© Copyright 2004                               How To Use The Lifetime Profit Value Of Your Clients To Become Massively Successful In Your Insurance Profession! by Ken Varga How many businesses have you stopped patronizing because they didn't treat you well enough to keep you as a customer for a long time? How many times did you leave an establishment and felt they didn't care if you ever buy from them again or not? I bet this situation has happened to you more often than not, right? In my case, I've stopped doing business with dozens of organizations in the last twelve months alone. For example, I've stopped patronizing several restaurants because the owners or the employees, or both, didn't treat me the way I'd like to be treated. They didn't make me feel special and appreciated. For some strange reason, these restaurant owners just didn't realize, by treating me with indifference, they'd lost tens of thousands of dollars, instead of just the value of a few meals. That's right, by not realizing the simple fact that I, their customer, am their most valuable business asset, they failed to treat me well enough to keep my business for life. Let me put into perspective how much money these restaurants have lost for not treating me well. My wife, Barbara, and I usually dine out three times a week, usually at a different restaurant each time. Our average meal is about $50, which means each restaurant makes about $2,600 a year from us, or about $26,000 in ten years. In addition, we usually tell 3 other people about the restaurants that we really like- the ones that treat us like royalty. So, if only one of these three people dines once a week at the restaurants we recommend, with an average value of say, $50, then this restaurant will also make $2,600 from that person in a year, or $26,000 in ten years. This means, the restaurant will have earned $52,000 from my friend and me over a period of ten years. And this is not all. Because the restaurant also gives my friend the royal treatment, he or she will also tell 3 other people about it. And this wonderful cycle repeats itself over and over. What this means is, in just ten short years, this restaurant could have made several hundred thousand dollars in gross income from me- directly and indirectly, all because they did not treat my wife and me like royalty. Now, let me ask you this... If you were the owner of the restaurant I just described, knowing you could earn several hundred thousand dollars from my wife and me in ten years- directly and indirectly, wouldn't you go the extra mile to treat us extremely well every time we dine at your restaurant? Of course, right? But, you know what? In the real business world, the opposite is usually true. You see, since most entrepreneurs, not just restaurant owners, don't realize each one of their customers could be worth tens of thousands, even hundreds of thousands of dollars to them over ten to twenty years, they fail to treat their customers well enough to keep their business for the long term. Unfortunately, I'm sad to say this is also true in the insurance industry. Let me ask you these questions... First, do you know what's the average number of years a client does business with you? Second, do you know how much each one of your clients is worth to you or how much money you can make from him or her during this period, which could be 10 to 20 years? If you're like most agents, then you probably answered "no" to the second question, right? By not knowing the lifetime profit value of your average client, just like the restaurant owners, you're losing out on hundreds of thousands of dollars over the next ten years. Imagine how much money you'll make if each one of your clients is worth say, $20,000 in gross commission, to you over the next ten years. Let's say you have 1,000 clients. This means, over the next 10 years, you'll make $20,000,000 or $2,000,000 a year! Well, if making $20,000,000 in gross income in ten years is too big for you to relate to, let's use a smaller figure. Let's say you only have 500 clients from whom you can earn just $10,000 each over the next ten years. This means, you'll have made $5,000,000! Or, in other words... You'll Make $500,000 A Year, Each Year... For The Next Ten Years! You probably agree making half a million a year would allow you and your family to enjoy an extremely comfortable lifestyle, wouldn't it? Right now, I'm going to prove to you, with concrete numbers, why your clients are your greatest business asset... and why it's realistic for you to earn at least $10,000 from each one of them over the next ten years. To do this, we'll use... The Formula For Calculating The Lifetime Value Of Your Average Customer Or Client: A. Average first year commission of policy $ B. Renewal commission as % of first year's commission % C. Renewal commission of policy (A x B) $ D. Number of policies per year per customer $ E. Average number of years customer buys from you $ F. Renewal commission over the life of customer (C x D x (E- 1)) $ G. Commissions earned over the life of customer (A x D + F) $ H. Number of referrals from customer $ I. Percentage of referrals that become a customer % J. Number of referrals who become customers (H x I) $ K. Commissions earned on referrals (G x J) $ L. Total value of a loyal customer (G + K) $ Let me explain some of the above items: A. Average value of policy - Add your total commissions for a year and divide that by the total number of policies issued. C. Number of policies per year per customer - Take the total number of policies issued for a year and divide it by the total number of customers. (If you sell only one type of policy, then you can ignore the calculation and just use 1.) D. Number of years customer buys from you - Since about 20% of the population moves every year, this number may be between 8 and 20 years, depending on how well you treat your customers. (Because many agents don't take excellent care of their customers, their number is usually less than 5.) H. Number of referrals from customer - How many other people does each satisfied or loyal customer tell about you? It's probably between 3 and 12. (Some agents are getting no referrals from their existing clients whatsoever because they don't know how to ask.) J. % of referrals that become customers- This percent depends on how well you treat your customers and how happy they're with your service. It usually is between 30 and 60%. Okay. Let's plug the numbers in the formula and see what happens. For our example, let's say the average value (or commission) of the policy is $100. The renewal commission is 100% of first year commission. The number of policies per year is 2. The number of years the customer or client buys from you is 10. The number of referrals from each customer is 8. And the % of referrals that become customers is 50%. After putting these numbers into the formula, we get... A. Average first year commission of policy $100.00 B. Renewal commission as % of first year's commission 100% C. Renewal commission of policy (A x B) $100.00 D. Number of policies per year per customer 2 E. Average number of years customer buys from you 10 F. Renewal commission over the life of customer (C x D x (E- 1)) $1,800 G. Commissions earned over the life of customer (A x D + F) $2,000 H. Number of referrals from customer 8 I. Percentage of referrals that become a customer .50% J. Number of referrals who become customers (H x I) 4 K. Commissions earned on referrals (G x J) $ 8,000 L. Total value of a loyal customer (G + K) $ 10,000 As you can see, in this example, each client is worth $10,000 to you over a 10-year period. So, having 500 clients will make you $5,000,000 over the next 10 years, or an average of $500,000 per year. Here's more exciting news for you, this is the minimum amount. I'm sure you realize earning only $100 in commission on a policy is very conservative. For instance, on some large accounts, such as business or disability, you could earn several thousand dollars a year on each policy. In this case, the total lifetime value of your average customer could be $100,000.00, $250,000.00, even $500,000.00 or more! After reading this article, please use the above formula to calculate the lifetime profit value of your average client. And you'll be surprised at the enormous amount of profit you could make from each one of them. We'll now discuss another important fact you need to understand to become super successful in your insurance profession. In the insurance business (or any business for that matter)... Not Only Must You Sell The Customers In Order To Get Them... But You Must Also Keep On Selling Them In Order To Keep Them! By this, I mean you must constantly and consistently keep on selling the value or benefits of your agency to your clients, eliminating any buyer's remorse... and compelling them to do more business with you. Unfortunately, for most agents, the sales process ends after they get a prospect to become their customer. They stop communicating to the customer that they had invested so much time, effort, and money to get in the first place. No wonder these agents lose up to 19% of their customer base every year. For some strange reason, many agents don't do anything special for their clients after the first transaction. Instead, they just hope their customers will renew with them the next year, which usually doesn't happen. Over the years, I've asked a lot of agents what they do to make their clients feel special and appreciated so they'll renew their policy or policies and buy additional policies from them, and I was always surprised at their replies. The most common answer was "Nothing." And the next most common reply was, "I send them a birthday card." Upon hearing this, I then asked them if they knew how much their average client would be worth to them over a ten-year period. Many of them usually gave me a surprised look and said, "No. I've never thought about looking at my clients this way." I then asked them if it was reasonable for them to make at least $5,000.00 from each one of their clients over a ten-year period, and most of them usually answered... "Yes." I then asked them ... If you could make at least $5,000.00 from each one of your clients in a ten-year period, then doesn't it make sense for you to spend say, $100, to do something special for each one of your clients - besides a birthday card? At this time, they usually nodded their heads in agreement, finally understanding the important point I was trying to make. I then showed them how to calculate the lifetime value of their average client. And, after they saw the enormous amount of money they could make from each one of their clients, their eyes grew almost as large as saucers. Let me now tell you... Why Is It So Important For You To Know The Lifetime Profit Value Of Your Average Client? First, until you know how much each one of your clients is worth to you over the course of his or her patronage, you'll never go the extra mile to treat that person like a king or a queen. Like many agents, you may also have set up an annual advertising or marketing budget for getting new customers. But I bet you probably haven't set up one for keeping your current customers happy and compelling them to do more business with you for years to come, have you? If so, now that you know the enormous amount of money you could make from your clients, you'll go the extra mile to take extremely good care of them, right? Good. Okay. The second reason you should know the lifetime profit value of your average client... is so you can figure out the right amount of money, time, and effort to invest on getting a prospect to become your client. For example, if, before calculating the lifetime profit value of your average client, you thought each one is worth say, $500, to you because that person may only buy from you once or twice, then you probably spend only $50 or $100 to get a prospect to become your client. Or, if you knew each client is worth $10,000 or $20,000 or more to you over ten years, then you may be willing to invest as much as $500 or even $1,000 to get a prospect to become your client, wouldn't you? Can you see the incredible advantage knowing this information gives you over your competitors? Because most of your competitors don't know they can make $10,000 or more from each of their clients over the course of their patronage, they'll usually invest only a minimum amount of time, effort and money in trying to get a prospect to become their client. They may think that $10 is a fair amount of money to spent to acquire a new client. On the other hand, because you know what the lifetime value of your average client is, you may be willing to invest more time, effort and money, say, $100 or perhaps even $500, to get a client. So, you'll end up getting more clients than the competition, and securing a substantial market share. You may be saying, "If I only make $100 or $200 commission the first year on a customer, how can I afford to invest the whole amount to get that customer?" Well, right now you may not be able to invest as much as the first year's commission to get a customer. But, after you've learned how to operate your business more efficiently, you'll be able to afford to invest a larger amount of money, effort, and time to get prospects to become your customers. I call this the Nurturing Process. In farming, after planting the seeds, farmers must water, cultivate, fertilize, and take good care of them for many months or sometimes even years, before they're able to harvest the fruits of their labor. The same thing is true with business. And, depending on the kind of market you sell to, sometimes you'll need to invest a large amount of money, effort, and time to develop and nurture the relationships with your prospects, before they even consider doing business with you. The important thing to remember is, as long as you know how much an average client is worth to you over their lifetime of patronage, you can figure out the maximum amount of money and effort to invest on getting the prospect to become your client. And, when you constantly go the extra mile to serve your clients like kings and queens, astonishing them with your exceptional customer service several times a year, they'll keep on renewing their policies with you for years to come. And, they'll shower you with endless referrals. Ken Varga was in the insurance business for 33 years and had insured 459,182 policyholders for his agency, which he sold in December 2001 for many millions of dollars. As a payback to the insurance industry, he spent almost three years developing turnkey programs - based on the sales, marketing, and agency management secrets he used to build an agency with almost half a million clients - to help agents become more successful in their insurance profession. To discover how you can use his million-dollar ideas, secrets, and systems to DOUBLE your income within 12 months- while working up to 20 fewer hours each week, visit his website: http://www.sellinsurancelikecrazy.com/a/1029