Peter Drucker was absolutely right when he stated that, in business, “you can’t manage what you can’t measure.” This certainly holds true in the employee benefits brokerage world. Yet, from my experience, I see most brokerage firms doing a lot of management with very little, if any, measurement.
Additionally, in both our personal lives and in our business lives, the world around us is changing rapidly with the daily introduction of new technologies. Most of us can become overwhelmed, and employee benefits firms are no exception. Trying to figure out how to navigate healthcare reform, grow a business, hire and train key employees, and implement a new technology is daunting, to say the least.
In the face of all of this demand and strain, no wonder business measurements always seem to fall to the bottom. Yet I am convinced that this is where you will find the real gold within most benefit shops.
The most effective and efficient way to navigate this gauntlet of new technology, ideas, and operational issues is to get a firm handle on your current situation. Once this is accomplished, you can begin mapping out the fastest road to ultimate profit improvement. If you are making strategic business decisions without key measurements, then the cart is before the horse, and you will run into numerous problems, likely never reaching your full potential.
So, what exactly does the word “measurement” mean in the employee benefits brokerage world? It can mean a lot of things to a lot of people. And every, I mean every, firm should measure their small case book of business. For one thing, this is where I hear the most complaints, such as, “I can’t make money in the small case”, “The small case is taking up too many of my resources” and, “I don’t know what the future holds for small case because of commission cuts.”
Here is how you can begin the dialogue between you and your partners:
- Measure the “actual contribution margin.” Actual Contribution Margin = Client Revenue – Cost to Fulfill Client Service Expectations + Corporate Overhead. You may be surprised by what you find when you plug in the numbers. If you do have a problem, this will tell you exactly where it resides.
- Measure the actual contribution margin by case. It’s good to know the margin by block size but even better to know it at the case level. You might find that a few cases are driving the profit or loss of the entire small case block. It will direct you towards the more profitable cases and away from the less profitable ones.
- Measure the profit margin by carrier. Where you place the business can have a significant effect on your profitability.
- Measure your production relative to carrier bonus programs. Are you tracking credits towards carrier bonus plans?
- Measure current cross-sell penetration in the book. Which cases have multiple lines of coverage with you and which do not? Being able to identify cross-sell opportunities quickly and efficiently will help drive new sales.
- Measure employee productivity. Other than anecdotes and opinions, do you know the objective work output of your employees? Compare service times, amount of calls, and time spent on client enrollment and putting out fires over the course of a year. This is typically done for sales people, but it is rarely done for account management and support.
Getting a handle on these measurements gives you the clarity and knowledge to make the best decisions for your business and will help you answer the following questions:
- Do I have a revenue problem or an expense problem?
- Should I go through the cost and effort of hiring a new employee, or do I already have the capacity in my existing staff?
- Should I grow this segment of my business?
- Are there specific cases that are driving my loss or gain in this segment?
- Is there a profitable case profile for me to target?
- Should I continue to put most of my business with carrier X or Y?
- Should I get out of the small case business altogether?
- Should I invest my time and energy into researching new technologies?
- Should I outsource my business?
All of these measurements and the subsequent guidance they provide can apply to every size segment of your business. It’s best to start small and work your way up. Trying to “boil the ocean” by measuring all aspects of your business at once is too daunting and will likely lead to decision-making paralysis. However, if you start by focusing only on the small case block, it will provide the template with which you can tackle other business segments.
IBX Vice President of Sales & Marketing