March 4, 2014
Does a Second Office Location Make Sense?
2 min read
This is a question we get asked a lot! It’s only natural for a growth-oriented insurance agency owner to consider additional outlets in a different town, or part of town, to increase their agency size and profitability. Does it make sense for you?
Let me give you some things to think about if you ever consider it:
- Do you have the management capability to run two offices? Here are some things to consider in answering that question: Is your bottom line profitability in the upper quartile for agencies your size? Is your spread better than average? Is your average revenue per person at or above the norm for agencies like yours? Is your loss ratio with all major carriers at least as good, if not better, than their statewide book of business? What is your employee turnover rate – are you always turning away good potential employees or desperately looking for them? Is your current growth rate (new customers and dollars) greater than 20% over each of the last three years? Is your retention rate better than 88%? These are good measures of management capability and performance. If you answer yes to all of them, consider proceeding. If not, you will likely fail in adding a second location – and may seriously damage your existing agency operations.
- How good are your people at managing themselves? Asked another way – when was the last time you took a real two-week vacation? A real vacation is where you go away and don’t call the office every day – and they don’t call you! If you haven’t done that consistently in recent years either you don’t trust your people, or worse, you’re running an agency that can’t make it without your constant presence. If this is the case, you have no business opening a second location until you fix this issue.
- Does your business plan show you conclusively (not optimistically) that you will make the same profit – or more – per dollar of insurance sold after adding the second location as you do at the original office? This is hard to do! You have to overwhelm additional fixed costs to do it (rent, cost of capital on equipment, travel expenses between offices, etc.) If you haven’t accounted for these things and figured out how to increase rate of profit, perhaps you’d be better off to invest in marketing instead of a second office.
- Do your customers come to you because of your location or because you reach out to them? Many agencies have built their books of business on something besides a retail location and walk-in traffic. If you have, it’s very likely that you could add a new market territory without adding the complexity and cost of a second location.
These are certainly not the only issues to consider in deciding whether or not to open a second location. However, they are critically important. I have seen them ignored many times. But I have never seen an agency be successful in expanding locations when every one of them wasn’t dealt with. Maybe a second location is a good idea, just be sure these issues are covered satisfactorily first.