How 3 Simple Factors Can Boost Your Agency’s Revenue

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3 of the most important drivers of future revenue for your agency are client retention, cross-sold policies, and customer referrals. Let’s talk about the formula and the assumptions we will use. If you’re interested in the results, but not the method, go ahead and skip this first section. The variables used to calculate revenue include:

  • Your retention rate (existing customers retained) = r
  • Your annual growth rate (new customers acquired) = g
  • The number of households in your book of business = h
  • The average number of policies owned by each household = p
  • The average annual value of each policy = v
  • The number of years from present you would like to calculate = n

The formula to calculate your agency’s revenue is pretty simple. To do so, use this formula:

hpv(r+g)n

To put the formula in words, the revenue generated by your agency in the current year is determined by multiplying the number of households you have in your book of business, the number of policies held by each household, and the value of each policy. Then to determine the revenue of future years, multiply revenue by the real growth rate, raised to the exponent of the number of years in the future. The real growth rate is retention plus growth. For example, if you have an 85% retention rate and a 20% growth rate, the real growth your agency experiences is 5%. You lost 15% of your customers, but gained 20% more back for a real increase of 5%. If this growth occurs every year for 5 years, multiply revenue by 1.05 raised to the 5th power.

This model assumes a constant growth rate over time. In the real world an agency would probably experience diminishing returns, meaning the growth rate would get smaller as the book of business gets larger, so this assumption may not be perfectly accurate, but works fine for our model.

Let’s walk through a real example. This example will assume metrics for a fairly successful agency. Here are our assumptions:

  • Retention rate = 89%
  • Growth rate = 14%
  • Number of households = 1,500
  • Average policies per household = 1.4
  • Average annual value of a policy = $150 ($1,000 per year at 15% commission)

Using these numbers we can calculate that:

  • The revenue you will generate by the end of this year is $315,000.
  • 25 years from now, your annual revenue will be $640,330.
  • The total revenue you will have generated over 25 years is $11,484,668.

The Financial Impact of Multi Lining Customers

Now let’s do that same calculation, but this time let’s assume you’ve been able to cross-sell policies to your customers. The average insurance agent has 1.4 policies per household but in this scenario, you’ve worked hard to educate your clients about the benefits of other products you have to offer. They’ve seen the benefits and you’ve been able to multi-line your customers. You now average 2 policies per household in your book of business. All other variables are the same as before.

Here are the new calculations:

  • The revenue you will generate by the end of this year is $450,000.
  • 25 years from now, your annual revenue will be $914,757.
  • The total revenue you will have generated over 25 years is $16,406,669.
1.4 Policies 2 Policies Difference
This Year’s Revenue $315,000 $450,000 +$135,000
Revenue in Year 25 $640,330 $914,757 +$274,427
Total Revenue over 25 Years $11,484,668 $16,406,669 +$4,922,001


By identifying cross-selling opportunities in your book of business, you’ve been able to generate a total of nearly $5 million more over 25 years than you would have otherwise.

The Financial Impact of Improved Retention

Let’s say you’ve worked hard to strengthen your relationship with your current customers. You send them birthday cards and meet with them annually to review their policies and get to know them. Now your retention rate has increased from 89% to 94% (this is a very very strong book of business). All other variables are the same as in the first calculation.

Here are the new calculations:

  • The revenue you will generate by the end of this year is still $315,000.
  • 25 years from now, your annual revenue will be $1,997,472.
  • The total revenue you will have generated over 25 years is $23,028,371.
89% Retention 94% Retention Difference
This Year’s Revenue $315,000 $315,000 $0
Revenue in Year 25 $640,330 $1,997,472 +$1,357,142
Total Revenue over 25 Years $11,484,668 $23,028,371 +$11,543,703


By increasing your retention rate by 5 percentage points, you more than double your total revenue over a 25 year span. However, notice that the financial impact of this improvement is not immediate. It takes time and patience for your efforts to catch up to you. There is clearly great value in taking the effort necessary to conduct customer insurance reviews to help your clients feel comfortable with you and see the value you provide as an agent.

The Financial Impact of Generating Customer Referrals

You’ve established yourself as a trusted advisor to you clients and have implemented a reliable referral program. As a result, your clients are now comfortable providing you with referrals. 3% of your clients now refer a friend to you each year. The implication of these new referrals is that your growth rate rises to 17%.

Not only is your growth rate higher, your referred customers are also more loyal than other new customers because they have a personal connection to you. Your retention rate grows to 90%.

Here are your new calculations:

  • The revenue you will generate by the end of this year is still $315,000.
  • 25 years from now, your annual revenue will be $1,597,796.
  • The total revenue you will have generated over the 25 years you’ve been in business is $19,923,447.
No Referrals Referrals Difference
This Year’s Revenue $315,000 $315,000 $0
Revenue in Year 25 $640,330 $1,597,796 +$957,466
Total Revenue over 25 Years $11,484,668 $19,923,447 +$8,438,779


The Financial Impact of All 3 Key Drivers

When you’re able to combine the impact of improved retention, customer referrals, and cross-sell opportunities, the impact is enormous. Let’s do the calculation assuming you’ve improved your retention rate to 94%, your growth rate to 17%, and your average policies per household to 2.

Here are your new calculations:

  • The revenue you will generate by the end of this year is still $450,000.
  • 25 years from now, your annual revenue will be $5,507,620.
  • The total revenue you will have generated over the 25 years you’ve been in business is $51,485,988.
Normal Rates All Improvements Difference
This Year’s Revenue $315,000 $450,000 +$135,000
Revenue of Year 25 $640,330 $5,507,620 +$4,867,290
Total Revenue over 25 Years $11,484,668 $51,485,988 +$40,001,320


These examples may seem extreme, but they show the major difference between an average insurance agent and those who go the extra mile to improve their agency. By doing all you can to consistently make your customers happy, obtain referrals, and cross-sell policies, you can make improvements in your agency’s revenue you have only dreamed of.

The best way to hone in on these 3 key improvements is to conduct annual customer insurance reviews. If you have any questions about the specifics of this program, please enroll in our free educational program that walks you step by step through how to do it.