So You Want to Hire a Producer?

If you’ve been reading my blog you already know I think this is a bad idea for most small agencies.  Insurance producers take a lot more management time, cost a lot more money than most realize, and actually cause the agency to grow slower in most cases than if the agency owner focused on production.

But, you’re going to ignore my advice aren’t you?

Well, then, let’s at least do a few things right!  First, the producer MUST be an employee!  That’s right he cannot be an independent contractor.  Why?  Because it’s against the law. In the insurance agency business you simply cannot meet the Employment Security Commission’s, Worker’s Compensation law’s and Federal Wage and Hour law’s rules for independent contractors.

I was an expert on this in the Oklahoma Legislature.  I tried for years to develop a work around.  It’s not possible.  So, you can either break the law and wait until you get caught, with very expensive consequences, or do it right from the beginning.   

So, as an employee make sure you understand what the producer is costing you in non direct compensation expenses.  That’s 7.65% for FICA and 3% for Unemployment Insurance.  Maybe you can avoid health insurance, vacation pay and other things but these you can’t.  Plus you need to factor in additional overhead costs like rent, E&O, telephone, etc. that will be increased by this addition.  You will have expenses for additional CSR and clerical support.  

You may think you will avoid all these costs.  And you may in the beginning avoid some of them.  But, eventually, they will all be necessary and you need to anticipate them from the beginning.  Otherwise, you will be tempted to overpay this bloodsucker, I mean producer, you want to hire!  

So, if you want a nice round number to work with use 50% for total overhead costs, not including Commission Expense and Profits.

Speaking of profits it is wise to always plan to make one!  So, what do you get out of this Mr. Agency Owner?  

Let’s assume the average agency makes a 10% profit.  Do you really want to be average?  Most successful agencies, that are professionally run, want to do better than that.  They will plan for about 20%.  The plan (budget) does not include profit sharing or bonuses. You can’t count on that. So treat it as just what it is. A bonus. 

So, now, where are we?  We are hiring a new employee and to pay the agency (profit) and cover overhead we need 70% of the revenue.

How much can we afford to pay the producer?