The Adaptive Agency Blog

Customers x Premium x Years

by | Apr 16, 2024 | Strategy

You’re an ethical person. You run an honest business. That means if you make more money, it’s because more people like what you’re doing.

But there are so many buttons to push on the way to Net Income. It’s easy to get distracted and just work on “stuff.” It’s easy to think income boils down to “how much I can sell.” That leads to chasing any and all revenue regardless of its quality.

(I once helped an agent do a deep dive into his book. We found out that he never turns a profit on the bottom half of his customers.)

So if you want to know your agency’s earning potential, there are three things to look at:

  1. How many customers you have.
  2. Their average annual premium.
  3. Their average years of retention.

(Of course, you’ll have to do some estimating here. That’s okay if you are consistent. You can improve your estimates over time.

By the way, you probably have some additional incentives. I’m not considering them for this discussion.)

Let’s look at some scenarios.

Agency 1

This agency grinds leads and has high customer turnover.

They average around 1000 households at any given time. Average premium is about $2300 (on 1.8 policies per household). Average retention is 4 years. Commission is 8%.

1000 households x $2300 x 4years = $9,400,000 during a four year window.

At an 8% commission, that’s $736,000.

And for good measure, we’ll subtract a $250 Customer Acquisition Cost from each customer, which would be 1000 x $250, or $250,000.

That leaves us with $736,000 – $250,000 = $486,000 over four years.

That’s $125,500 per year, all things remaining equal.

Agency 2

This agency has identified 2 or 3 Ideal Customer Profiles and focuses on acquiring and retaining them.

They average around 600 households. Average premium is around $4000 (on 3 policies per household). Average retention is 10 years. The commission is also 8%.

600 households x $4000 x 10 years = $24,000,000.

At an 8% commission, that’s $1,920,000.

We’ll subtract a $250 Customer Acquisition Cost from each of these customers, which would be 600 * $250, or $150,000.

That leaves us with $1,920,000 – $150,000 = $1,770,000 over ten years.

That’s $177,000 per year, all things remaining equal.


Agency 2 makes 46% more money with 40% fewer customers. Better customers. More money for less work.

Agency 1 spent $100,000 more on CAC.

Agency 1 makes $55,500 less per year, which is effectively their comparative Cost of Customer Churn.

Agency 2’s recurring revenue is much more predictable, and they’re better insulated from competition, pricing increases, etc.

What Makes An Agency Like Agency 2?

These agencies understand Customer Lifetime Value. In other words, if a customer spends more with you each year, and stays with you for more years, you make more. And the more of those customer scenarios you stack up, the more profitable you become.

How do you make that happen?

  1. Define and pursue your Ideal Customer Profile(s).
  2. Provide great value and customer experience.
  3. Earn trust by demonstrating care and credibility.
  4. Build a team that cares about the above.
  5. Avoid employee churn.

In the end, if you make your business about your customers and your employees, and if you are strategic about what revenue you focus on, you’ll win.