The Power of Compound Improvement

Kevin Trokey on May 18, 2020

A common goal we hear from agencies and individual producers is to double their book of business over the next three yearsThis is an admirable goal for sure. 

But how many believe it is doable? How many stop to figure out what they need to do differently to drive that kind of growth? The thing is, when you stop and crunch the numbers, it is definitely within reach.  

Without factoring in attrition of existing accounts, it takes 26% compounded growth to make this happen. Not necessarily easy, but doable. Once again, we see the power of compounded growth. 

The idea of doubling your book over three years is exciting. Focusing on 26% growth each year makes if feel reasonable. 

That’s not aggressive enough 

What if, instead of 26%, I challenged you to grow your book by 60% this year? Most of you would say, “KT, have you lost your freakin’ mind?!” 

Well, maybe. But that’s another topic for another time.  

I get it, 60% sounds like an overly lofty goal for most. Let me reframe my challenge.  

What if I challenged you to improve by 10%? Not an end-of-year improvement of 10%, but to find 10% improvement in each stage of your new business production? Does that feel less daunting? 

The numbers add up 

Let’s start with some baseline math. Let’s also assume your sales process requires three phases on averageNotice I said three “phases” rather than meetings. Sometimes it makes sense to accomplish two steps in a single session. I’m going to use the sales process we teach as an example. 

In our process, the first phase (Executive Briefing) is an exploratory conversation to identify potential alignment. The second phase (Strategic Analysis) is a conversation to uncover the needs of the prospect. The third phase (Alignment Plan) is to explain the solutions you would put in place to address the buyer’s needs and earn their confidence in your ability to solve their problem. 

You gotta know some numbers 

We always find it shocking how few agencies and producers track their key performance indicators (KPIs). As the saying goes, you can’t manage it if you don’t measure it. Let me show what that means in practice. 

Let’s make some conversion and close-ratio assumptions. When a producer first comes out of our training program, about 50% of their first-phase conversations will move to the second phase; about 75% of the second-phase discussions will move to the third phase; and, they will close about half of those third-phase presentations. 

Now, let’s add those conversion/close ratios together with the other growth KPIs to see how much new business would be written using a few baseline assumptions. 

In this scenario, let’s make the following assumptions. 

  • The producer creates 50 new business opportunities for the year (less than one/week) 
  • The average annualized revenue for each of those opportunities is $10,000 
  • 50% of first-phase conversations go to a second 
  • 75% of second-phase conversations go to a third 
  • 50% of the third-phase conversations result in a new client

How those baseline numbers add up 

  1. 50 opportunities X $10,000 = $500,000 total potential revenue 
  2. $500,000 X 50% (1st convo conversion) = $250,000 of potential revenue moving to Phase 2 
  3. $250,000 X  75% (2nd convo conversion) = $187,500 of potential revenue to Phase 3 
  4. $187,500 X 50% (final convo close ratio) = $93,750 new business production 

Now, let’s assume the producer improves each of their variables by 10%

  • Now, the producer creates 55 new business opportunities over the year 
  • The average revenue for each of those opportunities is $11,000 
  • 55% of first-phase conversations go to a second 
  • 82.5% of second-phase conversations go to a third 
  • 55% of the third-phase conversations result in a new client. 

That all seems doable, doesn’t it? Now, check out what this compound improvement does to the total amount of new business. 

How those 10% improvement numbers add up

  1. 55 opportunities X $11,000 = $605,000 total potential revenue 
  2. $605,000 X 55% (1st convo conversion) = $332,750 of potential revenue moving to Phase 2 
  3. $332,750 X 82.5% (2nd convo conversion) = $274,518 of potential revenue to Phase 3 
  4. $274,518 X 55% (final convo close ratio) = $150,985 new business production 

That’s an increase in new business production of $57,235 or 61%! If you continued to improve each of your growth variables by 10% each year, you would quadruple your book of business in three years. 

Pretty amazing, isn’t it?! 

It takes a process 

Here’s the thing, though. To drive this kind of compounded improvement requires a well-defined growth process.  

  • Predictably improving your number of new business opportunities requires a defined marketing and prospecting strategy. 
  • Consistently increasing your average revenue per opportunity requires a discipline most lack when considering which opportunities to pursue. 
  • To improve your conversion and close ratios, you have to have a specific sales process in place to identify the opportunities for improvement. 

Those who take a random approach of waiting for opportunities to find them and then depend too much on a spreadsheet to win new business will find consistent growth of any level to be beyond their control. 

You have to be in control of your growth.  

Start by defining, documenting, and consistently executing on your growth strategy. Measure your performance at each step and focus on incremental improvement along the way. Doing this gives you control.  

Do this, and you will unleash the power of compound improvement.  

 

Photo by artrachen

 

Topics: Agency Development, Team Development