As agency owners work on new business projections, they often forget to include any attrition — which immediately renders their target goals inaccurate at best. So how should you handle the attrition factor when doing projections?
For more information about Drew McLellan or Agency Management Institute – visit http://www.agencymanagementinstitute.com or check out the podcast – Build A Better Agency available at all the usual podcast host locations.
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Hey everybody! Drew McLellan here from Agency Management Institute. This week I am coming to you from Denver, Colorado. You know, a lot of agency owners, for some reason, set the goal of doubling in size in three years. I’m not sure what it is about that metric, I’m not sure what it is about that cadence, but I hear a lot of agency owners say, “We’re going to double in size in three years.” And the reality of that is you absolutely can double in size in three years if you grow your AGI 25% every year. So year over year, you’re growing your AGI by 25%. At the end of three years, you will be approximately double the size you were when you started. But one of the key factors that many agency owners or CFOs don’t take into account when they’re sort of calculating what the annual goals are around that kind of a metric is attrition. And for most agencies, it is very very rare for us not to lose a client or two throughout the year. In fact, on average, most agencies lose between 10% to 15% of their Adjusted Gross Income every year. So as you are figuring out your growth plan, and if you really are going to try and grow by 25% year over year, you first have to factor in the attrition. So when you are setting your goals of saying, “Okay, well our AGI is this. If I want to increase that by 25%, so I need to be here by the year end,” you also have to take into account the attrition. So really what you’re saying is, “I need to grow my agency by 40%,” if we assume a 15% attrition, by 40% year over year. if we assume a 15% attrition, by 40% year over year. And I will tell you that that is tough. And I have seen very few agencies do it. Many agencies do it early on as they’re starting, that sort of first five years of rapid growth. You remember what that was like. You couldn’t imagine it being any better, and you couldn’t, you were tripping over all the new business opportunities. But somewhere around year, between five and seven, all of a sudden, growth gets tougher because you’ve wiped out your Rolodex, you’ve wiped out your network, you’ve wiped out the people you know, and now you’re actually having to sell to strangers. When you get to that point, even 25% is very aggressive. But when you factor in attrition, 40%? Almost impossible to do three years in a row. So as you’re setting your goals, by all means, set AGI growth goals. But make sure you factor in that 10% to 15% attrition, and be realistic about what you and your team can do, how much of the resources, both the agency owners’ time, a biz dev person’s time, whoever is out beating the streets, looking for those clients. Whatever you are investing in terms of time and resource and talent, if you’re going to grow at that rate, you’re going to have to make a pretty big investment, especially if you think you can carry it year over year, over year for three years in a row. All right? Set your goals, be realistic, and do not forget about attrition. I’ll talk to you next week.