Reduce Your Costs by Sharing Expenses with Competitors

There are multiple ways to grow your agency’s bottom line. The most exciting way is, of course, to sell more policies. You logically devote most of your energies to this essential activity because it’s the best way to build your business. It’s exactly what you have been trained to do since the day your license first showed up in the mail.

Yet, sometimes you can get so completely focused on making new sales that you tend to forget that you are also running a business. And in the thrill of the chase, you occasionally overlook the fact that your agency’s bottom line equation includes more than just the top line, commission and other revenue, it also includes sales and operating expenses.

This month’s column introduces you to a concept that by its very name reminds you of these expenses, a Cost-Sharing Partnership (CSP). By initiating one, you can add new profits to your bottom line by creatively impacting the expense portion of the agency’s P&L. Here’s how it works.

A CSP consists of two or more competing insurance agencies that have decided to share selected selling and operating costs. Each participant benefits from various economies of scale, including greater visibility in the marketplace at costs that are substantially lower than going it alone.

The direct writers already use elements of this approach. Check the nearest Yellow Pages, and you’ll often find photos of competing captive or exclusive agents, smiling side-by-side, in the same display advertisement.

It’s important not to confuse a CSP with a cluster. A cluster is a joint undertaking created primarily for the purpose of profitably exploiting company representation. They are relatively formal organizations that require a structured decision-making process involving committees and assigned responsibilities.

In contrast, the sharing of specific expenses within a CSP is much more casual. Many costs can be quickly identified and readily shared upon a simple handshake. However, a written agreement that’s drawn up or checked by an attorney may be advisable, depending on the particular costs involved.

Furthermore, clusters can take months or years to generate financial rewards, whereas a CSP can be profitable from the very first day.

As with any agreement, handshake or otherwise, its worth is entirely dependent upon the parties involved. That’s why you should seek out a cost-sharing partnership arrangement only with competing agents who have the same ethics and marketing philosophy as yourself.

Your ideal partners represent the same top carriers, use the same automation system, and suffer from some of the same missing pieces. It’s not important that every office in your CSP be of similar size, as costs can be shared proportionately.

While you may prefer your partners to be local, it’s preferable that your marketing territories are not identical. And although a cluster or merger is possible down the road with local members, it shouldn’t be the main reason to establish a CSP.

Your primary motivation should always be to reduce your expenses, improve sales and to pump up the bottom line. This is why you can team up with agents regardless of their location. Good places to meet potential CSP partners are at continuing education classes, agents’ association conferences and user group meetings.

Share target marketing expenses
Among the easiest expenses to share with friendly competitors revolve around target-specific marketing campaigns. Once a particular industry is selected by the CSP, many of the campaign’s start-up costs can be shared among members.

An ideal place to start is by renting prospect data for each member’s main Zip code from industry trade publications or professional list brokers. As with everything else, the more data that’s rented, the lower the total cost.

Similarly, when it comes to print advertising, partnering agencies can run ads in the selected industry’s trade publications, with the names of each participant listed by marketing territory or Zip code. Top billing can be rotated. Common companies can be asked for co-op money to help fund the run. [More on this later.]

In terms of direct marketing, CSP partners can have a series of direct mailings designed and printed to support the ads. They can easily be customized with each agency’s logo and information. The agencies might even co-sponsor insurance-related seminars for target prospects, sharing the costs and resulting leads proportionally.

Share agency advertising expenses
You can run larger display ads in your main phone book, regional directories and local papers, when you share the costs.

In each CSP ad, participating agencies are distinguished by their primary geographic territory. Examples: Northeast city, X suburb, Y County, etc.

In terms of trade show exhibits, agencies can share the cost of a single trade show booth with each agency owning its own interchangeable signage.

CSP partners can similarly benefit from shared radio or TV ads. With more than one agency buying time, you can negotiate favorable pricing, time slots, creative work, and voice-overs. Promote one agency per spot or list everyone and rotate top billing.

CSP partners can also develop a joint agency brochure that refers readers to specific pages on the agency’s Web site [see below]. Partners can easily have their printer customize the brochure by adding in individual logos, contact information, company representation lists, etc.

Share independent contractor services
Often in smaller offices, certain professionals are needed only on a part-time basis. These pros can float between local CSP offices on an as-needed basis and be compensated as independent contractors, depending on the usual specifics.

A good place to start is with a placer, also known as a marketer, usually a former company underwriter. Agencies that use dedicated and skilled marketers often have the greatest commercial lines success.

Each agency pays the contractor an agreed fee for each account submission. This approach can also work well with an independent financial services producer; one who is not tied to a particular life company.

With multiple CSP agencies providing prospects, clients are well served and all parties profit. The producer retains an agreed percentage of each successful sale.

If some CSP partners actively write building contractors, they continuously deal with bid and surety bonds. These placements can be time-consuming but can also tie into substantial P/C sales.

Accordingly, these agents might seek out the services of an autonomous bonding specialist and negotiate a multi-office arrangement. This approach can also work with independent telemarketers who adhere to all Do-Not-Call regulations. Involved CSP partners pay the representatives a flat fee for each lead received.

Lastly, a self-employed IT specialist can assist CSP partners to make purchasing decisions, manage PCs and networks, design and run their Web sites, facilitate agency-company communications, etc.

Share communication costs
CSP agencies can work with a Web host or the above IT specialist to set up and administer a dedicated Web server for interested CSP partners. These agencies can use the same basic site template and page names to maintain functional similarity. This commonality makes it simple to coordinate the appearance and content of the site and the agency brochure.

In terms of agency newsletters, one agency can design and write articles for a jointly produced, individually customized agency newsletter. The authoring agency can then barter the time and money it has invested in the newsletter for other shared expenses with its partners.

Client satisfaction and promotional surveys can be handled in a similar manner, with one CSP agency purchasing and learning to use print-based and Web survey software, then bartering its expertise.

CSPs can even share the costs of setting up a revolving lending library for clients that may include radon gas detectors, ID engravers, how-to repair books and videos, etc.

Share miscellaneous expenses
Other less glamorous agency costs can also be shared in order to obtain quantity discounts for the CSP. These include office and computer supplies, educational materials, etc.

This approach even works when the agencies follow the same basic framework for producer contracts and perpetuation plans. They save serious dollars over separate attorney’s fees when all agencies are located in the same state.

Conclusion
Overall, the Cost-Sharing Partnership concept has much to offer to independent business people who want to stay that way.

Partners are free to pick and choose the products and services they want to share, barter can enter the equation, and the total savings in both time and money can be significant. Controlling expenses without hamstringing growth is tricky, especially for the small independent agency.

CSPs represent one way to overcome this problem, without the formality of a cluster or the permanence of transferring ownership to a consolidator or bank.

Alan Shulman, CPCU, is the publisher of Agency Ideas, a subscription-only sales and marketing newsletter. He is also the author of the 1001 Agency Ideas book series and other popular P/C sales resources. He may be reached at (800) 724-1435 or by e-mail at: shulman@agencyideas.com. His Web site is www.agencyideas.com.