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To get to the top, an agent needs integrity, tenacity, and ability to look forward into the future. Besides these characteristics, an understanding of basic business principles goes a long way, especially if you’re trying to grow an agency.  One thing that you might not get quizzed on in earning your insurance license, however, is understanding the relationship between your expenses and your net worth.  If you’re priming to build a business, or success, you should perk up for the next part of this post.

 

One of the core principles of business is the concept of Return on Investment, or ROI. It’s a very simple equation that shows you the relation of how much you spend (or expenses) to your overall earnings.

 

(gross income - total costs) = ____ x100 = ROI %

Total costs

 

Or…

500-250 = 2 x 100 = 200%

250

                                                               

 

ROI is a tool that can help you determine how much you’re putting in, and how much you’re getting back in relation. If the percentage is high, you’re doing a good job of producing a gross income. If, however, your percentage is low, you might be burning too much of your income up in expenses.

 

What’s really important to remember is how what you make and what you spend making it are related. If you’re making $20,000 a month but spending $10,000 in expenses, your net gain is only $10,000. If your income grows but your expenses stay the same, your net gain could end up increasing and you’ll make a greater profit. Just the opposite can happen as well; your expenses can grow far more than your overall income, causing you to owe instead of profiting.

 

So how can you build your profits, and possibly an agency?

 

Be Flexible.

Don’t be afraid to grow; you have to look at the big picture when growing your company. This may mean increasing your expenses, but if it will mean your income will increase as well, you will ultimately profit. You must be able to have the vision, as well as the flexibility to reevaluate your finances with growth on your mind.

 

Some people can do this, some can’t.

 

Know What You Value

Sometimes, it’s not all about cold hard cash. There are other factors to…well…”factor” in to your assessment on ROI.

 

•             Time - how much time are you spending producing income? Do you value keeping the amount of time working the same? What value would you place on your work if you had to decrease your leisure time, but could also increase your end profit? Do you value your personal time, or are you willing to cut back in order to increase your profit? If not, you might need to think about making your working hours work more for you by becoming more efficient.

 

•             Accuracy – are you being efficient in the amount of effort you put out and how much revenue is produced by it? We all want to get 100% of profits from our work, but if you’re not being efficient, you might be sacrificing more time with less value. Evaluate where your time goes and how much work is getting done. Programs like KIT Marketing can help you increase your efficiency by managing and retaining your contacts.

 

•             Risk – Nothing in life in certain, and this includes growth. Are you willing to take some risk in order to become more profitable? What value do you place on being stable? On becoming more profitable? These answers will tell you how much to invest in your own profit growth.

 

Become a Psychic.

Compared to the above paragraphs littered with equations, revenues and expenses, this title might seem a little off. However, predicting the future is an important part of weighing the advantages and disadvantages of growing your business.

 

The ROI equation is essentially a formula that always looks back, and for good reason. As Dr. Phil says, “history is the number one indicator of future behavior.” Do some number crunching and find out how much time and money you’re getting on your investments. If you don’t like what you see, change the factors in the present and make a change for the better.

 

As we’ve often noted in the past, you also have a resource right in your agency; your agency manager. The best place to look for advice is right in your own backyard; ask your manager for guidance and advice about financial planning when it comes to trying to grow.  Wherever you want to go, your manager has most likely reached himself.

 

 

In order to go further, you’re going to have to change from a salesman to a businessman. This takes understanding financial factors like ROI and several others.  Start to take steps to understanding your ROI by reading up on the basics.