Key Metrics Independent Insurance Agency Owners Should Track

Running a successful independent insurance agency requires far more than selling policies and providing great service. To achieve long-term growth and profitability, agency owners must track and analyze key performance metrics and work on the business not just in the business. The problem is there is so much data, it is hard to know what to pay attention to and the why behind the numbers, to help answer that question, we have compiled a list of the most critical metrics an agency owner should monitor and why they matter.

Commission Growth Rate

Commission growth rate measures the increase in commission revenue over time. This metric is vital because it reflects the agency's ability to generate more revenue through increased sales and renewals. A steady or increasing commission growth rate indicates a strong book of business and effective sales strategies.

Revenue Retention

Revenue retention tracks the percentage of revenue retained from existing clients year over year. High revenue retention means your agency is keeping profitable clients, which is far more cost-effective than acquiring new ones. A declining retention rate will significantly impact the value of an agency and its ability to maintain overall growth. When an agency's retention rate drops, it may signal widespread customer dissatisfaction or increased competition.

Customer Retention Rate

Customer retention rate measures the percentage of customers who continue doing business with the agency over a given period, typically annually. Retaining customers leads to stable revenue and a stronger reputation in the market. Agencies should aim for high customer retention through excellent service, proactive communication, and competitive pricing. Another way to predict high customer retention is by maintaining a high number of policies per customer, as it becomes harder for a customer to leave when they have multiple policies in place.

New Business Per Producer

This metric quantifies the amount of new business each producer generates within a given timeframe. Tracking this metric allows agency owners to assess the effectiveness of individual producers, identify top performers, and provide additional training to those who may need support. High-performing producers contribute significantly to the agency’s growth.

Profitability

Profitability is the agency's bottom line, measuring the difference between revenue and expenses. This metric is crucial for assessing overall financial health. Monitoring profitability helps owners make informed decisions about expenses, pricing strategies, and operational efficiencies.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

EBITDA provides a clear picture of an agency’s operating performance by removing non-operational expenses, any one-time expenses or income, and a reasonable owner compensation amount based on the size of the agency. Investors and buyers often use this metric to evaluate an agency's true earning potential. A high EBITDA suggests strong financial management and operational efficiency. Calculating EBITDA involves starting with the agency’s profitability and then adding back interest expenses that the agency incurs due to any current loans, depreciation expense, amortization expense related to a book purchase or other intangible asset, and any taxes paid the state or IRS as a result of the profitability of the agency. In addition, you will want to remove any one-time revenue and expenses that will not recur in future years and make sure that the owner compensation that is included on the P&L for owners is both reasonable and accurate for their current role in the agency. This calculation will then provide you with the ongoing operating profit for the agency.

Revenue Per Employee

Revenue per employee is calculated by dividing total revenue by the number of employees. This metric helps gauge workforce productivity and operational efficiency. If revenue per employee is low, it may indicate overstaffing or inefficiencies in workflow and processes. For agencies that utilize virtual assistants, this metric may be lower than average, so it is important to understand the story behind each of these metrics and how they all work together.

Revenue Per Account Manager

Similar to revenue per employee, revenue per account manager measures how much revenue each account manager oversees. This is a capacity and efficiency metric that can be greatly impacted by the types of accounts the agency writes, the complexities of those accounts, and the structure of the agency's team. This metric can help determine whether account managers can manage their workload in the changing insurance environment and guide decisions on training, workload distribution, and hiring.

Net Promoter Score (NPS)

NPS measures customer satisfaction and loyalty by asking clients how likely they are to recommend your agency. It is calculated by asking the customer to rank their likelihood of referring clients to the agency on a scale from 0-10 with 0 representing the least likely and 10 being the most likely score. When clients indicate a score of 9 or 10, they are considered promoter, a score of 7 or 8 is considered passive, and a score of 6 or below is considered a detractor which is a strong indicator that the customer is at risk of leaving the agency. By monitoring the agency’s NPS score the team is able to quantify its customer experience and compare its results to industry benchmarks. A high NPS indicates strong customer relationships and can lead to organic growth through referrals. Low NPS scores may signal issues with service quality or customer experience.

Policies Per Customer Service Representative (CSR)

This metric tracks the number of policies managed by each CSR. It helps agency owners assess workload balance and efficiency. A high policies-per-CSR ratio suggests strong operational processes, while a low ratio may indicate inefficiencies or the need for better technology and training.

There is no shortage of data and metrics that an agency owner can track, but data without action is just numbers. Tracking these key metrics allows independent insurance agency owners to make data-driven decisions, improve efficiency, and maximize profitability. By regularly analyzing these performance indicators, agencies can stay competitive, retain more clients, and achieve sustainable growth in the ever-evolving insurance industry. Knowing your numbers and how these metrics relate to each other can lead to data-driven actions and an overall increase in the health and value of the agency.