Much of the call on consultants has to do with breaking through the barriers to natural growth that agencies experience at different stages of growth. Agencies find it particularly difficult to break through the $1 Million revenue mark, the $2 Million revenue mark, and the $3 Million revenue mark. Once the $3 Million ceiling has been broken agencies seem to be able to grow to $10 Million without severe management changes.

The revenue marks selected above as the markers for organizational changes in agencies are arbitrary. Some agents do not hit the first ceiling until they have grown to almost $1.5 Million. Others may find themselves acquiring other agencies and may not feel the severity of the first ceiling until they are over $2 Million, but, if an agency grows naturally (by writing more business each year), the $1 Million, $2 Million and $3 Million levels for the organizational ceilings are correct.


An agent starts his own agency or assumes a very small book of business to enter his career. The agent’s revenue is used to support his family. As the business is put on the books he adds staff as his assistants. He is the agent and decision-maker with any employees working at his direction. As the business grows he adds more people. If it grows large enough, his primary assistants become lead workers, supervisors or managers. However, the roles are the same, he directs – they do. He controls customer relationships and carrier relationships.

When this agency nears $1 Million in revenue, the agent feels quite successful. He is now making a good living. His “girls in the office” can handle the paperwork that he does not enjoy anyway, but he also begins to get uncomfortable. At 300-500 commercial clients and the same number of personal clients, he feels like he is losing control. Things happen about which he is not informed until a crisis occurs. Some customers leave feeling that he does not pay attention to them any longer. His employee count is between ten and fifteen and he is having a difficult time trying to keep harmony in the office. He sometimes feels more like a baby-sitter than an agency owner, and, it seems, that whenever a problem occurs, be it customer, company, or physical problem in the office, no one will correct it or make a decision without the owner’s approval. The owner’s sales time, that part of the job that he enjoys most has diminished and he rarely has time to sell or even visit clients because of all of his responsibilities.


The agency has come into contact with the first Ceiling that must be broken through to successfully transition from the Mom & Pop Shop to the Medium Size Agency. The change starts with a change in the organizational view of the owner. If this change does not take place, the agency may still grow – for a while, however, the growth will be fraught with problems that will frustrate the owner, employees, and clients, alike.

In order to break through the $1 Million Ceiling, an agency must assume supervisory positions that are responsible for the conduct of the agency to the clients in that department. The owner is removed from the decision-making process on day-to-day problems. The decision belongs to the Supervisor. The supervisor may still be a lead worker, but the workload is diminished to permit time for management duties. The owner is now responsible for sales and for company relationships. He still makes the major decisions in the agency and is informed about everything that goes on, but he is not involved directly in all decisions and problems. At this stage, the progressive agencies also recruit additional sales staff.

The transferring of day-to-day workflow from the owner to the supervisors of Personal Lines and Commercial Lines, the re-invigoration of sales through the owner, and hired producers permits the agency to make the first transition from small to medium agency business. This process serves well until the $2 Million nears when a new set of problems and stresses occur.


At $2 Million (more if growth is through acquisition), owner’s compensation should no longer be an issue (unless there are three or more owners). However, the owner’s habit of pocketing any excess agency income has begun causing financial problems. Financial needs are arising (computer systems, etc) that require substantial capital. Once the agent feels that all agency profits are rightfully his, he feels that every expenditure is a personal loss. He feels he is “giving something up” to sponsor the agency. This mind-set is the first thing that must change when growing from a Medium Sized agency to a Professional Agency.

The owner must compensate himself similarly to what he would pay for those services from an outside hire. He has sales responsibilities that should be compensated in a commission split. He has management responsibilities that should be compensated similarly to what it would cost to hire a manger to accomplish the same tasks. His ownership benefits should be in the growth of value in the agency. It may not come to him in cash that year, but it accrues and permits the agency to develop while simultaneously growing its value for the owner.

A major trap to an agency’s maturing and development can be triggered at this juncture when some owners realize that underpaying them is not an issue – overpaying them is. The owner never has to admit it, but at some point in time he may understand that his sales results do not justify his compensation, and if he gives up the management responsibilities that should transition as the agency grows, he may not be able to justify his compensation in that way, either. The answer to this dilemma is to face the problem directly. An owner must choose the role in the agency for which he is best suited. We have seen successful agencies in which the owner is the Personal Lines Manager. That is the role in which he can provide the greatest return to the agency. As these agencies develop, the owner is paid to be CEO making the decisions for the agency’s future and strategic direction and as a department head with others assuming other management roles around him. Unfortunately, the more prevalent development has the owner assuming general management or sales management roles for which he is not best suited. This is caused by ego and the need to be in the key management position in the agency (and to justify a strong compensation). The result proves a major premise that we have espoused about agencies – the major opportunities in an agency lies within its owner(s) and so do its limitations.

Once the mind-set to shift compensation from needs based to the value of the jobs and the performance of the employee is accomplished, the owner can now professionalize his staff by devoting managers instead of making management the part-time effort of lead workers. In this stage the bookkeeper should be matured into a Financial Manager. This implies that the balancing of checkbooks, justifying of accounts, and paying bills be relegated to another while the Financial Manager is responsible for maintenance of cash, monitoring of budgets, and solving all problems that involve billings and collections. Similarly, service management must now become a full time job. The Personal Lines and Commercial Lines mangers are the agency’s second line of defense, not the owner. The managers should handle any problems or disputes. They should also be responsible for the hiring, firing, and evaluation of their employees and for the management of workflow to the agency’s satisfaction. Finally, Sales Management must be committed to provide the best chance of the agency’s developing production.

At $2 Million revenue agencies should already be in the Planning Process, or, if not, should aggressively begin it. Strategic and Tactical Planning, when an agency is small, revolves around how to sell the next policy and to whom. At $2 Million the keyword of success is Retention Management and Sales Management. The Services Managers assume the responsibility to the owner for retaining customers and revenues. A Sales Manager (sometimes the owner, but often a professional manager) is responsible for hiring and managing a sales force and for its activity resulting in a steady flow of submissions that turn into growth sales.

At this stage the owner concentrates on the activities that he both enjoys most and that provide the greatest productivity to his role. This may be in direct sales, in carrier management, or in the maintenance of the agency’s largest clients. He also chairs the Planning Process and directs the course of the agency.


Agencies that successfully transition from Medium to Professional Agencies find that their growth accelerates between $2 Million and $3 Million. At $3 Million revenue with 30+ employees, the agency is on the verge of self-perpetuating. Large agencies only sell out if their owners do not want to internally perpetuate – they are not forced to sell. An agency achieves self-perpetuation when sufficient professional management is already in place that when one or more owners want to retire, the mechanism for their buy-out is already in place, as is their successors.

The key to the final Ceiling is in the direction of a Board of Directors comprised of internal and external directors who share the goal of growth and continued financial health of the company. When this barrier is broken, departments become divisions, management is rewarded with incentives based on achievement of their goals and growth beyond them, and owners are rewarded by achievement of profits beyond budget.

A new ingredient to the evolution of agencies occurs when acquisitions are made. Earlier in this article we indicated that the revenue levels indicating the ceilings had become arbitrary. The reason for this is the artificial growth encountered when agencies grow through acquisitions. A Mom & Pop small agency does not mature when it doubles in size through a merger or acquisition. It simply becomes a larger “Small” agency. The reality is that the larger agency who has not managed the management change from ‘small’ to ‘medium’ or from ‘medium’ to ‘professional’ can be larger, but will find their development has ceased and any further growth is very difficult. The solution to this problem is to address the management needed in the agency once an acquisition is made as a part of the Acquisition or Merger Plan. An organizational change due to a business combination is an excellent opportunity to meld personnel and develop the management staff of the host agency at the same time. When you consider an acquisition or merger, do not simply consider the absorption of the book of business. Look at the resulting size of the agency after the association and identify the management roles needed in an organization of this size.

The glass ceilings in an agency’s growth need not be barriers. If recognized and addressed, the organization can mature and develop in tandem with its revenue growth and the results will be management commensurate with the agency’s maturity at every stage.

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