Some larger firms that focus primarily on employee benefits will only work with clients that meet a minimum group size or annual revenue amount. Other brokers will spend hours with an individual client knowing that the commission they’ll receive will never fully compensate them for their time. Most brokers are somewhere in-between—they’ll accept most customers who want to do business with them, but they try to make a profit off every client.
With that in mind, one question that’s probably worth asking is how much a client is actually worth. Of course, the answer will be different for every single one of your clients, but if you’re trying to do the calculations here are a few items that are worth considering. Some of these factors are easier to put actual numbers to than others.
Obviously, the easiest and most obvious number to look at when calculating the value of a client is the monthly commission you receive for the product or products the client has purchased from you. If the client has a $500 health insurance policy that pays 5% commission, that’s $25 per month or $300 per year. A small group policy with 10 employees all paying $500 per month would earn you $3,000 per year at the same commission rate.
Clients come and go. Some will work with you for a matter of months; others will be with you until you retire. There are no guarantees, but we do know that providing excellent customer service, maintaining regular contact, and having multiple product lines with the client all help to increase retention. If you can determine the average amount of time a client works with you, then you can get a more accurate idea of the total revenue the client will produce over the life of his or her policy. For example, if the average individual or group client stays with you for five years, then the individual in the example above would actually be worth $1,500 to you while the group client would be worth $15,000.
If the plan pays commission based on current premium and not the premium at the inception of the policy, then you actually have a built-in raise each year. If, for example, premiums are increasing by about 10% per year, then a policy that pays you $300 the first year would pay $330 in year two, $363 in year three, $399 in year four, and $439 in year five if the client makes no plan changes. In other words, because health insurance premiums are going up, that $1,500 client is actually worth $1,831.
It’s easier to sell an additional product to an existing client than it is to go out and find a new client. For that reason, the easiest and most effective thing you can do to increase your commission is to offer some ancillary products to your existing customers. Let’s say you have 100 individual clients and are earning an average of $300 per year on the health insurance for each of them. What if you introduced dental, life, accident, and critical illness insurance to each of them? Not everybody will buy, of course, but some will. If you can determine your close ratio, and if you already know the average longevity of your clients, then you can pretty easily calculate how much additional commission these efforts will produce. Because of the higher commission rates offered by most of these ancillary products, your marketing efforts could have a substantial impact on your income.
Happy customers tell other people, especially if you ask them to. That’s why it’s important to ask new customers how they heard about you and to keep track of who is referring business to your agency. Clients that refer their friends and family to you are much more valuable than those who don’t.
The purpose of this article was not to provide a valuation for your business but rather 1) to help you realize the true value of each of your clients and 2) to point out that there are a number of steps you can take that will directly impact your average revenue per customer. If you can increase your close ratio with your prospective clients, tell each of your clients about any ancillary products you sell, increase your retention rate, and remember to ask for referrals, you can make a very comfortable income selling insurance. The sky’s the limit.