Breaking the Revenue Barrier
The following is based on one of The Covenant Group’s clients. All names and telling details have been changed.
Why preparation is as important as the sales pitch.
Lee Immonen was one of his firm’s top producers. He generated $600,000 in revenue annually, but for the third year in a row, he’d been unable to improve on the previous year’s results. He was anxious to break through his revenue barrier.
When we met, Lee told us he had hoped to grow his business by 10% over last year. When we asked Lee what his strategies had been for achieving the 10% growth, he reddened. Obviously, he hadn’t formulated any strategies.
We explained, “most advisors can tell us how much they want to make next year, but very few of them can tell us how they are going to reach their target. Saying you want 10% growth isn’t meaningful unless you have a sound plan and a set of strategies for achieving that 10%. Otherwise, you’re really just hoping for 10% growth.”
We asked Lee what factors contribute to his revenue line. He answered the number of cases he sells each year. We agreed and then added two other factors: the average case size and product mix (the lines of business you sell). In fact, these are the three key levers of any business: 1.Number of Sales, 2. Average Case Size, and 3.Product Mix. In order to develop a plan and strategies for reaching your objectives, you need to clearly understand how you are going to work these levers over the next year.
Let’s take a look at the first lever: Number of Sales. Lee generated most of his business through the sale of life insurance cases. We asked Lee how many cases he sold last year. He answered roughly thirty. We asked if that was typical for his business, and he nodded. When we asked how he felt about selling an additional five cases each year, his eyes rolled, and he grimaced. He felt he already worked hard enough. Each case took weeks, often months. At his age, he didn’t like the idea of putting in longer hours. Adding another five cases wasn’t realistic. “So, we know one thing: you’re not going to get any growth by closing more cases, which means we have to look at the other two levers for growth opportunities.
“If you don’t like the idea of working on more cases, you need to look at raising the average size of your cases. And that means moving upmarket.” We asked Lee what the largest insurance case he worked on last year was. He answered a $40,000 premium. We asked if this was with an existing client or a new one. He answered that it was a new prospect, someone a client introduced him to.
Coach: “Okay, how long did that case take, from the moment you met the prospect to the actual closing?”
Lee: “About nine months,” Lee answered.
We asked if he thought that was typical of cases that size. He answered more or less. Sometimes even longer.
Coach: “All right, so it’s November now. What you’re telling us is that if you want to close a large case next July or August, you are going to have to meet that prospect in the next month or two.”
Lee agreed.
Coach: “What’s the likelihood you’ll meet a large-case prospect like that within this timeframe?”
Lee: “Probably low,” Lee answered. “Though I never really know when they’re going to fall into my lap.”
We explained to Less that “We’ve looked at two levers already, and right now, we can’t, with any conviction, see how you are going to move your revenue line. You might get lucky and meet the right prospects, or you might not — but your plan shouldn’t rely on luck.”
Lee nodded.
Coach: “Okay, let' get back to this second lever, but for now, let’s move on to the third lever: product mix.”
We asked Lee what lines of business he was going to focus on this year. The same as last year, he figured, then added that he didn’t really like the idea of focusing on product mix as a lever.
Coach: Why?
He thought it contradicted his value-based approach with his clients. He didn’t want to become a product-pusher. He didn’t want to create a conflict of interest where his agenda got in the way of focusing on the client.
We told Lee that we understood his concern but argued that looking at product mix as a lever in no way jeopardized a values-based approach. Rather, it enhanced it.
Lee: How?
“Product innovation is usually backwards-looking. What we mean by that is, your client currently has needs that are unmet, simply because the products to solve those needs don’t exist yet. When new products come on the market, your role as an advisor is to survey your client base and see how you can use the new products to help your clients achieve their objectives. Take critical illness insurance, for example. Factors such as medical improvements are making it more likely these days that your clients will need the protection of critical illness coverage.
Coach: “Examining your product mix is really a way of defining your business — what are the types of problems you solve? What is the scope of your role as an advisor? So, going into the year, you need to answer these questions. Otherwise, you’re leaving factor three, ‘product mix’, up to chance as well.
Coach: “So, let’s revisit the second lever. If we agree that you need to increase your average case size and that means moving up market, we know that you need to put in place some marketing initiatives that are going to move that lever. And we know that — because of the nine-month case cycle — you need to start right away if you are going to see an impact later in the year.”
We explained to Lee that he needed a cluster of robust marketing strategies — between four and eight — in order to move that lever. We spent a while discussing how he could utilize strategies such as concept lunches, seminars, radio spots, networking, and obtaining introductions.
We explained to Lee that what he was doing was transforming his business from a reactive one into a proactive one, where he controlled the flow of business through the planning and execution of various strategies.
Lee was excited by this new approach to his business and over the next couple of weeks working through our business planning process. He set the objective of growing his business by 20% and developed a plan that mapped out how he was going to roll out a marketing strategy over the year. Using the Pro-forma financial statements he plotted his number of sales, average case size, and product mix. His statements reflected his plan to increase the average case size in the last quarter. As well, a line of business that had barely existed before critical illness, showed an increasing revenue line, a reflection of his plan to send information to his clients and run a series of seminars on the topic during the second half of the year.
Lee was pleased to report to me recently on his yearend results: 26% growth.
Lessons Learned
Lee learned that in order to grow his business he needed to utilize the three levers of an advisory business: number of sales, average case size, and product mix. Although Lee had set objectives in previous years to grow his business by 10%, he had no clue how he was going to do that. He didn’t know where the business was going to come from and what kind of business it would be. Setting an objective without having a plan to back it up is fruitless. After analyzing his business, Lee understood that future growth would come mainly from two levers: average case size and product mix. To increase the average case size, Lee needed to move from a reactive approach to his business to a proactive one. Larger cases have a long cycle, and in order to see an impact later in the year, Lee needed to start right away on rolling out marketing initiatives designed to attract high-level prospects. As well, Lee saw the power of looking at product mix as a lever. Looking ahead, Lee was able to see how focusing on certain lines of business, such as critical illness, could provide a needed service for his clients and contribute to the growth of his business. But again, this required planning. To really see a difference, Lee would need to do more than just respond to critical illness issues as he happened upon them — the type of approach he normally took. Rather, he needed to be proactive. Lee’s 12-month marketing campaign, involving a mailer and a seminar series, made the difference.
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