Author Archives | d_frey

Are You Managing Too Many Provider Relationships?

Are You Managing Too Many Provider Relationships?

Baseball great Yogi Berra once said, “You’ve got to be careful if you don’t know where you’re going, because you might not get there.” Yogi, famous for muddling his words, likely meant to say, “If you don’t know where you’re going, you might get there.” Agents may want to heed Yogi’s witticism, even the mangled version.

When you start out as a general agent, you have a pretty good idea about the path: Build relationships with providers to ensure you have the best options to take care of your dealers. You had to fight to carve out a piece of the world from agencies with established territories.

Now, years later, after you have established yourself, the path may not be as clear. You have diversified the number of providers and you are still spending time finding new ones while managing the existing ones.

That time may not be time well spent. Valuable financial opportunities with your dealers could be passing you as you chase more providers or manage the long list of existing ones.

If you haven’t stopped for an hour to look at your agency, perhaps now is a good time to do just that and evaluate your provider relationships to make sure you are still on the best path, and know where you are going and can get there.

How the Sloth Got on Your Back

Not long ago, I encountered a mega agency that has 21 provider relationships. Many of the more than 300 producing dealers use this agent for just one product.

That agency could consolidate or purge relationships and ultimately get more growth. It seems counterintuitive to lower the number to increase growth, but managing all those relationships consumes a lot of man hours. And, the return on investment likely isn’t there for every relationship.

It’s perfectly logical that you diversify in order to not have all of your eggs in one basket. You need a fair mix to protect your agency. At the same time, you want the best programs, and you want to know that other companies are not developing better products and arming their own sales staff or agents to pursue your dealers.

Competition keeps providers sharp so they have the dealers and your agency’s best interests in mind. Providers should welcome the competition to make sure they bring their “A-game” for you every day.

But what if your providers always quickly adjusted to give you the best products, and you did not need to waste your time worrying about the competition? Imagine what you could accomplish for your dealers if you could reduce the time talking to additional providers and could focus on your dealers’ needs 100% of the time.

Doing Your Dealers a Solid

If your relationship with the dealer principal is just one as a product provider, you will be easily replaced. You need to be able to have more time to spend helping your dealers than dealing with your providers.

How solid is your relationship with every dealer? Yes, sometimes you need to get your foot in the door with a product, but once you have that, it is important to strengthen that relationship. Do you have everything possible for that relationship to grow? Do you bring new and different ideas to these dealers to help them better manage their business?

Today, dealers are busier than ever before, especially as they figure out how to compete in the digital world. Maybe you can help them with staffing. Every dealership is looking for good people. You could prove your value by finding people for their open positions. Or, you can find a provider that has a fantastic staffing solution you can provide to the dealer to strengthen your relationship.

Food, Drink, and the Gripe-and-Grin

The annual meetings providers host take you to nice, warm places where you enjoy good food, golf, and plenty of other fun activities.

However, for many of the agents I talked to recently, they said their providers did not deliver anything exciting, such as new products or technology, to help their dealers actually sell more. These agents were upset with the time they spent out of the field because they were not helping their dealers.

Recently, I worked with an agent who took two months to install a product in a dealership. Three of the weeks during that time were spent at the annual agent conferences with other providers. This was clearly a case in which managing those provider relationships took away from what was best for his dealers.

What about prospecting for new dealers and new opportunities? How often do you drive by the same dealerships knowing that the dealer is unlikely to move? You fall into that rut because your time is so precious. Your time may be stretched thin because you are going to all those provider meetings or talking to potential providers to see other products.

While you think this is research, prospecting is the first piece of your job that gets cut short because you don’t have enough time. You need to be able to spend time talking to new dealers. Chances are this is the first thing every week that falls by the wayside.

Quality Time Pays

You are always one bad day away from a lifestyle change. Spending quality time with your existing dealers pays dividends. Otherwise, it could be a painful experience.

I met an agent recently who was spread razor-thin because of so many providers. The relationships were good, but not strong enough to be anything more than a product provider. That agent’s biggest dealer left with no prior notice when they took an advance from a large provider.

That dealer was 40% of the entire commissions for the agency. If the agent had spent more time focusing on the dealer, the dealer would have known that his current agent had easy access to significant money to provide a dealer advance.

This agent is in their 60s and it turned their plans upside down on what they were going to do with the agency. In fact, the agency may never get back to this commission level. Losing that dealer was a crushing blow for the agent and could easily have been avoided.

Make sure you can spend enough time with your dealers to build enough loyalty and trust that they won’t even talk to other companies. If they need something, you want them to think of only getting it from you.

A good example is what another large agent told me about how they handled providers to focus on dealers. They only recently secured a third provider for the business after having pared the number down several years ago. They had tried to manage eight providers but eventually determined that number diluted their value proposition.

For his agency, it is just table stakes for a provider to have a full suite of products. They actually did less business when they had eight providers. They felt eight providers meant eight different agendas that had to be managed. This agency has doubled their business in the last five years after limiting their providers and focusing more on their dealers.

What Can You Do?

I advise agents to find providers that not only have full suites of products, but can also take care of your needs beyond every product.

For example, how many agents do business with a few different companies to have multiple reinsurance solutions? This has recently become an area of specialty where agents need several companies to have every reinsurance option to offer their dealers. This does not need to be an area of specialty.

Multiple reinsurance options free you to take care of your dealers and their needs without spending time searching for solutions. How great is it to spend your time focusing on your dealer instead of interviewing providers to cobble together various reinsurance solutions? Your dealer will look at you as a consultant and earn you “trusted advisor” status.

There will always be other companies nipping at your heels for your dealers. Imagine if you worked with providers that could actually help you keep competitors out of your accounts and be an asset to you and not just a product provider.

Don’t spread yourself too thin. Find a couple strong providers and let them help you engage your dealers. Aligning with a provider that can provide great products and help the agent engage the dealer beyond products will help you get to significant growth because you will know where you are going.

Posted in Product & Technology1 Comment

What to Know Before Selling Your Agency

What to Know Before Selling Your Agency

Today is a great time to be an agent. You should be congratulated for successfully navigating a tumultuous and fast-changing industry over the last 10 years. Your agency has probably progressed from delivering products to dealers to providing training, reinsurance solutions, technology and other value-adds such as compliance monitoring, recruiting and even dealer retention apps.

At the same time, competition is fiercer than ever. The auto market peaked last year, which likely means lowered profits for you this year while a few deep-pocket companies are providing larger dealer advances. Plus, your dealers are constantly being bombarded by other companies — from factory to institutional providers — that have their own sales forces. These are just some of the challenges agents I’ve spoken with are facing as standalone independent agencies in today’s market.

While you fend off all these factors tugging at your dealers, you are probably spending your windshield time contemplating the future of your agency. What do you need to know before selling your agency or partnering with someone to build a bigger one, and how can you maximize that information to get the best value?

Here are some thoughts:

Stability: The acquiring company, whether an administrator, private equity company or another agency, is looking for some very specific signs. The stability of your book of business is very important. Have you had most of your dealers for a long period of time? Is your book of business spread over a large base of dealerships or is it focused on one or two large groups? Acquirers would rather you produce 25 contracts per month from 20 dealers than 100 contracts per month from five dealers.

Relationship Strength: Does your agency have strong relationships that will endure beyond the time you are the focal point of the agency? What is the risk of dealers leaving your agency after the sale? If the dealer is only doing business with your agency because of you, it will be important to build the dealership’s trust with the rest of your team in case you ever step back from your role in the agency.

What products are being sold? A strong book of VSC or GAP production is much more attractive than just ancillary products. What other value-add types of things do you provide for your dealers beyond just products? Do you offer such extras as F&I and sales training, compliance and service retention programs that make your agency integral to the dealership? Do they think of you as consultants and an extension of their dealership team, or just a product provider?

Solid EBITDA: From a financial side, it is critical to understand some of the numbers that the acquiring companies find most important. The buyers of your agency will look at EBITDA. That stands for “earning before interest, taxes, depreciation and amortization. For most agencies, that is roughly your commissions less your expenses.

For years, many agents have loaded up their expenses to reduce their taxable income. Now, they will not want all those deductions in order to show a higher EBITDA. A good and fair evaluation will add those deductions back into the EBITDA to pay you the fair value that your agency is driving. From a net profitability standpoint, you will also want to understand your cancellations or chargebacks and whether or not they are in a reasonable range.

Remember, you know there is a big liability that you are funding out of current production, but very few — if any — agencies have set money aside for this liability. Lastly, what will you need to be paid to continue to run the agency? That has to be deducted from the final EBITDA number.

Your Motivation: What motivates you to get out of bed every day? Will you still be motivated after the acquisition? Some agents pay themselves a salary and then take out the excess profits at the end of the year. Others use the agency as their ATM and take money out for their personal expenses. When an agency has sold, it is great to have the proceeds in the bank providing financial stability — and no one will take that away from you. However, there will always be adjustments, like learning to live on a salary.

It may also be a new experience reporting to someone else after all those years of independence. It is important to learn what type of growth expectations and day-to-day interaction the acquirer will have with you, and what incentives they will give you to grow and earn extra money. In my experience, agency acquisitions result in highly motivated team members, with even more opportunities for the agency and their dealers.

Realistic Expectations: It is important to know your EBITDA within a relative range. Many agents talk about the number of contracts they sell. Usually, that number comes from their most successful month, and they round up very liberally from that! Exaggerated production is okay to use in conversations at agency events and cocktail parties, but during due diligence the actual production is verified.

By overinflating your numbers during initial discussions, you overinflate your own expectations for the purchase price, and you will be disappointed once due diligence is completed. The numbers are what the numbers are. In the end, the reputable buyer will pay the agreed fair value after due diligence.

Intangibles: If possible, look at factors beyond the financials. For example, have good people in your agency that will survive after you are gone – whether that is three years, five years, or 15 years, as one agent principal has done in a recently completed deal. That stability is huge for the acquirer, along with the knowledge that the agency identity and roots will continue for years to come.

In addition, look at your agency’s agreements with your current providers. If the agreement calls for their consent, they cannot lawfully withhold that consent, but it is worth understanding the notification terms and how they apply in your agreements with your providers. Think about synergies. An administrator will get the value of your agency, but they also benefit from the business you will do with them. This means they will be able to pay more for your agency.

Finally, as with any investment, don’t become too emotionally attached and hold on too long. If you are waiting for that one big dealer group, you may lose a dealer somewhere else because of the fierce competition. A dip in car sales for the next three years may hurt the value of your agency by 15% compared to what it is worth right now. Look for a partner that brings value to the table and will help you grow, pay you for the growth, and allow you to stay on as long as you want.

There is a lot of emotion in selling your agency, and every single agent has asked me, “What if I am not ready to be done?” There is relief and satisfaction knowing you have cashed in on your investment, but it is another thing to think of sitting at home and not being in the game. Find a partner that allows you to stay in the business until you are ready to leave. Also, whether you look to capitalize now or in the future, strategic alignment early with the right administrator is key. Knowing the information shared here can help you plan in advance and maximize the value you get from your agency.

Posted in Industry0 Comments

Planning Your Agency’s Future in Today’s Market

Planning Your Agency’s Future in Today’s Market

The needs of dealers are expanding beyond what the typical smaller to mid-size agency can provide when it comes to technology, training and human capital. Agents who generate 500 to 2,000 benefit contracts a month are typically reliant on just a couple of dealer groups for most of their business. They are one lost deal away from a significant and possibly critical impact on their income. Some of the larger agencies have the same issue.

If all this sounds familiar, let’s explore some of the structural issues that may be holding you back and the steps you may need to take — including the exploration of new partnerships — to ensure your agency survives and thrives in the current market and beyond.

Built for Yesterday

Many agencies are led by entrepreneurs who were born during the Baby Boom and are now heading into their retirement years. Many aging agent principals have no exit strategy in sight that will allow them to realize the real value of what they built.

Some are run by younger people who are still excited about growing their businesses and delivering great results for their dealers, but the challenges of keeping up with the new digital, technology and human capital needs of their dealers pose a significant threat.

Too many agent principals are either unwilling or unable to invest the money needed to grow their business. The mentality of “I’ll add some people as soon as I put on three or four more deals” has run its course. You can’t take on more business and manage the business you have without investing in new, capable people. There just isn’t time.

All agencies are feeling the pressure of the “institutional” providers. These are huge companies with tons of employees and money but a severe lack of in-dealership experience. They pitch the dealers on the concept that no local or regional agency can deliver what a national company can, particularly when it comes to resources that support the success of the dealership.

Almost all successful agents and agencies clearly see that the F&I process has come out of the F&I offices and is now not only in the showroom, but online as well. Plus, the time allotted in F&I is shifting dramatically, so the traditional training processes have to be expanded to comprehensive sales and internet training that supports the F&I process. Unfortunately, many agencies just don’t have the personnel or technology to support these needs.

Consolidation and Technology

With private equity firms backing many of the administrators and providers as well as some of the larger agencies, consolidation within the F&I industry has become a significant factor for anyone involved in the business.

There are several factors impacting the traditional agency model in today’s market:

  • With an ever-changing market and the fast track shift to digital, some smaller agencies are finding it challenging to keep up with the overall needs of their dealers. Dealers expect more from their providers today. The costs of technology, people and training are putting significant pressure on smaller to mid-sized agencies, even when it comes to their long-term dealership relationships.
  • Consolidation has spread well beyond the big public auto companies and is now a focus of many smaller to mid-sized privately held dealer groups. These dealers are actively seeking capital to help them buy the additional dealerships they need and assure they have the working capital available to support their growth strategy. Most agencies don’t have that capital at their fingertips, and some of the administrators who will assist in this area drive onerous bargains with the dealers and the agents when they do.
  • As dealers look to align with providers who can fulfill their “human capital” as well as their cash capital needs, smaller to mid-sized agencies can end up struggling to keep their relationships in place as the dealer starts to consider other options.
  • Many agencies depend on just a few dealerships or a couple of small to mid-sized dealer groups for their overall income. The loss of a single client to consolidation or one of the institutional providers can cause a negative impact on agency income that is significant enough to threaten its survival.
  • The age and tenure of many agent principals has lengthened significantly. Many of them have neither a succession plan nor an exit strategy in place to continue their legacy or fully capitalize on their success.

There has never been a time when the theory of “grow or die” has been more relevant, and there has never been a time when growing has been more challenging. This is particularly true for agent principals who don’t have the capital or are unwilling to invest the money into the people it takes to grow the business.

Strategic Alignment

External forces may threaten your business, but they can’t undo the deep, long-term relationships you have developed with your dealers. You have significant influence over the providers and products represented in their F&I offices. You can leverage those relationships to realize the full potential of your hard work.

Whether you are looking to capitalize now or in the near future — or you are motivated and excited about building out your agency into the future — starting to consider your game plan now is the right thing to do. Here are some things to consider:

  • Look for the right partner who can bring new capital and resources into the agency to help you continue to grow and can be your exit strategy when the time is right for you. If your current providers don’t fit this bill, look for one that does.
  • Make sure the partner you pick brings more than money to the table. The right partner can help you help your dealers with more technology, more capital, more training and more benefits, and they can help you significantly increase the revenue generated by your current dealers.
  • Some suitors offer an all-or-nothing proposition. If you are not yet ready to talk about a merger or acquisition, look for someone who understands the agency business and is willing to engage with you today and offer an optional, long-term plan for an ownership change in the future. They should have a well-defined, flexible and executable exit strategy as a part of their business proposition to you — not just look to get you to switch providers.
  • Finally, and most importantly, look for a partner whose core values match your own and who thinks and believes as you do. No matter how good the deal looks, the final outcome and your level of fulfillment will be determined by how you are able to work together.

At the end of the day, the objective is to start planning now for what you want out of your business in the future if you want to maximize the return on your hard work and commitment.

Posted in Industry, Training0 Comments