Trajectory:The Forgotten Key Performance Indicator

Imagine being a passenger on a flight to the moon… 

The command center is busy collecting and monitoring hundreds of dials, gauges and metrics.  The pilots are reviewing the results to ensure all systems are “go.”  Every last detail is scrutinized for potential dangers. 

As a passenger, we’re really unaware of most of what’s going on.  We’re looking out the spaceship windows, thinking about the experience that is about to unfold.  Of course, we aren’t worried too much about the exact details of the trip, there is a guidance system for planning the route.  The moon is our destination and that is our focus.

In all of the excitement for the launch, there is at least one key indicator that we should know: Trajectory.  Is the spaceship on a trajectory to actually land on the moon?  Did you get on the right ship or are you headed to Mars?  If the trajectory isn’t correct, it will be very difficult to get it back on track. 

Per Google definitions, trajectory is the path an object takes based on given forces.  Putting that into practice, if external forces can alter the path, seems that we really need to ensure we arrive where we think we are going.

No, we aren’t writing about the laws of physics – this really does have a place in the world of insurance.

The trajectories of independent insurance agencies are rarely monitored correctly.  Leadership teams look at dozens of key performance indicators (KPIs) on a weekly or monthly basis without monitoring potentially the most important KPI: Trajectory. 

Sure, most agencies, think they know their future revenue targets.  A good percentage of agencies will proudly state their three to five-year revenue goals.  Very few check to see if they are on the right trajectory to actually hit their defined targets.

Let me illustrate this with an example.  An agency has a goal to grow revenue by $3,600,000 over three years.  That’s a trajectory of $100,000 a month for 36 months.  At the end of one year, the agency has written only $600,000.  They only made to half their goal.

Therefore, to meet the revenue target, the agency must now grow $3,000,000 over two years ($1,500,000 per year equals $125,000 per month for 24 months).  The target velocity has now increased 25% to $125,000 per month.  That doesn’t sound too extreme so the agency continues to tout their plans. 

Alarm bells should be sounding!  The agency has only been on a trajectory of $50,000 per month.  Growing that to $125,000 per month is an increase of 150%! 

If they couldn’t meet the original goal of $100,000, how will they ever reach $125,000?

That’s no easy course correction for any agency so you already must know how this one ends.  The agency doesn’t realize how far they have veered of course and it’s far too late to make such a large correction.

In the end, the target revenue goal is missed by a wide margin.

The above example happens time and time again.  Leadership teams continually dwell on numerous key performance indicators without recognizing the trajectory they are really on.  There is hope though.  Having an Agency CFO can not only collect the data, but will translate it so you become aware of the outside forces that are pushing you off course.

To stay with our space metaphor, here is The Agency CFO guidance system for computing your current trajectory:

  • Calculate your last 12 months of growth and divide by 12.  That is your current trajectory. 
  • Now compare that to the trajectory needed to reach your revenue goal. 
  • Compute this each and every month. 
  • If the gap between the two is widening, you are likely off course and will not reach your target. 
  • If the gap is shrinking, then you are making a course correction that is getting you closer to target. 

RD Advisory Group’s recommendation is trajectory should be the first KPI on your list to be reviewed.  Doing so will provide the true path your agency is taking and allow all to be held accountable to reaching those long-term targets.