This is part of a series of posts on strategies to grow your insurance agency. These strategies incorporate digital marketing tactics, are inspired by technology companies, and are suggested steps you can take to win more business. If you haven’t already, you can read part 1 here.
When we left off last week I introduced the concept of a Flywheel, first described by Jim Collins in his best-selling book Good to Great. Jim Collins’ Flywheel has several components to it. Direction or focus, momentum or loop, push or effort, and the start or initial push. This post is going to focus on only one, which I find is most commonly referred to as a “loop”, and look at loops within the context of client acquisition.
The Loop is the component of the Flywheel where the momentum takes over and keeping the Flywheel spinning requires less and less effort. You probably have some client acquisition loops already in place, let’s look at how they impact your agency:
Loop In Action – Referral Loop
To illustrate the impact a strong referral loop can have for an insurance agency, I’m going to use a simple example:
- You left your previous agency to start your own at the beginning of 2018.
- 10 of your clients came with you.
- You get 1 new client referral each year for every 10 clients you have
- A 30 life group is worth $18,000 to you in commission each year. (This is low if you are using an online enrollment solution, but it’s an easy number to start with.)
- All 10 clients are the same, so your 2018 revenue is $180,000.
- No clients churn in 10 years
How does this referral loop impact your business over 10 years? The chart below shows annual revenue over a 10 year period. The red line follows the assumptions above. The blue line assumes you don’t receive any referrals.
The quick math on this scenario tells us that each new client is worth 1.1x the commission earned from their premiums, because they helped to bring in a new client. So, the true 1-year value of a new client is actually 1.1 x $18,000 = $19,800. Now you can’t necessarily collect revenue on that 11th customer’s referral of .1 people in year 3, but you understand the concept. The loop here is:
Acquire a client > Client has good experience > Client refers a new client > Acquire a client
The math isn’t groundbreaking, but it sheds light on some hidden value of a client that you can apply in your digital marketing strategies.
Loop In Action – Paid Acquisition Loop
Consider the following statement: Customer Lifetime Value (LTV) > Acquisition Cost (CAC)
Or put another way, when you are looking for new clients, you want the cost to find and sell that new client on your service to be less then what you make in revenue from that client. When the equation, lifetime value – acquisition cost = >$0, you’re in business. If not, you better have something else planned down the road to flip the outcome! You’re probably thinking, “this is the most obvious concept written about on the Broker Tool Belt!” How does this help you come up with strategies to grow your insurance agency?
When thinking about growth, you want to understand both client lifetime value and customer acquisition cost. This will help you determine what you could reinvest to acquire an additional client. Or, how much profit you need to acquire an additional client.
I’m not going to cover ways to calculate lifetime value or customer acquisition cost in this post, I simply want to point out that the process of reinvesting the profits of the equation acts as a loop as well.
If lifetime value of a new client is $20,000 and you can spend $10,000 to acquire that client, you can reinvest the $10,000 profit to acquire one additional client. Unlike the referral loop we described first, which gave us a multiplier of 1.1, this loop doubles your revenue for each additional customer. Spend $10,000, generate $20,000, giving you a profit of $10,000 that you use to acquire another customer. This process of reinvesting profits becomes a loop:
Acquire a client > Generate Revenue > Allocate the revenue to a client acquisition channel > Acquire a client
It’s not lost on me that we’re ignoring several factors that impact the viability of your agency. This is without a doubt an oversimplification. That being said, when examining strategies to grow your insurance agency, it’s important to understand your unit economics. What is a client worth to you (remember to consider retention in this calculation) and how much do you have to spend to acquire a new client? Do some math on the back of napkin for your own agency.
Strategies To Grow Your Insurance Agency
Understanding the impact of the loops you already have in your acquisition programs will give you a starting point to evaluate strategies to grow your insurance agency.
- LTV: Do you know what a client is worth to you? How long do they stay a client of yours? Do they refer other clients?
- CAC: Do you know how much it costs you to find a new client? Do you buy business contact information? Go door to door prospecting? Pay for software like Miedge to build lead lists?
Once you can calculate both you can start thinking about ways to increase your customer lifetime value and decrease your customer acquisition cost. Understand the levers in both those calculations and determine where changes can make the most impact. That’s where digital marketing can come into play.
Next week we’ll discuss ways to increase LTV and decrease CAC using digital marketing strategies.