Commission cuts, inflation, and other financial challenges can put pressure on insurance agency owners to reduce expenses just to help maintain profits. However, simply maintaining the same profits actually results in a loss due to inflation. Thus, agency owners also need to find ways to increase profits. Careful strategizing is needed when deciding where and how to cut expenses to avoid negatively affecting operations or losing revenue. Here are a number of effective ways to reduce expenses while still maintaining a thriving agency.
Staff Outsourcing
Staff outsourcing not only solves issues with local staffing availability but also can save up to 70k per year if done with a staffing firm that taps into foreign staffing. Local staffing with all expenses—including office space, payroll expenses, workers comp, and the purchase of computers—can run between 60k and 100k per year. In stark contrast, outsourced staffing often runs between 20k and 30k per year including all expenses. This is the biggest single change you can make do to significantly reduce your expenses. Importantly, if you are going to hire a staffing firm, you should be sure to do business with a firm that specializes in insurance agencies.
Downsizing Your Office
The second most significant change you can make to reduce expenses is getting a smaller office or even going completely virtual. With staff working from home or outsourced staff, agencies no longer need the same amount of office space. For very small agencies, there are virtual office services or executive suites that allow you to rent an office by the hour as needed. These services have on-site receptionists and can collect your mail and even answer your calls. However, it is important to remain available to clients after downsizing, so it helps to answer phone calls live as much as possible, have an online meeting app for virtual meetings, and meet with larger clients in person.
Review Other Expenses
In most cases, the expenses covered in the previous two sections will be your largest expenses. However, you should also review your profit and loss statement for the previous year to see if there are other expenses taking a significant bite out of your profits. In some cases, it may make sense to shop the marketplace, while in other cases you may want to keep certain vendors in place for continuity. You can also always seek a review with existing vendors to see if you can downgrade plans or benefit from any rate reductions. In general, your profit and loss statement will give you a snapshot of where your money is going and where you can cut expenses.
What You Should Not Touch
Don’t touch any expenses that are helping you bring in revenues, provided you are getting a fair return on investment. Also, you may not want to touch expenses of vendors who have business with you, as doing so could jeopardize your relationship with them and may end up costing you more in lost business. If you feel you are paying too much for an expense but are getting other benefits, consider all the variables before deciding whether it is worthwhile to make a change.
In challenging and inflationary times, it may be necessary to reduce your expenses where it makes sense to do so to help maintain or grow your income. Higher income is necessary when inflation occurs, as your previous year’s income will not go as far due to the increased cost of goods and services. These are not easy decisions, but they are an important part of management to ensure that your agency continues to stay afloat and thrive.
