16. Overstaffing - The Costly Danger for Newer or Smaller Insurance Agency Owners
When newer or smaller agents get impatient with the speed of their agency growth, overstaffing can lead to $10,000 to $50,000 or bigger mistakes. Learn how you can identify this and take action to fix it.
The insurance agency model is not built for explosive growth but rather relies on steady and reliable progress.
People who seek insurance coverage value the relationship they have with their agent and focusing solely on quick sales without establishing a connection may lead to low client retention rates.
When hiring new team members, it's essential to factor in the time and money costs associated with training because rushing the hiring process and expecting quick results can lead to inefficient use of resources and increased risk.
Instead of hiring multiple new team members at once, focus on training and developing one or two individuals at a time, ensuring their success before moving on to the next set of hires.
Maintain a work-life balance for better decision-making and strive for a work schedule that allows for mental clarity and focus, enabling you to make better choices for your agency's growth and success.
Full (Edited) Transcript
Overstaffing - The Costly Danger for Newer or Smaller Insurance Agency Owners
Hi, it's Wade here today. I want to share with you a basic concept. This is a challenge that very often really hurts new agency owners. It also hurts other agency owners that maybe are not yet as large as they'd like their agency to be something basic. It has to do with how your staffing, your agency and a lot of new agency owners.
When they start out, they have this grand vision of what they're going to do, especially in their first twelve months or 24 months. And they're really excited about making a huge splash in the industry. And that's great. We want that energy. We want you to be excited and pumped and stoked and ready to work.
One of the things people forget is that for the most part, the insurance agency business model is really more of a long term, steady growth model. It's not this big zero to 600 to 120 miles an hour type of model. So you'll often hear me say that the insurance agency model is a lot like a Toyota Camry, a very reliable car. It might not be the sexiest, it might not be the fastest, but it very much gets the job done, and it will last you forever. So as you probably know or have figured out in recession type markets, when other people, let's say, are seeing their business income drop by 20% or 30%, an insurance agency owner might see that their gross income goes down by, like 5% or something like that.
So that's the beauty of the model. The other part of that is that if you try to grow it too quickly, it doesn't necessarily respond in this way. The people you're selling to want to connect with you, they want to make some sort of connection when they're buying the insurance from you. The reason I know this is that the people who are coming to you want some sort of relationship. The people who don't want it are going online.
They're buying it through an app, or they're calling an 800 number. And so it's possible to sell too quickly. It's possible to collect signatures and get checks or get credit card numbers and issue those policies, but miss the opportunity to connect with your client. And then that client doesn't renew. And so one of the things that it takes at least six months to figure out if you're looking at a product.
Let's say traditionally, a lot of auto insurance companies, the insurance is renewed every six months. Or if it's a homeowner's policy or a condo, it might be a year. You don't get to always see whether that client's coming back or not now overall. Okay, so that's philosophical way. Great.
That sounds awesome. I want to make sure my clients stick. But what does that mean? What that means is this is when people are staffing, they're often taking over either a small book of business. They're either doing that or they're starting from scratch.
And so maybe let's say they're taking over a book of business that one team member, one experienced team member could service those renewals and everything else would be about acquisition, or it would be their starting scratch where they don't need any service team members. And the rest is about acquisition. So the idea is, wait, I'm going to hire three or four acquisition people, and I'm going to make things grow as quickly as possible. But here's the equation that a lot of people are forgetting. For every new team member you're hiring, there is a time cost to you, and there is a money cost to you.
Most people are aware of the money cost and the risk with that, they can be offset by that person selling. And they're very aware of that. They say, okay, I'm going to hire this person. I'm going to pay them a certain amount. And if they don't hit a certain number of sales in a certain amount of time, I'm going to let them go.
Within that equation, some people will say, I'm not going to pay a base salary, which can limit the level of quality of applicants, at least professionally that come to you, because the people that are more skilled that have their licenses will say, I want a better base salary or a base salary. Additionally, you have to look at whether or not those people are going to be either trained or not, how long it takes to train. There's all these variables. And so when you're bringing on a person and you're looking for them to have results happen in a short period of time, it usually is going to take you anywhere from five to ten to 15 hours per week to train that new team member.
Now, as you get more experience with your agency and you develop your standard operating procedures.
If you decide to do that, when you have your systems and processes in place, it might take you a lot less time, and you might have your office manager or somebody train them. But again, this is you right now, this is you alone, usually starting your agency. And so I see a lot of new agency owners, and they'll hire three or four people. And at least two or three of those people are brand new to the industry. And as somebody who's done this for years, it still would take me three months, let's say, to help that person get up and going, even if they are an above average candidate.
And so what you're doing is you're now spending anywhere from five to ten to 15 hours per week per person training these new people who are uncertain. We're not sure if they're going to work out. So you might be investing 20 hours. Of course, some of the training you can do in group training. So there's some overlap there.
But you're at least at roughly about 10 hours per person. So now you're investing 30, 40 hours a week training people and you're paying them. Let's say you're paying them a $2,000 month base salary, but that's going to cost you at least another 50%. So that's 3000 a month because of overhead and other expenses. And that's a rather low base salary in most markets.
And so now you're looking at four people times twelve or 3000 a month. That's 12,000 at least. And it might be more than that. So you're investing 12,000 a month and you're investing, let's say 30, 40 at least 20 hours a week training these people without knowing what's going to happen. When if your retention was perhaps focused more and you took a different approach and said, you know what, for the first six months, I'm going to go with two people I know realistically that one of them might or might not work out.
But let's say I already have my service person that is handling the retention business. And for the other two people that I need for the acquisition position, I'm going to try to get both of them to be successful. And if they are great. But I'm not going to spread myself too thin as a trainer, as in a coach. And I'm not going to throw a bunch of my money at something hoping it happens, because if I can get one person up and going in six months, just one.
And let's say I have to let go of one. That's about average odds. Maybe even one in three are going to work out depending on how strong your standards are. And then you say, okay, well, once I get that, then six months from now, I'm going to do that again. I'm going to start with two more people, and I'm going to hope to keep at least one of them.
So if you have that sense of understanding that you could add a new person at least once a year. If you're an experienced agency owner who's been around for, let's say, three to five years or more. And if you're a brand new agency owner, you say, okay, I can add one good keeper, one person I want to stay with me at least every six months or so. Now you're getting a little more reasonable in your expectations as far as what's able to be done, quality wise. Now all that being said, there are certain things that scale.
So for example, some people will accurately say, Wait, if I'm going to train one, I might as well train three or four at the same time. That's where you can start recording what you're training and your next group of people, your next pledge class, or however, you want to word that they can start watching some of those videos. And while you will still, yes, need to train them and be involved in coaching them. Some of the stuff that you've taught once, if you videoed it, you can now use it again and use that to train those new team members and cut your training time by, let's say, 1020, 30, 40% or more.
And so now you're creating a situation where you're more aligned with the nature of your business model.
Your business model is a steady growth business model. It's not an explosive growth model. And so now you know. Okay, look, if I keep writing a certain amount and I'm profitable and as much as possible, I want to be profitable as quickly as possible. Then that's going to allow you to more enjoy the ride.
And yes, that's possible to do it's going to allow you to work. Let's say more like 40 to 50 hours a week or 60 tops rather than 60, 70, 80. And I can promise you, if you're working more than about 60 hours a week, even 50, you're just not doing it right. There's something else you could be doing better. You could be leveraging better, or you're simply not ready to leverage yet.
And you might be putting too much on lines of credit or loans that if things don't work out, you're heavily leveraged and it can really kind of bite you in the butt. So really, the theme to all of this is aligning your growth strategy with the nature of your business model, which is steady growth. It can be strong growth, and it can be well above average growth. But knowing that if you can keep your energy at a high level, your mental clarity at a high level, by working more like 40 to 50 hours a week, you're going to make better decisions.
And when you're a new agency owner or an agency owner that's struggling to grow your agency or it's not going as fast as you want.
One of the quickest ways to make really poor economic decisions that can kick your butt is to be overworked, to be overtired, to not have the mental focus to really evaluate the options and make a good decision. So I hope you find this helpful. I hope you understand this idea of growing at a sustainable rate, knowing that again, if you add a person once a year or every six months. Sure, you'll also have some turnover, but this allows you to enjoy the process and then also go more towards that really just standard goal of cash flowing every month rather than being in a situation where you're constantly building up debt and hoping you pick that up at the end of the year when the company bonuses come in.
We'll talk about that particular topic in another video, but I hope you find this helpful.
If you have any questions or comments on this peak, put them in the section below or please let me know. As always, look forward to helping you impact more people and make more money and less time doing what you do best so you can better enjoy your family, your friends and your life. Thanks for listening.
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