own strengths and preferences — typically those related to forming relationships, gaining the trust of clients, and clearly explaining the value of the insurance products they offer.
And while these skills are essential for building a solid book of business, keeping an eye on the financial health of the agency will contribute to greater long-term financial security — which, coincidentally, is what you talk to your policyholders about when selling insurance and investment products.
It Doesn’t Need to Be Overwhelming
It’s not necessary to over-complicate the process of assessing your agency’s financial health. That’s why we’re sharing this practical, streamlined approach to measuring and monitoring three key performance indicators (KPIs).
- Revenue Trends: Review how much gross income you’re receiving monthly and quarterly to identify cyclical variations. Delve deeper to ascertain the causes of the shifts – is retention dropping or growing, is average revenue per policy shifting because of premium increases, coverages or mix of business, are sales closing rates improving, etc.
- Cash Flow Management: While you may have a general idea of how much money is coming in and going out, focusing on the balance (or imbalance) is important especially if you have expenses that are deferred or are being put on credit cards and not booked in your accounting system in a timely manner. We recently published an article that looked at a wide range of factors that contribute to a healthy cash flow, including the importance of reviewing your profit and loss statement monthly to have an accurate view of cash flow.
- Profitability Ratios: Generating a high level of gross revenue is nice, but if your expense load is outpacing your revenue, the outcome can be dismal. You work far too hard to let that money slip through your fingers because the agency isn’t profiting. If you want to understand why your profitability ratio is at its current level (good or bad), take a closer look at the average numbers for revenue per policy, revenue per product, employee productivity or redundancy, lifetime customer value, and customer acquisition cost.
Don’t wait for the “check engine” light to come on as it relates to your agency’s financial health. We’ve worked with insurance agencies for more than 20 years and we are here to support your agency’s growth. Sometimes it helps to have an external set of eyes assess your areas of greatest weakness and strength. Reach out to our team today for a review of your agency financial health or potential capital needs. You can call our consultative staff at 877-894-2785 or email us at agencyfinance@firstmid.com.
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