Goosehead Insurance slimmed down its corporate sales headcount last year and removed more than 280 “underperforming” franchises, with further culling expected.
Cuts started in mid-2022, investors heard on a Q4 2022 earnings call, and will continue in the first half of this year.
“We will continue to eliminate low-performing franchises at a higher-than-historical rate during the first and second quarters of this year, but expect our culling to be complete around midyear, after which point we expect operating franchise growth to accelerate,” said Mark Miller, Goosehead president and chief operating officer.
The top half of Goosehead’s franchises contributed to around 90% of new business production in 2022 across its network, investors heard.
“In 2022, we culled over 280 underperforming franchises from our network, the vast majority of which failed by not implementing our model or putting in full-time efforts,” Miller said.
“This had minimal impact on our growth, as these franchises accounted for approximately 2% of our new business production but consumed a high percentage of valuable resources.”
Corporate sales headcount was “intentionally reduced” by 37% to 320 in 2022, according to Miller, with agent productivity up 24% year-over-year and corporate new business premium up 11% for the quarter.
“We are still targeting more corporate productivity improvement in 2023, and I’m very confident that the changes we made will allow us to deliver strong year-over-year corporate sales growth in the back half of 2023,” Miller said.
Goosehead cuts a reaction to “increasing disparity” says CEO
Reductions were a reaction to an “increasing disparity” in performance among both corporate and franchise agents, attendees heard from Goosehead chairman and CEO Mark Jones.
“We also identified a significant number of underperforming producers whose low productivity was eroding profitability and consuming valuable corporate resources while creating management distraction,” Jones said.
Goosehead, previously named a 5-star Insurance Franchise Group, ended the year with 2,101 franchise producers on board, up 15%. The business is expected to “significantly accelerate” franchise growth in the second half of 2023, with franchisees anticipated to add 150 to 200 producers over the course of the year.
“Based on precedent, we believe the capacity of these new producers could equate to roughly 250 to 350 new franchises,” Jones said.
It saw 12 corporate producers transfer and open franchises during 2022, and the movers achieved new business productivity of nearly five times that of peers, investors heard.
On the corporate side, headcount is expected to get a boost when college recruits start during the summer, according to Goosehead’s leadership team.
“We should be looking at this as an awesome feeder program into very successful franchisees that we know are going to grow and scale, and so it’s not necessarily like we want to hold on to a corporate sales agent for 10 years,” Jones said.
“We want them to turn into a business owner and multiply themselves and create an army of producers underneath them.”
The agency is “in discussions” with several large mortgage lenders and national real estate organizations, Jones said, with digital marketing, cross-selling and other referral business having contributed “significantly” to growth in 2022.
“The good news is we believe the people who have the money to legitimately challenge us don’t have the patience to wait for years and years for a return,” Jones said.
“We remain focused on investing in and expanding our core business to strengthen our competitive position, and our aspiration remains steadfast on becoming the number one distributor of personal lines of P&C insurance in the country during my lifetime.”
Goosehead Insurance Q4 2022 results
The personal lines insurance agency reported organic total revenue growth of 43% on Q4 2021, at $57.4 million in Q4 2022. Quarterly net income was up 193%, at $2.6 million.
Policies in force grew 27% on the fourth quarter of 2021, at 1.28 million in Q4 2022, while total written premiums swelled 44% from the same period the prior year to $585 million.
“We have strengthened management, recruiting, and operations across the organization and significantly improved the overall quality of our franchise and corporate distribution,” Jones said in a Press release.
“This has driven meaningful improvement in new business productivity in the fourth quarter, particularly among our less than one-year tenured agents and franchises.”
The business predicted total premiums placed for 2023 would be between $2.83 billion and $2.96 billion, representing organic growth of between 28% and 34%.
Goosehead’s share price surged following the earnings release, closing at $44.81 on Thursday, a near 16% increase on the Wednesday close of $38.63.
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