Donald White, CLU, ChFC, is guided by two simple numbers to keep his firm profitable – 80 and 20.
For years, the Palm City, Florida, USA, agency owner has ensured a solid financial foundation by using 80% of the firm’s revenue and keeping the remaining 20% within a reserve fund. The strategy has been so effective, it allowed White to sell his stake in the agency to his partners and secure his own financial future. “In 2019, when I was 63 years old, I sat back and said if we never earned another penny on the money we have in our reserve fund, the business could live very easily just on that.”
Over the years, White has sought to show transparency with employees and clients by sharing financial statements and involving them in the company’s effort to achieve profitability. “If a client had any question about our company, I would give them our financial statements. We’d show exactly what we earn, what we spend, what we own and where it goes,” he said.
White, a financial services leader and MDRT member with 40-plus years’ experience, focused on building a company people would eventually want to buy, which required a sharp focus on both topline and bottom-line growth.
White’s strategies, along with those suggested by the field leaders below, can keep your agency on track with revenue and profitability.
Recruit and staff with care
In the Philippines, Maria Renrosa La’O sees headcount growth as a way to drive revenue and profits. La’O, who has held a financial services leadership role for nearly 20 years, works with a team whose income comes mainly from commissions and bonuses. The commission percentages depend on the financial product, while bonuses are given based on consistency of production. That means strength in numbers and quality of business matters.
“We have an advisor-recruit model. Our advisors — who don’t necessarily need to be a team leader — may recruit another advisor and earn an override commission. On top of the advisor’s commission on their personal sales, if their recruit is also productive, that will give the recruiting advisor another stream of income,” La’O said.
For La’O, this approach has the added benefit of keeping a team of advisors focused on their target production ratios, which her team sets together during an annual business planning session. “We write down our own personal targets: income, trips, recognitions. Then we work back based on our closing ratio so we can move from that desired income to our closing sales ratio and do a quarterly assessment to adjust and strategize,” she said.
More advisors may be a boon for some agencies, but adding too many team members, especially support staff, can quickly lead to higher costs. “One of the biggest mistakes is when leaders begin to expand and over-hire,” said White. You have to be very careful about over-hiring.”
Be strategic about expenses
Headcount hints at the other half of the profitability equation — keeping your costs in check. While most leaders we spoke with see cost control as a key aspect of profitability, they also recognize agencies must spend to earn.
In Greece, Tasos Chatzitheodosiou is the Athens-based CEO of one of the country’s leading financial services businesses. The firm has a basic tenet of earning more than it spends, but he gives equal value to outperforming the market and their domestic competitors. Staff are the largest ongoing expense for Chatzitheodosiou’s company.
“We understand that to attract and retain the best, we must invest in our team’s growth and well-being,” he said. “We have five incentive trips a year and the most competitive bonus schemes in the Greek insurance market.”
Chatzitheodosiou’s firm invests heavily in technology, research and development, client relations, and incentives for their agents and brokers. But they’re not letting all this spending go unchecked. Every investment they make is constantly tracked for the value it produces.
“Our business intelligence tools and analytics dashboards help us monitor our expenses in real time, comparing them against our revenue streams,” he said.
In Newmarket, England, Simon John Gibson, DipPFS, said his company does not use a formula for deciding how much to invest in overhead, but staff costs account for 55% of their expenditure, with a five-to-one ratio of support staff to advisors across the business.
The firm invests in IT staffing, compliance, HR, marketing, finance and other support services in-house. Premises, travel expenses, sponsorship and even charitable giving also factor into the firm’s expenses. And just like at Chatzitheodosiou’s firm, spending is managed tightly. “Each area has a budget, and as we target income, so we look to manage expenses,” said Gibson.
For La’O, expenses like support staff or client meals, drinks and gifts are investments in future profitability. “We need to build the connection and trust and integrity. That’s why we invest in these things,” she said. “Once trust is gained, that’s where our profitability is measured, through sales from our clients and introductions to their circles.”
Agencies can find savings that feed into better profit margins. Office space is one such area where larger businesses should tread carefully — and look scrupulously at the costs. “I've never had a problem with paying people well, or employee benefits, but I do have a problem with excess space,” said White.
“Having too much office space is something that a lot of people make a mistake on. You don't have to be in USD 44 per-square-foot space when you can do the same for USD 18,” he said, adding that many firms can easily get better deals on commercial office space by avoiding costly downtown areas.
Mergers and fees
Much earlier, when he was entering his entrepreneurial heyday, White figured out that scaling up and merging with others might create a quicker path to profitability. “One of the first things I did was merge with a certified public accounting firm. That gave us two locations, two entirely different revenue streams and much more diversification.”
White also stresses the significance of recurring revenue and building a client base that will continue to seek out your services. He believes providing ongoing counsel — rather than transactional services — is a clear way to achieve long-term client relationships and profitability.
Getting good at pricing helped immensely, too. “There's an art to pricing, and it's not as simplistic as some people would like it to be. We learned there were certain types of folks that we had to charge at a different level than other folks,” he said.
This meant some hard work to land on the right formula for the firm’s fee structure. “Business had to be profitable. I had to make sure I could get paid. But most importantly, it had to be extremely competitive for the client as well. Those three things had to work hand in hand,” he said.
Target specific profit margins
Gibson’s business operates on a fee basis, which means they are always paid for what they do. As long as they can control expenditure, they will be profitable, said Gibson, a field leader with more than two decades of industry experience.
“We target around a 30% profit margin,” he said. “This provides security for our stakeholders and staff. We are sustainable. Nobody has to worry about being paid at the end of the month. We find that our clients and suppliers want us to be profitable, too, so we are always available for them.”
White shares this mindset; he wants profit margins of 20%. “I told all my clients early on when they started working with us, ‘If we’re successful, you’re going to be successful.’”
Plan for building years
Achieving profitability is as much about resilience and foresight as it is about numbers, according to Chatzitheodosiou. “This means staying attuned to global shifts, technological advancements and emerging market needs,” he said. “We’ve fortified our digital infrastructure and embraced digital transformation, ensuring we can meet our clients where they are, be it online or offline.”
At a two-day annual strategy meeting, the agency’s management team meets to establish strategic, financial and commercial goals. “We monitor progress quarterly. This helps us to be on top of our numbers, ensuring the profitability of the current year,” Chatzitheodosiou added.
However, economic realities or unexpected business needs can change the best-laid plans. For example, you might pursue an additional market. You might need to open a second or third office. Or you might need to increase your headcount.
Chatzitheodosiou said his firm perceives such building years as “strategic sowing seasons,” where the focus is planting seeds for future harvests. “Preparation involves meticulous financial planning, risk assessments and stakeholder communication. We also beef up our reserves and explore alternative revenue streams,” he said, adding that the decision to enter a building phase is never taken lightly. “It’s grounded in extensive market research, ensuring our investments are aimed at areas with promising long-term potential.”
Preparing for growth years, tracking expenses and maintaining a healthy reserve fund can help agencies weather good times and bad, something all financial services leaders want to be prepared for.
Luke O’Neill is a Sydney-based writer and content strategist. He writes about B2B fintech and financial services for brands, publishers, and agencies. He owns Genuine Communications.
Contact: Maria Renrosa La’O, renrosa.la_o@yahoo.com zz Donald White, donaldfwhite@gmail.com Simon John Gibson, sgibsonmdrt@gmail.com
