I spoke about my mentor’s book, Lifestyle Selling for Women by Pauline O’Malley. For those that have not read it yet, it’s an instant sales plan for instant income and here is my plan to use this in a new market to sell my services as a commercial insurance broker and look for a cross sell of home insurance afterwards.
First, some business plan math.
The average commission I make is about 8% on commercial insurance. (It’s low, I know!) However, I do get a chance to make that again next year and the average client stays with me for about 3-7 years before they move on. Here are some assumptions.
Average Sale = $1,000.
Average commission = 8% or $80.00
Average closing ratio = 10% (Remember, we are assuming that we are going in cold, and I’ve heard this 10% cold ratio has become a worse lately. My warm closing ratio is around 65-75% and as high as 96% from a referral. But if you’re cold calling, it can actually be as low as 1%, which is considered good for a direct mail or Adsense campaign!)
How many clients do I need to make $1000/month? About 12.5, so 13 new clients a month. ($1000/$80)= 12.5.
So working backwards, how many calls do I need to make to get those 13? 13/0.10 = 130. I need to be able to literally talk to 130 people a month for a few minutes and pitch them.
But wait, let’s go a little further than than. Let’s say we only get to pitch 10% of the people we actually call. Now how many calls do I have to make?
130 people willing to talk to me about insurance/10% = 1300 attempted calls.
So, to summarize. I need to make 1300 calls to talk to 130 people to get 13 new clients willing to purchase on average $1000 worth of insurance, of which I will make about $80 in commission per sale earning me a gross of $1040.00 extra per month.
I know it takes me from past experience about 5 minutes to make a call on average between all the hang ups, the introductions and having people hang up on you or tell you they are not interested.
So 1300 x 5 minutes = 6500 minutes / 60 minutes per hour = 108.33 hours.
$1040/108.33= $9.61 per hour. But wait, there’s more-and it gets worse!
It will take me about 30 minutes to talk to those willing to talk to me and then collect the requisite information for their insurance application and probably about another 30 of back and forth with the underwriter and then another hour of presenting, rebuttal and overcoming any questions and objections the prospect may have.
So out of 1300 calls, I’m going to spent about 120 minutes on those 130 tire kickers. 130*120= 15,600 minutes.
15,600 of “presentation time” + 6500 minutes of “cold calling time” = 22,100 minutes/60 minutes per hour = 368.33 hours.
$1,000/368.33 hours = $2.82/hour.
But wait! It gets even worse (before it gets better.)
I’ll have 13 clients, and I’ll spend about an hour probably doing after sales support and preparing nice presentation letters of their policy.
So, lets tack on 13 hours extra to the equation. 13 hours x 60 minutes = 780 minutes
6,500 minutes of “cold calling time”+15,600 minutes of “presentation time”+780 minutes of “after sales support time” = 22,800 minutes/381.33 hours total from nothing to enough clients to earn approximately $1040.
$1040/381.33 = $2.73/hour.
Yup, you read that right. My initial clients are going to earn me $2.73/hour.
Why would I do something for so little money?
Because next year, it only takes about 60 minutes to make the sale again.
I’ll have 13 clients, which take me 60 minutes, so 13 hours. But I will earn $1040/13hours = $80/hour.
And if I keep these clients on average 3 years, that means I’m going to make $2.73/hour my first year, $80/hour in year 2 and another $80/hour in year 3. So it will be on average $54.24/hour that I make per client. Now that is not a bad hourly wage! And if I give good service and they last 7 years? It works out to $2.73+$80+$80+$80+$80+$80+$80/7=$68.96/hour.
But wait, it gets even better than that (sort of.)
Say I do get 13 new clients. What if 10% of them allow me to sell them Condo insurance for a $20 commission?
It only takes about twenty minutes to do a condo application. So that’s $60/hour right there.
Year 1 means I need to take 5 minutes to ask if I can do their condo insurance. So 13 x 5minutes = 65minutes/60 = 1.08hours.
1.08 hours to ask for their condo insurance. + 1 hour to process.
=$60/2.08= $28.85/hour on the Condo Insurance part but really this is an exaggeration.
Let’s re-do some math.
I’m going to earn $1040 on my initial 13 clients. Plus I’m going to earn $60 extra in terms of Condo insurance commission.
That’s $1100 extra.
It’s going to take me 381.33 hours to get my initial clients. Plus it will take me about 2.08 hours for the condo insurance.
That’s $1100/383.41hours= $2.87 per hour in my first year. (So it’s a little better than first calculated)
In Year 2. Assuming no clients leave (This is a big if, but on average, with attrition taken in, my clients from past experience will stay about 3-7 years.)
13 clients, 60 minutes each and $80 in commissions per client = $1040/13=$80/hour.
add:
3 clients, 20 minutes each, and $20 in commissions per client = $60/1hr =$60/hour.
Or $1100/14hours= $78.57.
Yup, you read that right. Going for the up-sell actually lowered my per hour rate in year 2 onwards. But doing the up-sell doesn’t take that long and it does allow me to be the one stop go-to guy for home and commercial insurance. The only way I would lose the client is if their car insurance guy asked for a shot at their home and business insurance or if another cold caller beat me some how or if I drop the ball on service or the client’s friend or family member decides to get into the insurance business.
So how long does it actually take to spend 383.41 hours per month?
Well, if you work a 40 hour work week it would take 9.59 weeks. That doesn’t really work if you plan to make the extra $1040 in one month. You would literally have to be calling 16 hours a day which isn’t possible given that most businesses don’t answer their phone 16 hours a day.
In this case, it’s a matter of lowering expectations as it is physically impossible to do this task given the time frame, average sale size and margins.
Most people, myself included work a 30-40 hour work week already. So if you’re looking at making extra money on the side, in this case, only doing 25% of this goal would make more sense given the constraints of the average sale size and commission percentage. The only way to get ahead is to sell more, earn more of it, and do it in less time. Or pay someone else to do it for you while still making a profit off of your employee/contractor. But the above math has to make sense.
No one would willingly work for the initial $2.76/hour if they didn’t understand the back end of the deal. And never let yourself be fooled that you can get paid more upfront if you plan to stay in the same job/business for a few years. You can make $54/hour over 3 years per client or a lot less (sometimes even minimum wage) if you just plan to stay in the job for less than a year. That’s why they say true wealth is made over time. That average $54.24/hour goes up even more if the client stays a full 7 years to $68.96/hour. The trick then, at least in my situation is to get enough clients over time and service them well enough to overcome any attrition (hey, it happens.)