The best policy for insurance agency owner: Keep marketing

Tony Freeman opened his State Farm insurance office at about the worst possible time.

It was late 2002, just as the national company lost its appetite for much of the California home and auto insurance business. And the new agency owner had counted on that business to pay the bills and recoup his $50,000 start-up cost.

"I wanted to quit so bad, so many times, in the early days. It was brutal," says Freeman, 43. To make up for the missed sales, he wrote hundreds of workers' compensation insurance policies at a time when State Farm's price was well below market rates.

Revenue at his Corona agency soared to $402,000 in 2006. But he soon found himself whipsawed again when a new state law helped push competitors' prices below what he could offer. Sales plummeted by $106,000 the next year.

Freeman has since sworn off seeking new commercial insurance clients and has been rebuilding the business with the home and auto policies State Farm eventually began accepting again in the state.

He's making progress -- sales are expected to hit $335,000 this year. But Freeman says he is losing too many of his customers. His loss rate is about 20% a year, double the industry average of 10%.

"We seem to be good at selling and acquiring new clients but not very good at keeping those clients," Freeman says.

He was a successful sales agent at AAA in Orange County for nine years before he became a State Farm agent. As an independent State Farm agent, Freeman owns his own business but doesn't set prices and can't sell other insurance companies' products.

Successful selling is in Freeman's DNA, says consultant Phil Beakes, but to keep more of his 1,200 active clients, the business owner has to change his focus. Freeman needs to become his agency's primary salesman again, build long-term business relationships with customers and actively market the business.

"He's in the relationship business, the trusted advisor business," says Beakes, former co-owner of a large insurance brokerage in Monrovia. "He's not in the insurance business."

Beakes, who specializes in sales and marketing training and leadership development, made the following recommendations:

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Take back sales. Freeman spends about 90% of his time on administration and paperwork and has hired people to do telemarketing and to write new policies, Beakes says.

"Well, guess what's happened? He's not attracting the type of customer base that he used to attract because he's not the guy doing it, and somebody else is being paid to put numbers on the book, but not for putting the right kind of customers on the book."

Like many small-business owners, Freeman wants the business to be able to run without him. But he's hired people to do things for him, not necessarily to leverage his own sales and marketing strengths, says Beakes, chief executive and co-owner of Peregrine InSight Group in Oxnard.

"I said, 'Let me tell you a scary number: As owner, 65% of your time needs to be spent on marketing and sales and 35% on just about everything else,' " the consultant says.

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Define the target market. Attracting the right kind of clients will boost the agency's retention rate. Freeman's target market should consist of clients who will be the most profitable for the firm but also the best fit with the owner's goal to build long-term relationships. If customers don't fill both bills, don't bring them in, Beakes says.

He suggests that Freeman interview his best customers, asking them four questions that will help him define and better serve his target market: Out of all the agents, why did you choose us? What's the best way to stay in contact so we can maintain our relationship? If you were in our position, trying to grow the firm with people like you, what would you do? And what is one thing we could do that would make us lose your business?

"If he's diligent in doing those calls, he's going to learn how not to lose that 20% of his business" each year, Beakes says.

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Develop a marketing plan. Freeman needs a consistent, effective marketing campaign. That will make the job of selling policies easier, Beakes says.

Freeman should use information gathered through customer interviews to develop a message that appeals to them. Deliver it through the medium they prefer -- phone calls, direct mail, e-mail campaigns and the like. Then develop a system of measurements that tracks how many people are contacted, in what geographic area, through what medium and what kind of response was received, Beakes says.

"A lot of people just dump money into marketing but never track how effective it is," he says.

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Establish a relationship-building system. Building business relationships through regular calls and e-mails is key to attracting the type of clients who will value State Farm products even if they are not always the cheapest.

"He says, 'I'm not very good at the relationship thing.' I reminded him it's not a task, it's literally the culture of your company," Beakes says. "You either have relationships with your customers or you don't. You can't just artificially do that."

Freeman should make it a priority to contact 15 to 20 of his most important clients every week, making a handful of calls each day.

Instead of the current practice of merely asking for business, he needs to focus on his role as a trusted advisor who can solve a customer's problems, Beakes says. Even if he does nothing more than leave a voice-mail message saying how much he appreciates their business, it's another customer contact.

The owner also should create a one-page e-mail newsletter to send out regularly. Beakes suggests that Freeman use a format he himself uses: a personal blurb about what he has been doing, a photo of himself, a promotion or product highlight and then a short, informative article. (It can be about an insurance-related subject or something otherwise helpful such as organizational tips.)

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Write a sales plan. A business owner needs to set down sales goals and track progress closely to succeed, Beakes says. Figure out how many and what kind of sales need to be made each week or month to meet annual goals. Keep track of progress and adjust tactics when necessary.

If Freeman doesn't know whether he's on track, he could spin his wheels. "He has no planning going on, so he's forced to be lucky and, in being forced to be lucky, he increases his anxiety tremendously," the consultant says.

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Formalize the referral process. "The problem with referrals is, first of all, we don't like asking for them because it feels rude," Beakes says.

"You ask someone if they know anybody in their universe who can use what you do and, if so, please send them to you. That's too broad an inquiry, so your contact says they don't know anybody right now but will sure pass your name along if they ever come across someone."

Instead, Freeman should give a specific profile of his target customer to referral sources. Those sources should be his best customers and influential business advisors such as lawyers and accountants.

After building his agency from scratch into a firm with a client base worth $2.9 million a year in gross premium revenue, Freeman says he's ready to take steps to retain more customers and add new ones that will help his agency.

"I'm energized," Freeman says. "It's perfect timing: We are finally getting to the level where if we are going to be in this business for another 20 or 25 years, we need to do this now."

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(BEGIN TEXT OF INFOBOX)

Insuring success

COMPANY SNAPSHOT

Business: Tony Freeman Insurance Agency Inc. in Corona markets and sells State Farm products including auto, fire and life insurance as well as financial services, including auto loans.

Owner: Tony Freeman

Employees: Three full-time, one part-time

Revenue: $332,000 in 2008

Founded: December 2002

Start-up funds: $50,000 in personal savings

CHALLENGE

Losing about 20% of its active customers each year. The industry average is 10%.

GOAL

To retain more customers and increase its customer base by 10% a year

Source: Times research

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Meet the expert: Phil Beakes

Beakes is chief executive of Peregrine InSight Group, an Oxnard consulting and training business he owns with his wife, Nikkea B. Devida. Beakes -- who specializes in executive leadership development, sales and sales management, and marketing -- spent more than two decades in the insurance business. He was vice president and co-owner for 16 years of Golden Pacific Insurance Services Inc., a commercial insurance brokerage in Monrovia. He subsequently became a consultant while also working as a CEO at various firms. He spent three years as CEO of Ogilvy Hill, a Santa Barbara insurance firm.

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