by Sherri Stein

Sherri Stein insists that these three elements are the key to your success, and that there are easy ways to accomplish them. Stein shows how the "three Rs" are related to each other, how it’s difficult to focus on one without impacting the others. You’ll learn how to take advantage of this relationship to maximize your firm’s business.


Making money in the agency business today is as challenging as ever. But many of the factors affecting profitability (revenue growth, client-acquisition costs, and operating costs) lie within every agency’s control. In many agencies, the keys to unlocking profits are the three Rs: retention, rounding, and referrals.

All three are integral to every agency’s success. They’re equally important for beginners and experienced agents. How well agents keep these bedrock skills polished throughout their careers is often what separates top performers from the rest of the pack. Consider just these three ways the three Rs can boost agency profitability:

  • Retention: A 5% improvement can boost agency profit by 35% to 50%.
  • Rounding: Cross-selling an existing account costs five to six times less than writing a new account.
  • Referrals: Offer a five-times-greater ratio of sales closed to prospects contacted.

All three are interrelated. It’s hard to do one well and not the other two. Retention-building client contacts lead to rounding and referrals. Rounding and referrals lead to greater retention.

Agencies can’t afford to ignore the three Rs. The average retention rate for independent agents is 88% for Personal and Commercial lines. That means the average agency is losing 12% of its business every year. So in order to meet the typical agency goal of 10% annual growth, they need to produce 22% in new business!

Even if an agency could sustain this kind of production year in and year out, it wouldn’t guarantee profitability. If the new customers don’t stay for at least three years, the marketing and acquisition costs largely offset any profit, especially if they don’t purchase additional products and provide referrals. With new customers so expensive to acquire, it’s never too late for a refresher on how the three Rs impact profit.


From a pure cost standpoint, your most profitable customers are the ones already on the books. A majority of the average agency’s income comes from renewals. So it makes sense to invest as much time keeping existing clients happy as you do with garnering new prospects.

Of course, you’ll need to cultivate new prospects and clients. There will always be turnover and you need to grow. But the more of your client base you keep intact, the less time you need to spend acquiring new clients to stay even. That’s part of why retention forms such an important piece of the profitability puzzle.

Another part lies in the growth potential of existing customers. Revenue per client almost always increases the longer they stay with the agency. Over time they tend to purchase new cars, larger homes, Life insurance and investment products. Business owners grow and expand their operations. Families require increasingly sophisticated financial protection.

The more of these needs you anticipate and offer solutions to before customers turn elsewhere, the more loyal, multi-policy accounts you’ll keep on the books. One study shows that, on average, single-policy accounts stay with an agency for only three years. But stretch it to two policies and they stick around for seven years. Three-policy accounts last an average of 11 years.

These two aspects of retention and the impact on profitability go together. The longer clients stay with an agency, the more policies they purchase. And the more policies they purchase, the longer they stay.

However, a huge part of improving retention has nothing to do with providing additional products. It comes down to showing customers that you care. This doesn’t take much and it doesn’t need to cost a lot. Sending birthday cards or thank-you notes with a reminder of your service offers one example. Telephoning for an annual review and to simply ask how customers are doing is another. Newsletters also give clients a reason to feel good about retaining your service instead of shopping for a better deal.

The Internet can make some of these contacts even less expensive. Smart agents collect e-mail addresses from customers and invite them to opt into electronic updates and reminders. They’re also posting reminders and helpful tips on their Web sites as well as offering purchasing and self-service capabilities on them.

People love to be loved and the Internet offers many opportunities to gently reinforce the value of your service in a customized manner. If you’re not using the Internet to keep existing customers, you’re missing a big benefit.

To be successful, an ongoing retention program needs someone in charge. Everyone in the agency should be involved in actively retaining clients, but it’s primarily an internal function usually headed by a customer service representative, account executive, or sales agent. Give them a budget and help them establish a systematic plan for routinely contacting customers.


Some agencies are too busy just reacting to customer inquiries and complaints to institute an ongoing contact program. If this is a problem for your agency, it might be time to troubleshoot. Can you reduce incoming calls by minimizing mistakes or miscommunication? Should company partners handle non-revenue producing calls? Are low-revenue customers costing more than they’re worth at the expense of ignoring high-revenue clients? To build strong customer relationships, reduce the influx of non-revenue producing activity to get the time you need.


Not all customers are equally valuable. Some might not be worth retaining if they cost more than the revenue they provide. An analysis of your book of business will give you an idea of how much service you can afford to provide.

Using your agency management system, compute the number of transactions generated by your book of business. Add an estimated number of non-automated transactions and divide the agency’s total personnel costs by the total number of transactions to achieve the average cost per transaction.

Next, categorize your accounts by transaction cost to help determine which are your most profitable (A clients), which could be profitable with increased rounding (B clients), and which you might allow to defect (C clients). If you’re only getting $100 in revenue from a client who calls 10 times a year and your average transaction cost is $30-$45, you’re losing money. Many agencies spend a disproportionate amount of time on C clients instead of building better relationships with their A and B clients, partly because they don’t know how much it’s costing them.


Rounding accounts by cross-selling is the easiest way to increase revenue and to keep the clients you have. The average agency only has 1.4 accounts per client, though nearly every customer has four to eight product needs, considering the potential of Personal, Commercial, Life and financial services lines.

By not locking in customer loyalty with multiple services, agents are leaving a lot of money on the table and exposing their clients for other agents to steal. Given the paltry accounts-per-client average, rounding represents the fastest, least expensive way for agencies to grow.

In working with agents around the country, the most profitable agencies we see are those most heavily cross-sold and writing a lot of financial services. Their profit margins reach as high as 30%-40% compared with an industry average of 6.4%.

Everything works together for these agencies. They do more cross-selling, so they have higher retention and lower acquisition costs. Although these superstars do other things well to achieve such lofty results, rounding accounts and its impact on retention and expenses plays a significant role in their success.

These agents know that the best rounding results come from building relationships and learning the individual needs of their customers. They achieve this through a combination of routine client contacts prior to renewal, and analyses for missing lines such as Umbrella, Life, Home, Boat, or retirement.


Renewal time also offers an opportunity to ask clients for referrals. If you’ve performed an account review in conjunction with the renewal, the memory of your personalized service remains fresh in the customer’s mind and they’ll be more open to providing a lead or two.

Referrals are easier to sell because of the built-in testimonial by the referral source. Statistically, they have better loss experiences than non-referrals. They’re more forgiving of mistakes and more likely to give the agency a second chance. Acquisition costs are lower than any other accounts. And retention is far better: 92% over the first two to three years compared with 67% with other clients.

Although most agents instinctively understand the value of referrals, few maintain an organized effort to cultivate them. Many agents are reluctant. They worry about jeopardizing an established relationship by making customers feel uncomfortable. It doesn’t have to be that way, especially if you prepare clients for the request in advance and introduce the idea in a low-key manner when the client is feeling good about your service.

Good agencies make asking for referrals a best practice. They have a process in place and an expectation that everyone in the agency will participate.


No single strategy can make an agency profitable. It takes an array of interrelated strategies as diverse as planning regularly, managing sales, and controlling expenses. But as with so many endeavors, organizations that practice and perform the fundamentals best are the ones that consistently achieve superior results. In the agency business, retention, rounding, and referrals are the core skills necessary for ongoing success.

This article was adapted from SAFECO’s AGENT magazine and reproduced by permission. Sherri Stein, CPCU, CIC, is the manager of SAFECO’s Agency Business Consulting. She can be reached at (206) 545-5932, or e-mail

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