Don’t compromise profit because you’re afraid or you don’t want to make a tough decision. What you do with the 80%, up to you, but save and protect the 20%.
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- Hey everybody, Drew McLellan here from Agency Management Institute. This week, I am coming to you from Santiago, Chile. This week, I want to talk to you about numbers. You know, all throughout the year, I've been reminding you of the 55-25-20 number. 55% of your AGI should go to salary, loaded payroll. 25% should go to overhead and 20% should be left in profit. But over the course of the year, here's what I watch agency owners do. Is that they feel like they can't hit the 55 number so they have to steal from one of the other numbers. But they steal from the wrong number. They don't steal from overhead, they steal from profit. So when an agency is overstaffed or is overpaying its staff, or all of the myriad of reasons why you can't get the 55% of your AGI to cover your loaded salaries, and there's a lot of reasons. It could be your estimates are too low, it could be you're over-servicing clients and you're writing too much time off. But for whatever reason, if you can't hit the 55, and by the way, a lot of agency owners tell me it's impossible and I'm here to tell you it's not impossible. Many AMI agencies do hit that number and hit it consistently, so I know it's still a valid number. But regardless, if you can't hit that number, then what happens is two things. Typically, agency owners either stop taking a paycheck or maybe they don't take the dividends or distributions that they should or they allow the agency to be unprofitable or certainly not profitable at the 20%. But what they don't do is they don't trim the operating budget. They don't trim the overhead expenses. So what I want you to think about for 2020 is, the number that is absolutely sacred is the 20% profit. the number that is absolutely sacred is the 20% profit. So if you can't run on a 55-25, if you have to go 60-20 or 65-15, that's fine. if you have to go 60-20 or 65-15, that's fine. So the first two numbers can equal 80% in any combination that you want, but the number that I want you to make less acceptable to reduce is that profit number. less acceptable to reduce is that profit number. That's where we go to first. We burn through our profit and we run really lean and mean throughout the year, which gives us no safety net. It gives us no room to really invest in a new employee, it gives us no room to really invest in a new employee, when there's somebody magical on the horizon that we have to have. For whatever reason, you have no wiggle room if you don't have a consistent profitability throughout the year. So as you go into 2020, ironically, I want 20 to be the number that you really focus on. I want you to be committed to running at a 20% profit. And if you have to adjust the other two numbers to get them to equal 80, so be it. But leave the profit number alone. Don't let that be the first place you go to to take additional resource. Make it the last place you go to. And when you go there, know that you are choosing to reduce the value of the agency, long term, by reducing its profitability, and odds are what that means is you're avoiding making a difficult decision either on the payroll side or on the overhead side. So don't do that. Don't compromise profit because you're afraid or you don't want to make a tough decision. What you do with the 80%, up to you, but save and protect the 20%. So, 20% for 2020, that is my campaign slogan and let's see how we all do, all right? Talk to you next week!