As we approach autumn, many agents are preparing to conduct their Strategic and Tactical Planning process. The majority of agents who do not formally Plan should consider the process of Planning because it better guarantees success to the agencies that would otherwise trust “blind luck” to make their year successful.

There is no assured guarantee of success. But planning agencies succeed more often, and when they don’t succeed, they understand exactly why they didn’t grow or profit as they desired.

Even agencies that plan regularly sometimes omit a key ingredient in the business management process: Budgeting. Some agents feel that a budget would constrict and restrict their spending habits. Others fear that a budget would highlight spending habits or revenue shortfalls that they have suspected, but could not otherwise verify. Some fear failure. Others fear success. Fearing failure is understandable, but progressing through a year without a budget is somewhat like negotiating a treacherous road with a blindfold because you fear going over a cliff.

Fearing success is a little more difficult to understand, but seems to be just as prevalent in the agency business. Some of us have that old European mentality that demands that if you talk about success, it will jinx you and it won’t happen. Other agency owners are so conservative that they don’t want to consider the use of their money until it is in the bank and then they want to draw it all out as a bonus. Unfortunately if you do those things that build your business, you will probably have to spend money to do so. We know of few marketing programs that will bring you success without some form of time or money being invested. So if you are logically willing to make the investment to promote business growth, such as hiring producers, creating advertising and marketing programs and implementing them, etc., why not identify the returns that are logically to be expected from those efforts and cast them into a budget as expected revenues to offset the costs you already experience?

Budgeting expenses is not guesswork. You already know how much you are spending on each category of Compensation, Selling, Operating and Administrative expenses. You can easily trend every line of expense and project those expenses in the next year on a line-by-line basis. Projecting revenues is a little more complicated. Each line of Operating Revenue (commissions and fees) should be comprised of two clear sections, retention revenue and growth revenue.

Retention revenue is the expectation of income generated for existing clients who are expected to stay with the agency. In many agencies we that each producer list all of their clients in three columns, 90% or better expectation of renewal, 50% or better expectation of renewal, and “the rest.” That third column includes clients that we don’t have a good enough relationship to determine if they will renew, those clients that we expect will not renew such as shoppers, discontented, etc., and those clients that WE don’t want to keep. We take 100% of column A, 75% of column B and 50% of column C and total up the commission income expected as Projected Retention based on last year’s or known changes. Keep the lists because we find that some clients we expected to renew do not, and some clients that we didn’t expect to renew, stay with the agency. The goal is to determine how well you can project retention and to get better in relationship management.

The second part of retention is the evolution of new business. If your agency has a track record of generating new business every year, with or without marketing and advertising, you may begin the process with that established number or a percentage of prior year commission that comprises your NB expectation regardless of effort. Then we must perform a Cost/Benefit Analysis on every Action Plan that was designed to promote new business to the agency. If we spend $100 on a business generating activity, we should stand ready to project the amount of revenue we expect to generate from the exertion of that effort. It is not unusual to project a $50 gain from a $100 investment with the profits from that growth coming in years two or three. However, it is a home run if we can project a $150 return for our annual $100 investment in any marketing or advertising program.

Once we combine the expected results of each of our marketing, advertising and production-oriented activities, we add the growth dollars expected to the retention dollars expected to achieve our projections for revenue to plug into the budget.

The iteration of the initial budget will result in a projection of profit that must be matched against your Profit Objective in the Tactical portion of the Strategic Plan. If the Plan calls for a 15% Profit and the budget reflect a 5% profit, this means that the Objectives weren’t aggressive enough or the Action Plans aren’t aggressive enough to support the profit objective of the agency. Obviously, the agency is in the business to make money and if the budget cast based on the agency’s Plan is insufficient to make a reasonable return to the owners, changes must be made in the Plan. You do not revise the Objectives for Profit downward.

That is how budgeting fits into the Planning process, driving the agency toward its goals of growth, productivity and profitability. Agents who are reluctant to Plan are generally too lazy to purposely do those things that would result in successful growth and profit because they recognize that growth and profit require a work effort that they may not be willing to exert. They claim they’ve “paid their dues” and no longer want to spend the assets, work the hours or make the investments that would continue to generate the growth that made them successful in the first place. What do you do if you WANT to grow and prosper but are not willing to do that which would result in the achievement of those goals? You claim that planning doesn’t work anyway and go about your business in the same lackadaisical way as you have in the past. If the agency grows, you pat yourself on the back and consider yourself lucky. If the agency doesn’t grow, you blame everyone and everything except the real reason for the failure, a lack of disciplined effort.

For those agents who desire to include budgeting in their planning, but don’t quite know how, here are the standard categories for the budgeting process. You probably have a very extensive General Ledger with every category of revenue and expenses imbedded in it. While General Ledgers are useful in the reporting of detailed expenses, they make budgeting very onerous. So the industry has established a generally accepted list of Operating Statement accounts that should be used in the budgeting and reporting process. You may easily consolidate a number of General Ledger categories into these 25 expense categories for budgeting and reporting purposes and they will be much more easily manageable than trying to budget every general ledger category.


Executive – Owners and (pure) managers

Sales – Anyone in a sales role earning income from sales efforts

Office – Everyone else

Employment Costs – Payroll Taxes, benefits, contributions to pensions, any other expense reliant on number of employees (i.e. coffee and soft drink service, birthday parties, etc)


T&E – Travel expenses and Entertainment Expenses

Auto – All auto expenses (except payments for auto loans)

Advertising and Promotions – of any kind


Occupancy – Rent, light, heat, office cleaning, outdoor maintenance

Communications (was Telephone) – includes internet costs

Postage – includes any form of delivery services

P.S& O.S. – Printing, Stationery and Office Supplies including equipment purchases being written off in current year

D.S.C – Dues, Subscriptions and Contributions

Taxes and Licenses

Insurance – X group or life insurance

Professional Fees – Lawyers, Accountants, Consultants

Equipment – Repair, Maintenance and Rental

Bad Debts

Outside Services – like MVR’s, inspections, payroll services

Automation – software, material, maintenance


Miscellaneous – Misc. Costs related to the operation of the agency


Depreciation and Amortization – hard asset depreciation and book of business amortization

Officer’s Life – key man insurance costs

Interest – interest expense on loans

Other – any other administrative costs (i.e. bank charges).

If you would like assistance establishing a budget for your agency or if you have questions about your existing budget structure, Agency Consulting Group has two ways to help you. You can visit our website at for articles and additional information, or you can call us anytime at (800) 779-2430 and our consultants will assist you.